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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file
number 811-1540
--------------------------------------------------------------------------
AIM Funds Group
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in charter)
11 Greenway Plaza, Suite 100 Houston, Texas 77046
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
Robert H. Graham 11 Greenway Plaza, Suite 100 Houston, Texas 77046
- --------------------------------------------------------------------------------
(Name and address of agent for service)
Registrant's telephone number, including area code: (713) 626-1919
----------------------------
Date of fiscal year end: 12/31
-----------------
Date of reporting period: 12/31/03
-----------------
AIM BALANCED FUND
Annual Report to Shareholders o December 31, 2003
[COVER IMAGE]
YOUR GOALS. OUR SOLUTIONS. [AIM INVESTMENTS LOGO APPEARS HERE]
--Servicemark-- --Servicemark--
<Table>
<Caption>
====================================================================================================================================
AIM BALANCED FUND SEEKS TO ACHIEVE AS HIGH A TOTAL RETURN AS POSSIBLE, CONSISTENT WITH PRESERVATION OF CAPITAL.
====================================================================================================================================
o Unless otherwise stated, information presented is as of 12/31/03 and is based on total net assets.
ABOUT SHARE CLASSES OTHER INFORMATION: o The unmanaged Standard & Poor's
o Effective 9/30/03, Class B shares are o The average credit quality of the Composite Index of 500 Stocks (the S&P
not available as an investment for fund's holdings as of the close of the 500--Registered Trademark-- Index) is an
retirement plans maintained pursuant to reporting period represents the weighted index of common stocks frequently used as
Section 401 of the Internal Revenue Code, average quality rating of the securities a general measure of U.S. stock market
including 401(k) plans, money purchase in the portfolio as assigned by performance.
pension plans and profit sharing plans. Nationally Recognized Statistical Rating
Plans that have existing accounts Organizations based on assessment of the o A direct investment cannot be made in
invested in Class B shares will continue credit quality of the individual an index. Unless otherwise indicated,
to be allowed to make additional securities. index results include reinvested
purchases. dividends, and they do not reflect sales
ABOUT INDEXES USED IN THIS REPORT: charges. Performance of an index of funds
o Class R shares are available only to o The fund uses a custom index composed reflects fund expenses; performance of a
certain retirement plans. Please see the of 60% Russell 3000--Registered market index does not.
prospectus for more information. They are Trademark-- Index and 40% Lehman U.S.
sold at net asset value, that is, without Aggregate Bond Index. The unmanaged Industry classifications used in this
up-front sales charges. Russell 3000 Index is an index of common report are generally according to the
stocks that measures performance of the Global Industry Classification Standard,
PRINCIPAL RISKS OF INVESTING IN THE FUND: largest 3,000 U.S. companies based on which was developed by and is the
o International investing presents market capitalization. The unmanaged exclusive property and a service mark of
certain risks not associated with Lehman U.S. Aggregate Bond Index, which Morgan Stanley Capital International Inc.
investing solely in the United States. represents the U.S. investment-grade and Standard & Poor's.
These include risks relating to fixed-rate bond market (including
fluctuations in the value of the U.S. government and corporate securities, A description of the policies and
dollar relative to the values of other mortgage pass-through securities and procedures that the Fund uses to
currencies, the custody arrangements made asset-backed securities), is compiled by determine how to vote proxies relating to
for the fund's foreign holdings, Lehman Brothers, a well-known global portfolio securities is available without
differences in accounting, political investment bank. charge, upon request, by calling
risks and the lesser degree of public 800-959-4246, or on the AIM Web site,
information required to be provided by o The unmanaged Lipper Balanced Fund AIMinvestments.com.
non- U.S. companies. Index represents an average of the 30
largest balanced funds tracked by Lipper,
o Investing in small and mid-size Inc., an independent mutual fund
companies involves risks not associated performance monitor. It is calculated
with investing in more established daily, with adjustments for distributions
companies. Also, small companies may have as of the exdividend dates.
business risk, significant stock price
fluctuations and illiquidity.
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<Table>
<Caption>
===================================================== This report may be distributed only to
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE shareholders or to persons who have
===================================================== received a current prospectus of the
fund. Please read the prospectus
carefully and consider the investment
objectives, risks, and charges and
expenses of the investment carefully
before investing.
</Table>
AIMinvestments.com
TO OUR SHAREHOLDERS
<Table>
DEAR FELLOW SHAREHOLDER IN VISIT OUR WEB SITE
THE AIM FAMILY OF FUNDS--Registered As you are aware, the mutual fund industry, including AIM
Trademark--: Investments, has been the subject of allegations and
investigations of late surrounding the issues of market
[PHOTO OF The fiscal year ended December 31, timing and late trading in funds. We understand how
ROBERT H. 2003, was a welcome change from the unsettling this may be for many of our shareholders. We
GRAHAM] bear market of the previous three encourage you to visit AIMinvestments.com often to monitor
years. Major stock market indexes here developments. We will continue to post updates on these
ROBERT H. GRAHAM and abroad delivered positive issues as information becomes available.
performance, with double-digit returns
more the rule than the exception. As is The Securities and Exchange Commission, which regulates
historically the case, bond market our industry, has already proposed new rules and regulations,
returns were more modest, but and is planning to propose several more, that address the
nonetheless positive as well. The U.S. issues of market timing and late trading, among others. We
economy appears to have turned a welcome these efforts, as does the industry trade group, the
corner, with solid growth in gross Investment Company Institute. We believe comprehensive rule
domestic product. Overseas, making is necessary and is the best way to establish new
particularly in Europe, economic performance was not so industry responsibilities designed to protect shareholders. We
robust but appeared to pick up during the second half of the support practical rule changes and structural modifications
year. that are fair, enforceable and, most importantly, beneficial
for investors.
U.S. investors seem to have regained their confidence,
putting $152.77 billion in new money into stock mutual funds Should you visit our Web site, we invite you to explore
during 2003 and $31.40 billion into bond funds. By contrast, the other material available there, including general
money market funds, considered a safe haven because of their investing information, performance updates on our funds, and
emphasis on stability of net asset value, suffered large net market and economic commentary from our financial experts.
outflows during 2003.
As always, AIM is committed to building solutions for your
The durability of these trends is, of course, investment goals, and we thank you for your continued
unpredictable, but the economy does appear to have the wind participation in AIM Investments. If you have any questions,
at its back in terms of fiscal, monetary and tax stimulus, you can contact one of our Client Service representatives at
and corporate earnings have been strong. Nevertheless, we 800-959-4246.
caution all our shareholders against thinking that 2004 will
be a repeat of 2003. We simply do not know. Sincerely,
Robert H. Graham
What should investors do? They should do what we have Chairman and President
always urged: Keep their eyes on their long-term goals, keep February 9, 2004
their portfolios diversified, and work with their financial
advisors to tailor their investments to their risk tolerance
and investment objectives. We cannot overemphasize the
importance of professional guidance when it comes to
selecting investments.
For information on your fund's performance and management
during the fiscal year, please see the management discussion
that begins on the following page.
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MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
<Table>
AIM BALANCED FUND POSTS DOUBLE DIGIT RETURNS 8.24% return, followed by fixed-rate
mortgage-backed securities at 3.07%, U.S
AIM Balanced Fund finished the fiscal activity, expanded at an annualized rate agency investments at 2.59% and U.S. .
year ended December 31, 2003, with total of 1.4% in the first quarter of 2003, Treasuries of various maturities at an
returns at net asset value of 17.23% for 3.1% in the second quarter, 8.2% in the average of 2.24%.
Class A shares. (If sales charges were third quarter, and 4.0% in the fourth
included, performance would be lower.) quarter. YOUR FUND
Results for other share classes are shown
in the table on page 3. The fund's All sectors of the S&P 500, which is In the fund's equity portfolio, the
results underperformed the 19.94% return frequently cited as a general measure of largest positive contributions to the
of the Lipper Balanced Fund Index, which U.S. stock market performance, recorded fiscal year's results came from the
represents the fund's peers. To more gains for the fiscal year. The best information technology, financial,
closely approximate the fund's allocation performing sectors were those most likely industrial and consumer discretionary
to stocks and bonds, we use a custom to benefit from a rising economy: sectors--sectors that typically benefit
index of 60% Russell 3000 Index and 40% information technology, materials and from a rising economy. Equity sectors
Lehman U.S. Aggregate Bond Index. This consumer discretionary. The sectors that that hampered performance during the
custom index returned 19.80% for the are more economically defensive, such as period included consumer staples and
fiscal year. telecommunication services, consumer telecommunication services.
staples and health care, were the weakest
The fund underperformed the broad performers. OUR GOAL IS TO
U.S. stock market as represented by the GROW
S&P 500 Index, which returned 28.67% for For the first half of the year, the YOUR CAPITAL BY
the same period. It is to be expected Federal Reserve (the Fed) kept the INVESTING PRIMARILY
that the fund would underperform an short-term federal funds rate at 1.25%. IN
equity index such as the S&P 500 because On June 25, 2003, the Fed reduced that U.S. COMPANIES
of the fund's allocation to fixedincome rate to 1.00%, where it remained for the THAT
securities, which generated more modest, rest of the year. ARE SIGNIFICANTLY
single-digit returns during the period. UNDERVALUED ON
The U.S. investment-grade fixed-rate AN ABSOLUTE BASIS.
MARKET CONDITIONS securities market, as measured by the
Lehman U.S. Aggregate Bond Index, The top positive contributor to fund
The nation's gross domestic product, returned 4.10% for the 12-month period. performance was Cisco Systems, a global
generally considered the broadest measure Here also, the more economically leader in data networking hardware.
of economic sensitive sectors performed best. Within
that index, U.S. corporate instruments
averaged the highest results with an
</Table>
<Table>
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PORTFOLIO COMPOSITION BY INVESTMENT TYPE* TOP 10 EQUITY HOLDINGS* TOP 10 FIXED INCOME ISSUERS*
[PIE CHART] 1. Tyco International Ltd.(Bermuda) 2.4% 1. U.S. Treasury Securities 8.0%
Stocks 66.9% 2. Citigroup Inc. 2.3 2. Federal National Mortgage 7.7
Association (FNMA)
U.S. Government & Agency 3. Computer Associates 2.2
Securities, Cash & Other 19.8% International, Inc. 3. Federal Home Loan Mortgage 5.0
Corp. (FHLMC)
Bonds & Notes 12.3% 4. Waste Management, Inc. 2.1
4. Government National Mortgage 1.3
Asset-Backed Securities 1.0% 5. Fannie Mae 2.1 Association (GNMA)
6. Omnicom Group Inc. 2.1 5. Sprint Capital Corp. 0.7
7. J.P. Morgan Chase & Co. 2.0 6. Ford Motor Credit Co. 0.6
8. Cendant Corp. 2.0 7. Citicorp Lease 0.6
9. First Data Corp. 1.9 8. Time Warner Cos. Inc 0.5
10. Bank One Corp. 1.8 9. Torchmark Corp. 0.4
10. General Motors Acceptance Corp. 0.4
*Excludes money market fund holdings.
The fund's holdings are subject to change, and there is no assurance that the fund will continue to hold any particular security.
====================================================================================================================================
</Table>
2
<Table>
It benefited from stabilizing revenue primarily in U.S. companies that are BRET W. STANLEY
trends and improving economic significantly undervalued on an absolute Mr. Stanley,
fundamentals that appear likely to lead basis. The basic value discipline is STANLEY Chartered Financial
to increased technology spending. Another based on the philosophy that business PHOTO Analyst, is lead
top contributor was United Technologies, value is separate from, but eventually portfolio manager of
which benefited from the strength of a determines, market value. Major points of AIM Balanced Fund.
diversified portfolio of companies that this philosophy are that businesses have He began his investment career in 1988
generated favorable earnings growth an intrinsic value that is independent of and joined AIM in 1998. He received a
despite the recent weakness in the the market, stock prices are more B.B.A. in finance from The University of
broader economy. volatile than business values, investors Texas at Austin and an M.S. in finance
often overreact to negative news, and a from the University of Houston.
Food retailer Kraft detracted from longterm investment horizon is required.
results as both company-specific issues R. CANON COLEMAN II
and a more difficult operating IN CLOSING Mr. Coleman,
environment led investors to reduce their COLEMAN II Chartered Financial
expectations for double-digit earnings As of December 31, 2003, we had largely PHOTO Analyst, is a
growth. completed the changes required to adopt portfolio manager of
this more conservative philosophy. AIM Balanced Fund.
Among fixed-income holdings, the Changes were made in the fund's equity He joined AMVESCAP in 1999 and joined AIM
largest positive contribution came from holdings, but we made no adjustments to in 2000. He earned a B.S. and M.S. in
corporate debt, which has historically the fixed-income holdings, which remain a accounting from the University of Florida
benefited from improving economic well-diversified portfolio of and an M.B.A. from The Wharton School at
conditions. investment-grade securities. Most the University of Pennsylvania.
importantly, we continued the ongoing
In December of 2003, changes were effort to maximize the total return of JAN H. FRIEDLI
made to the fund's portfolio management your investment. The fund has a Mr. Friedli is a
team, with the Basic Value Team now substantial tax-loss carryforward to FRIEDLI portfolio manager of
managing the fund's equity holdings. shelter any potential capital gains in PHOTO AIM Balanced Fund.
While we continue to manage the fund with the intermediate term. He began his
the objective of maximizing total return, investment career
your new team will use a value-oriented See important fund and index in 1990 and joined AIM in 1999. Mr.
strategy that puts a greater emphasis on disclosures inside front cover. Friedli graduated cum laude from
the preservation of capital. We encourage Villanova University with a B.S. in
you to visit the AIM Web site, computer science and earned an M.B.A.
AIMinvestments.com, to learn more about with honors from the University of
the team. Chicago.
Our goal is to grow your capital by SCOT W. JOHNSON
investing Mr. Johnson, Chartered
JOHNSON Financial Analyst,
PHOTO is a portfolio
==================================================================================== manager of AIM
Balanced Fund. He
joined AIM in 1994. He received both his
TOP 10 INDUSTRIES* FUND VS. INDEXES B.A. in economics and an M.B.A. in
finance from Vanderbilt University.
1. U.S. Government Agency Total returns, 12/31/02-12/31/03,
Securities 14.0% excluding sales charges. If sales MATTHEW W. SEINSHEIMER
charges were included, performance Mr. Seinsheimer,
2. U.S. Treasury Securities 8.0 would be lower. SEINSHEIMER Chartered Financial
======================================= PHOTO Analyst, is a
3. Other Diversified Financial CLASS A SHARES 17.23% portfolio manager of
Services 3.8 AIM Balanced Fund.
CLASS B SHARES 16.29 He began his investment career in 1992.
4. Industrial Conglomerates 3.6 He joined AIM as a senior analyst in 1998
CLASS C SHARES 16.32 and assumed his current responsibilities
5. Investment Banking & Brokerage 3.6 in 2000. Mr. Seinsheimer received a
CLASS R SHARES 16.92 B.B.A. from Southern Methodist University
6. Thrifts & Mortgage Finance 3.6 and an M.B.A. from The University of
S&P 500 Index Texas at Austin.
7. Pharmaceuticals 3.0 (BROAD MARKET INDEX) 28.67
MICHAEL J. SIMON
8. Health Care Distributors 3.0 60% RUSSELL 3000 INDEX/ 19.80 Mr. Simon, Chartered
SIMON Financial Analyst,
9. Oil & Gas Equipment & Services 2.9 40% LEHMAN U.S. AGGREGATE BOND INDEX PHOTO is a portfolio
(STYLE-SPECIFIC INDEX) manager of AIM
10. Diversified Banks 2.8 Balanced Fund.
LIPPER BALANCED FUND INDEX 19.94 Mr. Simon started his investment career
TOTAL NUMBER OF HOLDINGS* 465 (PEER GROUP INDEX) in 1989 and joined AIM in 2001. He
received a B.B.A. in finance from Texas
TOTAL NET ASSETS $2.3 billion Source: Lipper, Inc. Christian University and an M.B.A. from
======================================= the University of Chicago.
Assisted by Basic Value Team and
Investment Grade Team
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3
FUND PERFORMANCE
RESULTS OF A $10,000 INVESTMENT
12/31/93-12/31/03
<Table>
<Caption>
[MOUNTAIN CHART]
DATE AIM BALANCED FUND S&P 500 60% RUSSELL 3000 INDEX/ LIPPER BALANCED
CLASS A SHARES INDEX 40% LEHMAN U.S. AGGREGATE FUND INDEX
BOND INDEX
12/31/93 9525 10000 10000 10000
3/31/94 9162 9621 9656 9695
6/30/94 8964 9662 9586 9621
9/30/94 9159 10133 9914 9903
12/31/94 9006 10131 9899 9795
3/31/95 9568 11117 10633 10387
6/30/95 10608 12176 11492 11114
9/30/95 11537 13143 12201 11710
12/31/95 12157 13934 12793 12233
3/31/96 12603 14682 13117 12507
6/30/96 13251 15340 13476 12761
9/30/96 13855 15814 13823 13097
12/31/96 14495 17131 14629 13830
3/31/97 14252 17591 14678 13895
6/30/97 16130 20660 16353 15392
9/30/97 17947 22207 17490 16381
12/31/97 18037 22845 17950 16637
3/31/98 19584 26029 19456 17953
6/30/98 19628 26893 19854 18226
9/30/98 17876 24224 18879 17171
12/31/98 20280 29378 21272 19147
3/31/99 20775 30841 21664 19454
6/30/99 21297 33011 22583 20328
9/30/99 20772 30955 21742 19486
12/31/99 24143 35557 23806 20866
3/31/00 25643 36371 24682 21487
6/30/00 24599 35405 24339 21229
9/30/00 24973 35062 24760 21650
12/31/00 23126 32321 23824 21364
3/31/01 21019 28491 22351 20293
6/30/01 21577 30158 23333 21006
9/30/01 18942 25733 21503 19414
12/31/01 20504 28482 23013 20673
3/31/02 20219 28561 23170 20797
6/30/02 18147 24737 21643 19423
9/30/02 16154 20466 19730 17505
12/31/02 16844 22190 20835 18463
3/31/03 16436 21491 20569 18124
6/30/03 18133 24798 22756 20101
9/30/03 18292 25454 23220 20513
12/31/03 19751 28551 24960 22144
</Table>
Past performance cannot guarantee comparable future results.
Your fund's total return includes sales charges, expenses and management fees.
The performance of the fund's share classes will differ due to different sales
charge structures and class expenses. Performance shown in the chart and table
does not reflect deduction of taxes a shareholder would pay on fund
distributions or sale of fund shares. Performance of the indexes does not
reflect the effects of taxes.
In evaluating this chart, please note that the chart uses a logarithmic
scale along the vertical axis (the value scale). This means that each scale
increment always represents the same percent change in price; in a linear chart
each scale increment always represents the same absolute change in price. In
this example, the scale increment between $5,000 and $10,000 is the same as that
between $10,000 and $20,000. In a linear chart, the latter scale increment would
be twice as large. The benefit of using a logarithmic scale is that it better
illustrates performance during the fund's early years before reinvested
distributions and compounding create the potential for the original investment
to grow to very large numbers. Had the chart used a linear scale along its
vertical axis, you would not be able to see as clearly the movements in the
value of the fund and the indexes during the fund's early years. We use a
logarithmic scale in financial reports of funds that have more than five years
of performance history.
<Table>
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AVERAGE ANNUAL TOTAL RETURNS *Class R shares were first offered on The fund's performance figures are
Including sales charges June 3, 2002. Returns prior to that date historical, and they reflect fund
are hypothetical results based on Class A expenses, the reinvestment of
CLASS A SHARES returns at net asset value from 12/31/93, distributions, and changes in net asset
Inception (3/31/78) 9.39% adjusted to reflect higher Class R 12b-1 value. Performance data quoted represent
10 Years 7.04 fees applicable to the Class R shares. past performance, and the investment
5 Years -1.50 Class R share returns do not include a return and principal value of an
1 Year 11.65 0.75% contingent deferred sales charge investment will fluctuate so that an
that may be imposed on a total redemption investor's shares, when redeemed, may be
CLASS B SHARES of retirement plan assets within the worth more or less than their original
Inception (10/18/93) 6.40% first year. cost.
10 Years 6.88
5 Years -1.66 Current performance may be lower or When sales charges are included in
1 Year 11.29 higher than the performance data quoted. performance figures, Class A share
Past performance cannot guarantee performance reflects the maximum 4.75%
CLASS C SHARES comparable future results. Due to sales charge, and Class B and Class C
Inception (8/4/97) 1.42% significant market volatility, results of share performance reflects the applicable
5 Years -1.29 an investment made today may differ contingent deferred sales charge (CDSC)
1 Year 15.32 substantially from the historical for the period involved. The CDSC on
performance shown. Please visit Class B shares declines from 5% beginning
CLASS R SHARES* AIMinvestments.com for the most current at the time of purchase to 0% at the
10 Years 7.30% month-end performance. beginning of the seventh year. The CDSC
5 Years -0.78 on Class C shares is 1% for the first
1 Year 16.92 year after purchase. The performance of
the fund's share classes will differ due
to different sales charge structures and
class expenses.
Had the advisor not waived fees
and/or reimbursed expenses in the past,
Class A share returns would have been
lower.
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</Table>
4
SUPPLEMENT TO ANNUAL REPORT DATED 12/31/03
AIM BALANCED FUND
INSTITUTIONAL CLASS SHARES AVERAGE ANNUAL TOTAL RETURNS Please note that past performance is
For periods ended 12/31/03 not indicative of future results. More
The following information has been recent returns may be more or less than
prepared to provide Institutional Inception (3/15/02) -1.39% those shown. All returns assume
Class shareholders with a performance 1 Year 17.71 reinvestment of distributions at net
overview specific to their holdings. asset value. Investment return and
Institutional Class shares are offered principal value will fluctuate so your
exclusively to institutional investors, shares, when redeemed, may be worth
including defined contribution plans more or less than their original cost.
that meet certain criteria. Performance See full report for information on
of Institutional Class shares will comparative benchmarks. If you have
differ from performance of Class A questions, please consult your fund
shares due to differing sales charges prospectus or call 800-451-4246. A I M
and class expenses. Distributors, Inc.
FOR INSTITUTIONAL INVESTOR USE ONLY
This material is prepared for institutional investor use only and may not be
quoted, reproduced or shown to members of the public, nor used in written form
as sales literature for public use.
YOUR GOALS. OUR SOLUTIONS.
--Servicemark--
AIMinvestments.com BAL-INS-1 [AIM INVESTMENTS LOGO APPEARS HERE]
--Servicemark--
FINANCIALS
SCHEDULE OF INVESTMENTS
December 31, 2003
<Table>
<Caption>
MARKET
SHARES VALUE
- -----------------------------------------------------------------------------
COMMON STOCKS & OTHER EQUITY INTERESTS-66.90%
ADVERTISING-2.08%
Omnicom Group Inc. 548,000 $ 47,856,840
=============================================================================
AEROSPACE & DEFENSE-2.30%
Honeywell International Inc. 891,000 29,786,130
- -----------------------------------------------------------------------------
United Technologies Corp. 245,700 23,284,989
=============================================================================
53,071,119
=============================================================================
ALUMINUM-0.49%
Alcoa Inc. 296,000 11,248,000
=============================================================================
APPAREL RETAIL-1.32%
Gap, Inc. (The) 1,310,000 30,405,100
=============================================================================
ASSET MANAGEMENT & CUSTODY BANKS-1.51%
Bank of New York Co., Inc. (The) 1,050,000 34,776,000
=============================================================================
BUILDING PRODUCTS-2.26%
American Standard Cos. Inc.(a) 259,200 26,101,440
- -----------------------------------------------------------------------------
Masco Corp. 949,900 26,036,759
=============================================================================
52,138,199
=============================================================================
COMMUNICATIONS EQUIPMENT-1.75%
Cisco Systems, Inc.(a) 969,100 23,539,439
- -----------------------------------------------------------------------------
Motorola, Inc. 1,200,000 16,884,000
=============================================================================
40,423,439
=============================================================================
CONSUMER ELECTRONICS-2.51%
Koninklijke (Royal) Philips Electronics N.V.-
New York Shares (Netherlands) 950,000 27,635,500
- -----------------------------------------------------------------------------
Sony Corp.-ADR (Japan) 870,000 30,162,900
=============================================================================
57,798,400
=============================================================================
DATA PROCESSING & OUTSOURCED SERVICES-2.49%
DST Systems, Inc.(a) 349,700 14,603,472
- -----------------------------------------------------------------------------
First Data Corp. 1,040,000 42,733,600
=============================================================================
57,337,072
=============================================================================
DEPARTMENT STORES-1.01%
May Department Stores Co. (The) 800,000 23,256,000
=============================================================================
DIVERSIFIED BANKS-1.76%
Bank One Corp. 890,000 40,575,100
=============================================================================
DIVERSIFIED CAPITAL MARKETS-1.99%
J.P. Morgan Chase & Co. 1,250,000 45,912,500
=============================================================================
</Table>
<Table>
- -----------------------------------------------------------------------------
<Caption>
MARKET
SHARES VALUE
DIVERSIFIED CHEMICALS-0.45%
Dow Chemical Co. (The) 252,000 $ 10,475,640
=============================================================================
DIVERSIFIED COMMERCIAL SERVICES-1.97%
Cendant Corp.(a) 2,040,000 45,430,800
=============================================================================
ENVIRONMENTAL SERVICES-2.14%
Waste Management, Inc. 1,670,000 49,432,000
=============================================================================
FOOD RETAIL-2.59%
Kroger Co. (The)(a) 1,900,000 35,169,000
- -----------------------------------------------------------------------------
Safeway Inc.(a) 1,120,000 24,539,200
=============================================================================
59,708,200
=============================================================================
GENERAL MERCHANDISE STORES-1.48%
Target Corp. 885,300 33,995,520
=============================================================================
HEALTH CARE DISTRIBUTORS-3.02%
Cardinal Health, Inc. 614,200 37,564,472
- -----------------------------------------------------------------------------
McKesson Corp. 1,000,000 32,160,000
=============================================================================
69,724,472
=============================================================================
HEALTH CARE EQUIPMENT-1.03%
Baxter International Inc. 780,000 23,805,600
=============================================================================
HEALTH CARE FACILITIES-1.51%
HCA Inc. 810,000 34,797,600
=============================================================================
HEALTH CARE SERVICES-0.54%
IMS Health Inc. 500,000 12,430,000
=============================================================================
INDUSTRIAL CONGLOMERATES-3.56%
General Electric Co. 845,100 26,181,198
- -----------------------------------------------------------------------------
Tyco International Ltd. (Bermuda) 2,110,000 55,915,000
=============================================================================
82,096,198
=============================================================================
INDUSTRIAL MACHINERY-1.53%
Illinois Tool Works Inc. 420,000 35,242,200
=============================================================================
INVESTMENT BANKING & BROKERAGE-3.15%
Merrill Lynch & Co., Inc. 585,500 34,339,575
- -----------------------------------------------------------------------------
Morgan Stanley 660,000 38,194,200
=============================================================================
72,533,775
=============================================================================
MANAGED HEALTH CARE-1.33%
Anthem, Inc.(a) 410,000 30,750,000
=============================================================================
MOVIES & ENTERTAINMENT-1.70%
Walt Disney Co. (The) 1,680,000 39,194,400
=============================================================================
</Table>
F-1
<Table>
<Caption>
MARKET
SHARES VALUE
- -----------------------------------------------------------------------------
MULTI-LINE INSURANCE-0.99%
Hartford Financial Services Group, Inc. (The) 387,700 $ 22,885,931
=============================================================================
OIL & GAS DRILLING-1.05%
Transocean Inc. (Cayman Islands)(a) 1,010,000 24,250,100
=============================================================================
OIL & GAS EQUIPMENT & SERVICES-2.90%
Cooper Cameron Corp.(a) 378,800 17,652,080
- -----------------------------------------------------------------------------
Halliburton Co. 990,000 25,740,000
- -----------------------------------------------------------------------------
Schlumberger Ltd. (Netherlands) 430,000 23,529,600
=============================================================================
66,921,680
=============================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES-2.28%
Citigroup Inc. 1,081,433 52,492,758
=============================================================================
PACKAGED FOODS & MEATS-1.16%
Kraft Foods Inc.-Class A 830,000 26,742,600
=============================================================================
PHARMACEUTICALS-3.04%
Aventis S.A. (France) 580,000 38,230,097
- -----------------------------------------------------------------------------
Wyeth 750,600 31,862,970
=============================================================================
70,093,067
=============================================================================
PROPERTY & CASUALTY INSURANCE-1.71%
ACE Ltd. (Cayman Islands) 950,000 39,349,000
=============================================================================
SEMICONDUCTOR EQUIPMENT-0.73%
Applied Materials, Inc.(a) 748,500 16,803,825
=============================================================================
</Table>
<Table>
- -----------------------------------------------------------------------------
<Caption>
MARKET
SHARES VALUE
SYSTEMS SOFTWARE-2.21%
Computer Associates International, Inc. 1,860,000 $ 50,852,400
=============================================================================
THRIFTS & MORTGAGE FINANCE-3.36%
Fannie Mae 657,300 49,336,938
- -----------------------------------------------------------------------------
MGIC Investment Corp. 492,900 28,065,726
=============================================================================
77,402,664
=============================================================================
Total Common Stocks & Other Equity
Interests (Cost $1,406,047,422) 1,542,208,199
=============================================================================
<Caption>
PRINCIPAL
AMOUNT
BONDS & NOTES-12.35%
AEROSPACE & DEFENSE-0.01%
Lockheed Martin Corp.-Series A, Medium Term
Notes, 8.66%, 11/30/06 $ 300,000 343,674
=============================================================================
ALTERNATIVE CARRIERS-0.05%
INTELSAT Ltd. (Bermuda), Notes, 6.50%,
11/01/13 (Acquired 10/31/03; Cost
$1,120,625)(b)(c) 1,100,000 1,150,710
=============================================================================
AUTOMOBILE MANUFACTURERS-0.07%
DaimlerChrysler N.A. Holding Corp.-Series D,
Gtd. Medium Term Notes, 3.40%, 12/15/04 1,615,000 1,638,240
=============================================================================
BROADCASTING & CABLE TV-0.97%
British Sky Broadcasting Group PLC (United
Kingdom), Unsec. Gtd. Global Notes, 7.30%,
10/15/06 1,500,000 1,673,490
- -----------------------------------------------------------------------------
Clear Channel Communications, Inc., Sr.
Unsec. Gtd. Notes, 8.00%, 11/01/08 1,200,000 1,402,848
- -----------------------------------------------------------------------------
Comcast Corp.,
Sr. Unsec. Notes, 8.88%, 04/01/07 2,960,000 3,045,899
- -----------------------------------------------------------------------------
Sr. Unsec. Sub. Notes, 10.50%, 06/15/06 800,000 940,000
- -----------------------------------------------------------------------------
Continental Cablevision, Inc., Sr. Unsec.
Deb., 9.50%, 08/01/13 1,710,000 1,953,846
- -----------------------------------------------------------------------------
Cox Radio, Inc., Sr. Unsec. Notes, 6.63%,
02/15/06 750,000 809,730
- -----------------------------------------------------------------------------
TCI Communications Financing III, Gtd. Bonds,
9.65%, 03/31/27 1,200,000 1,479,420
- -----------------------------------------------------------------------------
Time Warner Cos. Inc.,
Sr. Unsec. Gtd. Deb,
6.88%, 06/15/18 5,055,000 5,513,691
- -----------------------------------------------------------------------------
7.25%, 10/15/17 900,000 1,026,144
- -----------------------------------------------------------------------------
7.57%, 02/01/24 1,200,000 1,352,760
- -----------------------------------------------------------------------------
Unsec. Notes, 7.75%, 06/15/05 2,950,000 3,193,640
=============================================================================
22,391,468
=============================================================================
CONSUMER FINANCE-1.60%
Associates Corp. of North America, Sr. Global
Deb., 6.95%, 11/01/18 3,775,000 4,382,850
- -----------------------------------------------------------------------------
Capital One Bank, Sr. Global Notes, 8.25%,
06/15/05 1,000,000 1,081,490
- -----------------------------------------------------------------------------
Capital One Financial Corp., Sr. Unsec.
Notes, 7.25%, 05/01/06 2,100,000 2,263,233
- -----------------------------------------------------------------------------
Ford Motor Credit Co.,
Unsec. Global Notes,
6.88%, 02/01/06 8,880,000 9,470,875
- -----------------------------------------------------------------------------
7.50%, 03/15/05 4,600,000 4,859,578
- -----------------------------------------------------------------------------
General Motors Acceptance Corp.,
Global Notes, 4.50%, 07/15/06 2,000,000 2,055,900
- -----------------------------------------------------------------------------
Medium Term Notes, 5.25%, 05/16/05 700,000 726,376
- -----------------------------------------------------------------------------
Unsec. Unsub. Global Notes, 6.75%, 01/15/06 5,650,000 6,052,732
- -----------------------------------------------------------------------------
Hertz Corp. (The), Floating Rate Global
Notes, 1.71%, 08/13/04(d) 500,000 495,000
- -----------------------------------------------------------------------------
Household Finance Corp.,
Global Notes, 6.38%, 11/27/12 3,770,000 4,123,890
- -----------------------------------------------------------------------------
Sr. Unsec. Global Notes, 6.50%, 01/24/06 1,265,000 1,369,717
=============================================================================
36,881,641
=============================================================================
</Table>
F-2
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
- -----------------------------------------------------------------------------
DIVERSIFIED BANKS-1.03%
American Savings Bank, Notes, 6.63%, 02/15/06
(Acquired 03/05/03; Cost $554,525)(b)(c) $ 500,000 $ 535,340
- -----------------------------------------------------------------------------
Bank of America Corp.-Series B, Putable Sub.
Medium Term Notes, 8.57%, 11/15/04 1,000,000 1,304,980
- -----------------------------------------------------------------------------
Barclays Bank PLC (Diversified Banks), Bonds,
8.55%, (Acquired 11/05/03; Cost
$1,107,576)(b)(c)(e) 900,000 1,095,174
- -----------------------------------------------------------------------------
Barnett Capital I, Gtd. Bonds, 8.06%,
12/01/26 1,000,000 1,149,310
- -----------------------------------------------------------------------------
Barnett Capital II, Gtd. Bonds, 7.95%,
12/01/26 500,000 555,810
- -----------------------------------------------------------------------------
Centura Capital Trust I, Gtd. Notes, 8.85%,
06/01/27 (Acquired 05/22/03; Cost
$1,771,602)(b)(c) 1,400,000 1,683,486
- -----------------------------------------------------------------------------
Corestates Capital Trust I, Bonds, 8.00%,
12/15/26 (Acquired 06/18/03; Cost
$1,072,395)(b)(c) 900,000 1,025,388
- -----------------------------------------------------------------------------
Corporacion Andina de Fomento (Venezuela),
Global Notes, 5.20%, 05/21/13 2,900,000 2,869,869
- -----------------------------------------------------------------------------
HSBC Capital Funding L.P. (United Kingdom),
Gtd. Bonds, 4.61%, (Acquired 11/05/03; Cost
$373,008)(b)(c)(e) 400,000 376,460
- -----------------------------------------------------------------------------
Lloyds Bank PLC (United Kingdom)-Series 1,
Unsec. Sub. Floating Rate Euro Notes,
1.25%(e) 3,870,000 3,281,358
- -----------------------------------------------------------------------------
NBD Bank N.A. Michigan, Unsec. Putable Sub.
Deb., 8.25%, 11/01/04 3,290,000 4,182,083
- -----------------------------------------------------------------------------
RBS Capital Trust I, Bonds, 4.71%,(e) 400,000 380,776
- -----------------------------------------------------------------------------
Santander Financial Issuances (Cayman
Islands), Unsec. Gtd. Sub. Yankee Notes,
7.00%, 04/01/06 4,850,000 5,288,585
=============================================================================
23,728,619
=============================================================================
DIVERSIFIED CAPITAL MARKETS-0.18%
UBS Preferred Funding Trust I, Gtd. Global
Bonds, 8.62%(e) 3,385,000 4,168,086
=============================================================================
ELECTRIC UTILITIES-1.28%
AmerenEnergy Generating Co.-Series C, Sr.
Unsec. Global Notes, 7.75%, 11/01/05 350,000 383,509
- -----------------------------------------------------------------------------
American Electric Power Co., Inc., Sr. Unsec.
Unsub. Notes, 5.25%, 06/01/15 1,240,000 1,217,829
- -----------------------------------------------------------------------------
CenterPoint Energy, Inc., Notes, 5.88%,
06/01/08 (Acquired 05/21/03; Cost
$907,668)(b) 900,000 931,734
- -----------------------------------------------------------------------------
Cinergy Corp., Unsec. Sub. Global Deb.,
6.25%, 09/01/04 650,000 667,888
- -----------------------------------------------------------------------------
Consolidated Edison Co. of New York, Unsec.
Deb., 7.75%, 06/01/26 900,000 990,747
- -----------------------------------------------------------------------------
Consumers Energy Co., First Mortgage Bonds,
6.00%, 02/15/14 (Acquired 10/03/03; Cost
$1,533,450)(b)(c) 1,500,000 1,568,640
- -----------------------------------------------------------------------------
Hydro-Quebec (Canada),
Gtd. Floating Rate
Euro Notes, 1.25%(e)(f) 5,050,000 4,538,470
- -----------------------------------------------------------------------------
Series B, Gtd. Medium Term Notes, 8.62%,
12/15/11 2,150,000 2,709,237
- -----------------------------------------------------------------------------
Japan Bank for International Cooperation
(Japan), Unsec. Gtd. Euro Bonds, 6.50%,
10/06/05 4,600,000 4,954,941
- -----------------------------------------------------------------------------
South Carolina Electric & Gas Co., First
Mortgage Bonds, 5.25%, 11/01/18 3,390,000 3,388,813
- -----------------------------------------------------------------------------
</Table>
<Table>
- -----------------------------------------------------------------------------
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
ELECTRIC UTILITIES-(CONTINUED)
Southern Power Co., Bonds, 4.88%, 07/15/15
(Acquired 07/01/03; Cost $1,296,594)(b) $ 1,300,000 $ 1,240,720
- -----------------------------------------------------------------------------
Sutton Bridge Financing Ltd. (United
Kingdom), Gtd. Euro Bonds, 8.63%,
06/30/22(g) GBP 2,743,005 4,893,654
- -----------------------------------------------------------------------------
United Energy Distribution Holdings Pty Ltd.
(Australia), Sr. Unsec. Unsub. Notes,
4.70%, 04/15/11 (Acquired 11/12/03; Cost
$899,091)(b)(c) 900,000 908,991
- -----------------------------------------------------------------------------
Xcel Energy, Inc., Sr. Global Notes, 3.40%,
07/01/08 1,100,000 1,076,130
=============================================================================
29,471,303
=============================================================================
ENVIRONMENTAL SERVICES-0.09%
Waste Management, Inc., Sr. Unsec. Unsub.
Notes, 7.38%, 08/01/10 1,820,000 2,101,408
=============================================================================
FOOD RETAIL-0.10%
Kroger Co., Sr. Unsec. Gtd. Notes, 7.38%,
03/01/05 500,000 533,360
- -----------------------------------------------------------------------------
Safeway Inc., Notes, 2.50%, 11/01/05 1,750,000 1,749,860
=============================================================================
2,283,220
=============================================================================
GAS UTILITIES-0.11%
CenterPoint Energy Resources Corp., Unsec.
Deb., 6.50%, 02/01/08 1,145,000 1,230,967
- -----------------------------------------------------------------------------
MCN Corp., First Mortgage Bonds, 5.70%,
03/15/33 1,260,000 1,222,691
=============================================================================
2,453,658
=============================================================================
HEALTH CARE FACILITIES-0.05%
HCA Inc., Notes, 6.25%, 02/15/13 1,225,000 1,261,554
=============================================================================
HOMEBUILDING-0.05%
Lennar Corp.-Series B, Sr. Unsec. Gtd. Global
Notes, 9.95%, 05/01/10 930,000 1,062,525
=============================================================================
HYPERMARKETS & SUPER CENTERS-0.14%
Wal-Mart Stores, Inc., Unsec. Deb., 8.50%,
09/15/24 2,895,000 3,138,441
=============================================================================
</Table>
F-3
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
- -----------------------------------------------------------------------------
INDUSTRIAL CONGLOMERATES-0.04%
URC Holdings Corp., Sr. Notes, 7.88%,
06/30/06 (Acquired 10/08/03; Cost
$849,203)(b)(c) $ 750,000 $ 836,347
=============================================================================
INTEGRATED OIL & GAS-0.10%
Repsol International Finance B.V.
(Netherlands), Unsec. Gtd. Global Notes,
7.45%, 07/15/05 1,590,000 1,715,626
- -----------------------------------------------------------------------------
TGT Pipeline LLC, Global Notes, 5.20%,
06/01/18 600,000 564,198
=============================================================================
2,279,824
=============================================================================
INTEGRATED TELECOMMUNICATION SERVICES-1.61%
British Telecommunications PLC (United
Kingdom), Global Notes, 7.88%, 12/15/05 140,000 154,192
- -----------------------------------------------------------------------------
Citizens Communications Co., Sr. Unsec.
Notes, 9.25%, 05/15/11 400,000 473,008
- -----------------------------------------------------------------------------
Deutsche Telekom International Finance B.V.
(Netherlands), Unsec. Gtd. Unsub. Global
Bonds, 8.25%, 06/15/05 1,650,000 1,793,550
- -----------------------------------------------------------------------------
France Telecom S.A. (France), Sr. Unsec.
Global Notes, 9.75%, 03/01/31 1,130,000 1,493,713
- -----------------------------------------------------------------------------
GTE Hawaiian Telephone Co., Inc.-Series A,
Unsec. Deb., 7.00%, 02/01/06 2,655,000 2,895,995
- -----------------------------------------------------------------------------
New England Telephone & Telegraph Co., Sr.
Unsec. Notes, 7.65%, 06/15/07 1,000,000 1,123,590
- -----------------------------------------------------------------------------
Sprint Capital Corp.,
Sr. Unsec. Gtd. Global Notes,
6.00%, 01/15/07 2,160,000 2,301,026
- -----------------------------------------------------------------------------
7.13%, 01/30/06 6,610,000 7,088,762
- -----------------------------------------------------------------------------
Sr. Unsec. Gtd. Unsub. Global Notes, 6.13%,
11/15/08 1,381,000 1,467,630
- -----------------------------------------------------------------------------
Unsec. Gtd. Global Notes,
7.90%, 03/15/05 3,230,000 3,444,020
- -----------------------------------------------------------------------------
8.75%, 03/15/32 1,000,000 1,185,140
- -----------------------------------------------------------------------------
Sprint Corp., Deb., 9.00%, 10/15/19 2,200,000 2,628,318
- -----------------------------------------------------------------------------
TELUS Corp. (Canada), Yankee Notes,
7.50%, 06/01/07 2,500,000 2,778,125
- -----------------------------------------------------------------------------
8.00%, 06/01/11 1,000,000 1,172,500
- -----------------------------------------------------------------------------
Verizon Communications Inc., Unsec. Deb.,
6.36%, 04/15/06 2,570,000 2,784,030
- -----------------------------------------------------------------------------
Verizon Global Funding Corp., Sr. Unsec.
Unsub. Global Notes, 7.75%, 12/01/30 765,000 895,050
- -----------------------------------------------------------------------------
Verizon Pennsylvania Inc.-Series A, Global
Notes, 5.65%, 11/15/11 3,310,000 3,483,643
=============================================================================
37,162,292
=============================================================================
INVESTMENT BANKING & BROKERAGE-0.44%
Goldman Sachs Group, Inc. (The), Unsec.
Global Notes, 4.13%, 01/15/08 4,475,000 4,579,670
- -----------------------------------------------------------------------------
Lehman Brothers Inc.,
Sr. Sub. Deb., 11.63%, 05/15/05 2,645,000 2,951,846
- -----------------------------------------------------------------------------
Sr. Unsec. Sub. Notes, 7.63%, 06/01/06 1,000,000 1,119,340
- -----------------------------------------------------------------------------
Merrill Lynch & Co., Inc.-Series B, Medium
Term Notes, 4.54%, 03/08/05 1,415,000 1,457,549
=============================================================================
10,108,405
=============================================================================
</Table>
<Table>
- -----------------------------------------------------------------------------
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
LIFE & HEALTH INSURANCE-0.76%
John Hancock Global Funding II, Notes, 5.00%,
07/27/07 (Acquired 06/12/02; Cost
$2,323,721)(b)(c) $ 2,325,000 $ 2,470,429
- -----------------------------------------------------------------------------
Lincoln National Corp., Unsec. Deb., 9.13%,
10/01/24 4,870,000 5,296,028
- -----------------------------------------------------------------------------
ReliaStar Financial Corp., Unsec. Notes,
8.00%, 10/30/06 600,000 672,978
- -----------------------------------------------------------------------------
Torchmark Corp., Notes,
7.38%, 08/01/13 3,000,000 3,483,330
- -----------------------------------------------------------------------------
7.88%, 05/15/23 4,845,000 5,677,952
=============================================================================
17,600,717
=============================================================================
MULTI-LINE INSURANCE-0.09%
MassMutual Global Funding II, Notes, 3.80%,
04/15/09 (Acquired 10/07/03; Cost
$2,197,074)(b)(c) 2,200,000 2,195,028
=============================================================================
MULTI-UTILITIES & UNREGULATED POWER-0.02%
Duke Energy Corp., First Mortgage Bonds,
3.75%, 03/05/08 350,000 351,501
=============================================================================
MUNICIPALITIES-0.12%
Illinois (State of); Unlimited Tax Pension
Series 2003 GO, 5.10%, 06/01/33 3,005,000 2,763,007
=============================================================================
OIL & GAS DRILLING-0.03%
Transocean Inc.(Cayman Islands), Sr. Unsec.
Unsub. Global Deb., 8.00%, 04/15/27 600,000 720,762
=============================================================================
OIL & GAS EXPLORATION & PRODUCTION-0.37%
Kern River Funding Corp., Sr. Gtd. Notes,
4.89%, 04/30/18 (Acquired 04/23/03-
05/20/03; Cost $3,439,997)(b)(c) 3,404,744 3,397,594
- -----------------------------------------------------------------------------
Pemex Project Funding Master Trust, Unsec.
Unsub. Gtd. Global Notes, 7.38%, 12/15/14 4,900,000 5,170,529
=============================================================================
8,568,123
_____________________________________________________________________________
=============================================================================
OIL & GAS REFINING, MARKETING &
TRANSPORTATION-0.09%
Petroleos Mexicanos (Mexico), Unsub. Gtd.
Global Notes, 6.50%, 02/01/05 1,310,000 1,372,225
- -----------------------------------------------------------------------------
Plains All American Pipeline L.P., Sr. Notes,
5.63%, 12/15/13 (Acquired 12/03/03; Cost
$698,138)(b)(c) 700,000 705,292
=============================================================================
2,077,517
=============================================================================
</Table>
F-4
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
- -----------------------------------------------------------------------------
OTHER DIVERSIFIED FINANCIAL SERVICES-0.90%
CIT Group Inc.,
Sr. Global Notes, 7.13%, 10/15/04 $ 1,110,000 $ 1,158,485
- -----------------------------------------------------------------------------
Sr. Unsec. Notes, 6.63%, 06/15/05 500,000 532,900
- -----------------------------------------------------------------------------
Sr. Unsec. Unsub. Global Notes, 7.63%,
08/16/05 830,000 901,181
- -----------------------------------------------------------------------------
Citigroup Inc., Unsec. Sub. Global Notes,
6.00%, 10/31/33 3,500,000 3,505,250
- -----------------------------------------------------------------------------
General Electric Capital Corp.,
Sub. Gtd. Notes,
8.13%, 05/15/12 2,600,000 3,151,460
- -----------------------------------------------------------------------------
Sr. Medium Term Global Notes, 4.25%,
12/01/10 1,235,000 1,227,022
- -----------------------------------------------------------------------------
Series A, Medium Term Global Notes,
2.85%, 01/30/06 400,000 405,148
- -----------------------------------------------------------------------------
5.88%, 02/15/12 1,200,000 1,292,556
- -----------------------------------------------------------------------------
6.00%, 06/15/12 1,000,000 1,082,550
- -----------------------------------------------------------------------------
Heller Financial, Inc., Sr. Unsec. Global
Notes, 8.00%, 06/15/05 2,425,000 2,633,477
- -----------------------------------------------------------------------------
Household Finance Corp., Medium Term Notes,
3.38%, 02/21/06 470,000 479,334
- -----------------------------------------------------------------------------
ING Capital Funding Trust III, Gtd. Global
Bonds, 8.44%(e) 900,000 1,088,181
- -----------------------------------------------------------------------------
Pemex Finance Ltd. (Cayman Islands)- Series
1999-2, Class A1, Global Bonds, 9.69%,
08/15/09 2,900,000 3,365,798
=============================================================================
20,823,342
=============================================================================
PROPERTY & CASUALTY INSURANCE-0.03%
Travelers Property Casualty Corp., Sr. Unsec.
Notes, 6.75%, 11/15/06 700,000 765,527
=============================================================================
PUBLISHING-0.13%
News America Holdings, Inc.,
Sr. Unsec. Gtd. Deb., 7.70%, 10/30/25 1,615,000 1,882,315
- -----------------------------------------------------------------------------
Unsec. Gtd. Deb., 7.75%, 01/20/24 1,000,000 1,169,730
=============================================================================
3,052,045
=============================================================================
REAL ESTATE-0.06%
EOP Operating L.P., Unsec. Notes, 8.38%,
03/15/06 1,250,000 1,403,450
=============================================================================
REAL ESTATE MANAGEMENT & DEVELOPMENT-0.07%
Dominion Resources, Inc.-Series F, Sr. Unsec.
Putable Notes, 5.25%, 08/01/15 1,700,000 1,697,960
=============================================================================
REGIONAL BANKS-0.34%
BB&T Corp., Unsec. Sub. Global Notes, 5.20%,
12/23/15 3,800,000 3,790,272
- -----------------------------------------------------------------------------
Greater Bay Bancorp.-Series B, Sr. Notes,
5.25%, 03/31/08 3,000,000 3,027,570
- -----------------------------------------------------------------------------
Union Planters Corp., Notes, 4.38%, 12/01/10 925,000 919,885
=============================================================================
7,737,727
=============================================================================
</Table>
<Table>
- -----------------------------------------------------------------------------
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
REINSURANCE-0.10%
GE Global Insurance Holding Corp., Unsec.
Notes, 7.50%, 06/15/10 $ 2,000,000 $ 2,298,680
=============================================================================
RESTAURANTS-0.04%
McDonald's Corp., Unsec. Deb., 7.05%,
11/15/25 850,000 932,306
=============================================================================
SOVEREIGN DEBT-0.36%
New Brunswick (Province of) (Canada), Sec.
Yankee Deb., 6.75%, 08/15/13 830,000 969,050
- -----------------------------------------------------------------------------
Quebec (Province of) (Canada), Sr. Unsec.
Unsub. Global Deb., 5.75%, 02/15/09 1,400,000 1,533,742
- -----------------------------------------------------------------------------
United Mexican States (Mexico), Global Notes,
4.63%, 10/08/08 610,000 619,913
- -----------------------------------------------------------------------------
6.63%, 03/03/15 1,000,000 1,038,750
- -----------------------------------------------------------------------------
7.50%, 04/08/33 3,900,000 4,070,625
=============================================================================
8,232,080
=============================================================================
THRIFTS & MORTGAGE FINANCE-0.23%
Countrywide Home Loans, Inc.
Series J, Gtd. Medium Term Global Notes,
5.50%, 08/01/06 700,000 748,727
- -----------------------------------------------------------------------------
Series K, Medium Term Global Notes, 3.50%,
12/19/05 2,260,000 2,316,613
- -----------------------------------------------------------------------------
Washington Mutual Financial Corp., Sr. Unsec.
Notes, 8.25%, 06/15/05 2,050,000 2,231,364
=============================================================================
5,296,704
=============================================================================
TOBACCO-0.05%
Altria Group, Inc.,
Notes, 7.00%, 11/04/13 700,000 747,341
- -----------------------------------------------------------------------------
Unsec. Notes, 6.38%, 02/01/06 350,000 367,346
=============================================================================
1,114,687
=============================================================================
TRUCKING-0.13%
Roadway Corp., Sr. Unsec. Gtd. Global Notes,
8.25%, 12/01/08 2,655,000 2,996,619
=============================================================================
WIRELESS TELECOMMUNICATION SERVICES-0.51%
TeleCorp PCS, Inc., Sr. Unsec. Gtd. Sub.
Global Notes, 10.63%, 07/15/10 4,755,000 5,644,661
- -----------------------------------------------------------------------------
Tritel PCS Inc., Sr. Unsec. Gtd. Sub. Global
Notes, 10.38%, 01/15/11 5,000,000 6,026,900
=============================================================================
11,671,561
=============================================================================
Total Bonds & Notes (Cost $277,186,962) 284,760,758
=============================================================================
</Table>
F-5
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
- -----------------------------------------------------------------------------
ASSET-BACKED SECURITIES-0.82%
ELECTRIC UTILITIES-0.02%
Public Service Co. of Colorado, Global
Collateral Trust, 4.88%, 03/01/13 $ 605,000 $ 602,846
=============================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES-0.65%
Citicorp Lease-Series 1999-1, Class A1, Pass
Through Ctfs., 7.22%, 06/15/05 (Acquired
05/08/02-09/23/03; Cost $5,379,228)(b)(c) 5,070,111 5,434,348
- -----------------------------------------------------------------------------
Citicorp Lease-Series 1999-1, Class A2, Pass
Through Ctfs., 8.04%, 12/15/19 (Acquired
06/01/00-08/20/02; Cost $6,610,373)(b)(c) 6,600,000 7,759,356
- -----------------------------------------------------------------------------
First Industrial Realty Trust, Inc., Putable
PATS, 7.38%, 05/15/04 (Acquired 02/06/03;
Cost $1,111,410)(b)(c) 1,060,000 1,079,684
- -----------------------------------------------------------------------------
Yorkshire Power (Cayman Islands)- Series
2000-1, Pass Through Ctfs., 8.25%, 02/15/05
(Acquired 11/12/03; Cost $640,800)(b)(c) 600,000 636,198
=============================================================================
14,909,586
=============================================================================
SPECIALIZED FINANCE-0.15%
National Rural Utilities Cooperative Finance
Corp., Sr. Sec. Global Collateral Trust,
6.00%, 05/15/06 3,200,000 3,429,312
=============================================================================
Total Asset-Backed Securities (Cost
$17,531,208) 18,941,744
=============================================================================
U.S. GOVERNMENT AGENCY SECURITIES-14.02%
FEDERAL HOME LOAN BANK-0.04%
Unsec. Bonds,
4.88%, 04/16/04 820,000 829,012
=============================================================================
FEDERAL HOME LOAN MORTGAGE CORP.
(FHLMC)-5.01%
Pass Through Ctfs.,
5.00%, 12/01/18 599,941 612,106
- -----------------------------------------------------------------------------
5.50%, 05/01/13 to 12/01/33 4,973,091 5,152,676
- -----------------------------------------------------------------------------
6.00%, 04/01/17 to 02/01/33 11,914,220 12,458,120
- -----------------------------------------------------------------------------
6.50%, 05/01/16 to 08/01/32 11,038,924 11,578,359
- -----------------------------------------------------------------------------
7.00%, 06/01/15 to 06/01/32 8,373,699 8,865,024
- -----------------------------------------------------------------------------
7.50%, 12/01/30 to 03/01/32 1,507,028 1,618,847
- -----------------------------------------------------------------------------
8.00%, 01/01/27 1,582,680 1,722,049
- -----------------------------------------------------------------------------
Unsec. Disc. Notes,
0.75%, 01/02/04(h) 72,275,000 72,273,494
- -----------------------------------------------------------------------------
Unsec. Global Notes,
2.75%, 03/15/08 1,330,000 1,302,748
=============================================================================
115,583,423
=============================================================================
FEDERAL NATIONAL MORTGAGE ASSOCIATION
(FNMA)-7.69%
Pass Through Ctfs.,
5.00%, 10/01/17 to 11/01/18 23,803,029 24,314,910
- -----------------------------------------------------------------------------
5.50%, 04/01/18 to 12/01/33 60,773,393 61,867,027
- -----------------------------------------------------------------------------
6.00%, 01/01/17 to 12/01/33 27,598,400 28,554,081
- -----------------------------------------------------------------------------
6.50%, 04/01/14 to 01/01/33 23,040,308 24,190,944
- -----------------------------------------------------------------------------
7.00%, 12/01/15 to 09/01/32 9,689,413 10,305,330
- -----------------------------------------------------------------------------
7.50%, 11/01/15 to 05/01/32 2,979,159 3,186,683
- -----------------------------------------------------------------------------
8.00%, 08/01/21 to 10/01/30 2,192,614 2,391,199
- -----------------------------------------------------------------------------
</Table>
<Table>
- -----------------------------------------------------------------------------
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA)-(CONTINUED)
8.50%, 03/01/10 to 10/01/28 $ 3,480,157 $ 3,814,292
- -----------------------------------------------------------------------------
Unsec. Global Notes,
1.88%, 09/15/05 3,725,000 3,729,358
- -----------------------------------------------------------------------------
4.38%, 09/15/12 800,000 790,640
- -----------------------------------------------------------------------------
6.20%, 06/13/17 5,550,000 5,779,104
- -----------------------------------------------------------------------------
Unsec. Notes,
5.25%, 06/15/06 2,200,000 2,353,340
- -----------------------------------------------------------------------------
Unsec. Sub. Notes,
5.25%, 08/01/12 5,725,000 5,876,026
=============================================================================
177,152,934
=============================================================================
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
(GNMA)-1.28%
Pass Through Ctfs.,
5.50%, 12/15/33 2,000,000 2,036,000
- -----------------------------------------------------------------------------
6.00%, 11/15/08 to 10/15/33 8,781,297 9,141,817
- -----------------------------------------------------------------------------
6.50%, 10/15/08 to 02/15/33 7,183,612 7,581,557
- -----------------------------------------------------------------------------
7.00%, 10/15/08 to 05/15/32 4,787,311 5,106,248
- -----------------------------------------------------------------------------
7.50%, 06/15/23 to 05/15/32 3,788,190 4,076,602
- -----------------------------------------------------------------------------
8.00%, 08/15/22 to 01/20/31 1,278,730 1,401,762
- -----------------------------------------------------------------------------
8.50%, 11/15/24 to 02/15/25 132,794 146,133
=============================================================================
29,490,119
=============================================================================
Total U.S. Government Agency Securities
(Cost $319,687,575) 323,055,488
=============================================================================
U.S. TREASURY SECURITIES-8.03%
U.S. TREASURY NOTES-6.23%
2.13%, 10/31/04 26,115,000 26,325,226
- -----------------------------------------------------------------------------
1.50%, 02/28/05 33,260,000 33,343,150
- -----------------------------------------------------------------------------
6.75%, 05/15/05 5,550,000 5,950,654
- -----------------------------------------------------------------------------
6.50%, 10/15/06 23,065,000 25,703,175
- -----------------------------------------------------------------------------
3.50%, 11/15/06 14,800,000 15,304,088
- -----------------------------------------------------------------------------
3.13%, 10/15/08 14,800,000 14,781,500
- -----------------------------------------------------------------------------
4.75%, 11/15/08 10,775,000 11,540,995
- -----------------------------------------------------------------------------
5.00%, 02/15/11 9,900,000 10,637,847
=============================================================================
143,586,635
=============================================================================
U.S. TREASURY BONDS-1.80%
7.25%, 05/15/16 10,400,000 12,982,112
- -----------------------------------------------------------------------------
</Table>
F-6
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
- -----------------------------------------------------------------------------
U.S. TREASURY BONDS-(CONTINUED)
7.50%, 11/15/16 $ 22,320,000 $ 28,433,671
=============================================================================
41,415,783
=============================================================================
Total U.S. Treasury Securities (Cost
$181,771,734) 185,002,418
- -----------------------------------------------------------------------------
TOTAL INVESTMENTS-102.12%
(excluding investments purchased with cash
collateral from securities loaned) (Cost
$2,202,224,901) 2,353,968,607
=============================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- -----------------------------------------------------------------------------
INVESTMENTS PURCHASED WITH CASH COLLATERAL
FROM SECURITIES LOANED
MONEY MARKET FUNDS-5.22%
Liquid Assets Portfolio(i)(j) $ 60,195,599 $ 60,195,599
- -----------------------------------------------------------------------------
STIC Prime Portfolio(i)(j) 60,195,599 60,195,599
=============================================================================
Total Money Market Funds (purchased with
cash collateral from securities loaned)
(Cost $120,391,198) 120,391,198
=============================================================================
TOTAL INVESTMENTS-107.34% (Cost
$2,322,616,099) 2,474,359,805
=============================================================================
OTHER ASSETS LESS LIABILITIES-(7.34%) (169,223,468)
=============================================================================
NET ASSETS-100.00% $2,305,136,337
_____________________________________________________________________________
=============================================================================
</Table>
Investment Abbreviations:
<Table>
ADR - American Depositary Receipt
Ctfs - Certificates
Deb. - Debentures
GBP - British Pound Sterling
GO - General Obligation Bonds
Gtd. - Guaranteed
PATS - Pass Through Asset Trust Securities
Sec. - Secured
Sr. - Senior
Sub. - Subordinated
Unsec. - Unsecured
Unsub. - Unsubordinated
</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 Fund has no rights to demand registration of these securities.
The aggregate market value of these securities at 12/31/03 was $35,030,919,
which represented 1.52% of the Fund's net assets. Unless otherwise
indicated, these securities are not considered to be illiquid.
(c) Security considered to be illiquid. The aggregate market value of these
securities considered illiquid at 12/31/03 was $32,858,465 which represented
1.43% of the Fund's net assets.
(d) Interest rates are redetermined quarterly. Rates shown are rates in effect
on 12/31/03.
(e) Perpetual bond with no specified maturity date.
(f) Interest rates are redetermined semiannually. Rates shown are rates in
effect on 12/31/03.
(g) Foreign denominated security. Par value is denominated in currency
indicated.
(h) Security is traded on a discount basis. The interest rate shown represents
the discount rate at the time of purchase by the Fund.
(i) The money market fund and the Fund are affiliated by having the same
investment advisor. See Note 3.
(j) The security has been segregated to satisfy the forward commitment to return
the cash collateral received in securities lending transactions upon the
borrower's return of the securities loaned. See Note 3.
See accompanying notes which are an integral part of the financial statements.
F-7
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2003
<Table>
ASSETS:
Investments, at market value (cost
$2,202,224,901)* $2,353,968,607
- ------------------------------------------------------------
Investments in affiliated money market funds
(cost $120,391,198) 120,391,198
- ------------------------------------------------------------
Cash 821,192
- ------------------------------------------------------------
Receivables for:
Investments sold 21,416,194
- ------------------------------------------------------------
Fund shares sold 1,476,461
- ------------------------------------------------------------
Dividends and interest 8,828,052
- ------------------------------------------------------------
Principal paydowns 4,469
- ------------------------------------------------------------
Investments matured (Note 10) 250,120
- ------------------------------------------------------------
Investment for deferred compensation and
retirement plans 185,169
- ------------------------------------------------------------
Other assets 50,384
============================================================
Total assets 2,507,391,846
____________________________________________________________
============================================================
LIABILITIES:
Payables for:
Investments purchased 45,318,017
- ------------------------------------------------------------
Fund shares reacquired 33,093,079
- ------------------------------------------------------------
Deferred compensation and retirement plans 264,742
- ------------------------------------------------------------
Collateral upon return of securities
loaned 120,391,198
- ------------------------------------------------------------
Accrued distribution fees 990,675
- ------------------------------------------------------------
Accrued transfer agent fees 1,941,903
- ------------------------------------------------------------
Accrued operating expenses 255,895
============================================================
Total liabilities 202,255,509
============================================================
Net assets applicable to shares outstanding $2,305,136,337
____________________________________________________________
============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $2,905,249,675
- ------------------------------------------------------------
Undistributed net investment income (2,977,290)
- ------------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities, foreign currencies,
futures contracts and option contracts (748,835,123)
- ------------------------------------------------------------
Unrealized appreciation of investment
securities, foreign currencies and futures
contracts 151,699,075
============================================================
$2,305,136,337
____________________________________________________________
============================================================
NET ASSETS:
Class A $1,297,377,525
____________________________________________________________
============================================================
Class B $ 739,424,478
____________________________________________________________
============================================================
Class C $ 264,512,894
____________________________________________________________
============================================================
Class R $ 3,811,690
____________________________________________________________
============================================================
Institutional Class $ 9,750
____________________________________________________________
============================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER
SHARE, UNLIMITED NUMBER OF SHARES
AUTHORIZED:
Class A 54,223,955
____________________________________________________________
============================================================
Class B 30,970,912
____________________________________________________________
============================================================
Class C 11,062,519
____________________________________________________________
============================================================
Class R 159,148
____________________________________________________________
============================================================
Institutional Class 407
____________________________________________________________
============================================================
Class A:
Net asset value per share $ 23.93
- ------------------------------------------------------------
Offering price per share:
(Net asset value of $23.93 divided
by 95.25%) $ 25.12
____________________________________________________________
============================================================
Class B:
Net asset value and offering price per
share $ 23.87
____________________________________________________________
============================================================
Class C:
Net asset value and offering price per
share $ 23.91
____________________________________________________________
============================================================
Class R:
Net asset value and offering price per
share $ 23.95
____________________________________________________________
============================================================
Institutional Class:
Net asset value and offering price per
share $ 23.94
____________________________________________________________
============================================================
</Table>
* At December 31, 2003, securities with an aggregate market value of
$118,156,505 were on loan to brokers.
See accompanying notes which are an integral part of the financial statements.
F-8
STATEMENT OF OPERATIONS
For the year ended December 31, 2003
<Table>
INVESTMENT INCOME:
Interest $ 40,986,029
- --------------------------------------------------------------------------
Dividends (net of foreign withholding tax of $149,904) 21,234,491
- --------------------------------------------------------------------------
Dividends from affiliated money market funds* 1,786,974
==========================================================================
Total investment income 64,007,494
==========================================================================
EXPENSES:
Advisory fees 12,247,956
- --------------------------------------------------------------------------
Administrative services fees 498,697
- --------------------------------------------------------------------------
Custodian fees 103,683
- --------------------------------------------------------------------------
Distribution fees:
Class A 3,397,488
- --------------------------------------------------------------------------
Class B 7,336,443
- --------------------------------------------------------------------------
Class C 2,791,836
- --------------------------------------------------------------------------
Class R 13,795
- --------------------------------------------------------------------------
Transfer agent fees -- Class A, B, C and R 6,396,180
- --------------------------------------------------------------------------
Transfer agent fees -- Institutional Class 49
- --------------------------------------------------------------------------
Trustees' fees 43,067
- --------------------------------------------------------------------------
Other 809,137
==========================================================================
Total expenses 33,638,331
==========================================================================
Less: Fees waived and expense offset arrangements (61,944)
==========================================================================
Net expenses 33,576,387
==========================================================================
Net investment income 30,431,107
==========================================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES, FOREIGN CURRENCIES, FUTURES CONTRACTS AND
OPTION CONTRACTS:
Net realized gain from:
Investment securities 104,173,618
- --------------------------------------------------------------------------
Foreign currencies 130,456
- --------------------------------------------------------------------------
Futures contracts 2,809,071
- --------------------------------------------------------------------------
Option contracts written 669,555
==========================================================================
107,782,700
==========================================================================
Change in net unrealized appreciation (depreciation) of:
Investment securities 226,610,643
- --------------------------------------------------------------------------
Foreign currencies (66,701)
- --------------------------------------------------------------------------
Futures contracts 1,573,443
==========================================================================
228,117,385
==========================================================================
Net gain from investment securities, foreign currencies,
futures contracts and option contracts 335,900,085
==========================================================================
Net increase in net assets resulting from operations $366,331,192
__________________________________________________________________________
==========================================================================
</Table>
* Dividends from affiliated money market funds are net of fees paid to security
lending counterparties.
See accompanying notes which are an integral part of the financial statements.
F-9
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 2003 and 2002
<Table>
<Caption>
2003 2002
- -----------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 30,431,107 $ 58,143,822
- -----------------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities,
foreign currencies, futures contracts and option
contracts 107,782,700 (509,645,234)
- -----------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities, foreign currencies and futures
contracts 228,117,385 (226,603,332)
===============================================================================================
Net increase (decrease) in net assets resulting from
operations 366,331,192 (678,104,744)
===============================================================================================
Distributions to shareholders from net investment income:
Class A (26,240,036) (43,040,026)
- -----------------------------------------------------------------------------------------------
Class B (8,673,183) (14,672,799)
- -----------------------------------------------------------------------------------------------
Class C (3,288,903) (5,912,859)
- -----------------------------------------------------------------------------------------------
Class R (48,722) (2,356)
- -----------------------------------------------------------------------------------------------
Institutional Class (209) (233)
===============================================================================================
Decrease in net assets resulting from distributions (38,251,053) (63,628,273)
===============================================================================================
Share transactions-net:
Class A (325,786,055) (418,695,124)
- -----------------------------------------------------------------------------------------------
Class B (127,772,946) (189,750,544)
- -----------------------------------------------------------------------------------------------
Class C (75,676,154) (92,084,801)
- -----------------------------------------------------------------------------------------------
Class R 3,149,619 295,439
- -----------------------------------------------------------------------------------------------
Institutional Class 209 10,233
===============================================================================================
Net increase (decrease) in net assets resulting from
share transactions (526,085,327) (700,224,797)
===============================================================================================
Net increase (decrease) in net assets (198,005,188) (1,441,957,814)
===============================================================================================
NET ASSETS:
Beginning of year 2,503,141,525 3,945,099,339
===============================================================================================
End of year (including undistributed net investment income
(loss) of $(2,977,290) and $(2,766,985) for 2003 and
2002, respectively) $2,305,136,337 $ 2,503,141,525
_______________________________________________________________________________________________
===============================================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
F-10
NOTES TO FINANCIAL STATEMENTS
December 31, 2003
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Balanced Fund (the "Fund") is a series portfolio of AIM Funds Group (the
"Trust"). The Trust is a Delaware statutory trust registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
series management investment company consisting of nine separate portfolios,
each authorized to issue an unlimited number of shares of beneficial interest.
The Fund currently offers multiple classes of shares. Matters affecting each
portfolio or class will be voted on exclusively by the shareholders of such
portfolio or class. The assets, liabilities and operations of each portfolio are
accounted for separately. Information presented in these financial statements
pertains only to the Fund.
The Fund's investment objective is to achieve as high a total return as
possible, consistent with preservation of capital. Each company listed in the
Schedule of Investments is organized in the United States of America unless
otherwise noted.
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 on the basis of prices furnished
by independent pricing services or market makers. Each security reported on
the NASDAQ National Market System is valued at the NASDAQ Official Closing
Price ("NOCP") as of the close of the customary trading session on the
valuation date or absent a NOCP, at the closing bid price. 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. Issuer specific events, market trends, bid/ask quotes of brokers
and information providers and other market data may be reviewed in the
course of making a good faith determination of a security's fair value.
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
ordinarily be reflected in the computation of the Fund's net asset value.
If a development/event is so significant such 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. Adjustments to closing prices to reflect fair value on affected
foreign securities may be provided by an independent pricing service.
Multiple factors may be considered by the independent pricing service in
determining adjustments to reflect fair value and may include information
relating to sector indices, ADRs, domestic and foreign index futures and
exchange-traded funds.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions
are accounted for on a trade date basis. Realized gains or losses on sales
are computed on the basis of specific identification of the securities
sold. Interest income is recorded on the accrual basis from settlement
date. Dividend income is recorded on the ex-dividend date. Bond premiums
and discounts are amortized and/or accreted for financial reporting
purposes.
The Fund allocates income and realized and unrealized capital gains and
losses to a class based on the relative net assets of each class.
C. REPURCHASE AGREEMENTS -- Repurchase agreements held by the Fund are fully
collateralized by securities issued by the U.S. Government, its agencies or
instrumentalities and such collateral is in the possession of the Fund's
custodian. The collateral is evaluated daily to ensure its market value
exceeds the current market value of the repurchase agreements including
accrued interest. In the event of default on the obligation to repurchase,
the
F-11
Fund has the right to liquidate the collateral and apply the proceeds in
satisfaction of the obligation. If the seller of a repurchase agreement
fails to repurchase the security in accordance with the terms of the
agreement, the 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.
D. 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
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 may 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. The difference between the selling price and
the future repurchase price is recorded as realized gain (loss). At the
time the Fund enters into the dollar roll, it will segregate liquid assets
having a dollar value equal to the repurchase price.
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. The return
earned by the Fund with the proceeds of the dollar roll transaction may not
exceed transaction costs.
E. DISTRIBUTIONS -- Distributions from income are declared and paid quarterly
and are recorded on ex-dividend date. Distributions from net realized
capital gain, if any, are generally paid annually and recorded on
ex-dividend date. The Fund may elect to use a portion of the proceeds from
redemptions as distributions for federal income tax purposes.
F. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of
Subchapter M of the Internal Revenue Code necessary to qualify as a
regulated investment company and, as such, will not be subject to federal
income taxes on otherwise taxable income (including net realized capital
gain) which is distributed to shareholders. Therefore, no provision for
federal income taxes is recorded in the financial statements. Any capital
loss carryforwards listed are reduced for limitations, if any, to the
extent required by the Internal Revenue Code.
G. 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. The combined results of changes in foreign exchange rates
and the fluctuation of market prices on investments are included with the
net realized and unrealized gain or loss from investments in the Statement
of Operations. Reported net realized foreign currency gains or losses arise
from, (i) sales of foreign currencies, (ii) currency gains or losses
realized between the trade and settlement dates on securities transactions,
and (iii) the difference between the amounts of dividends, interest, and
foreign withholding taxes recorded on the Fund's books and the U.S. dollar
equivalent of the amounts actually received or paid. Net unrealized foreign
currency gains and losses arise from changes in the fair values of assets
and liabilities, other than investments in securities at fiscal period end,
resulting from changes in exchange rates.
H. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to attempt
to minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency
contract for the purchase or sale of a security denominated in a foreign
currency in order to "lock in" the U.S. dollar price of that security. The
Fund could be exposed to risk if counterparties to the contracts are unable
to meet the terms of their contracts or if the value of the foreign
currency changes unfavorably.
I. FUTURES CONTRACTS -- The Fund may purchase or sell futures contracts as a
hedge against changes in market conditions. Initial margin deposits
required upon entering into futures contracts are satisfied by the
segregation of specific securities as collateral for the account of the
broker (the Fund's agent in acquiring the futures position). During the
period the futures contracts are open, changes in the value of the
contracts are recognized as unrealized gains or losses by "marking to
market" on a daily basis to reflect the market value of the contracts at
the end of each day's trading. Variation margin payments are made or
received depending upon whether unrealized gains or losses are incurred.
When the contracts are closed, the Fund recognizes a realized gain or loss
equal to the difference between the proceeds from, or cost of, the closing
transaction and the Fund's basis in the contract. If the Fund were unable
to liquidate a futures contract and/or enter into an offsetting closing
transaction, the Fund would continue to be subject to market risk with
respect to the value of the contracts and continue to be required to
maintain the margin deposits on the futures contracts.
J. 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
F-12
date, or if the Fund enters into a closing purchase transaction, the Fund
realizes a gain (or a loss if the closing purchase transaction exceeds the
premium received when the option was written) without regard to any
unrealized gain or loss on the underlying security, and the liability
related to such option is extinguished. If a written option is exercised,
the Fund realizes a gain or a loss from the sale of the underlying security
and the proceeds of the sale are increased by the premium originally
received. A risk in writing a call option is that the Fund gives up the
opportunity for profit if the market price of the security increases and
the option is exercised.
K. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund are charged to the operations of such class. Transfer
agency fees and expenses and other shareholder recordkeeping fees and
expenses attributable to the Institutional Class are charged to such class.
Transfer agency fees and expenses relating to all other classes are
allocated among those classes based on relative net assets. All other
expenses are allocated among the classes based on relative net assets.
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement,
the Fund pays an advisory fee to AIM at the annual rate of 0.75% of the first
$150 million of the Fund's average daily net assets, plus 0.50% of the Fund's
average daily net assets in excess of $150 million. Further, AIM has voluntarily
agreed to waive advisory fees of the Fund in the amount of 25% of the advisory
fee AIM receives from the affiliated money market funds on investments by the
Fund in such affiliated money market funds (excluding investments made in
affiliated money market funds with cash collateral from securities loaned by the
Fund). For the year ended December 31, 2003, AIM waived fees of $26,441.
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, 2003, AIM was
paid $498,697 for such services.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay AIM Investment Services, Inc. ("AISI"), formerly known as A I M Fund
Services, Inc., a fee for providing transfer agency and shareholder services to
the Fund. For the Institutional Class, the transfer agent has contractually
agreed to reimburse class specific transfer agent fees to the extent necessary
to limit transfer agent fees to 0.10% of the average net assets. During the year
ended December 31, 2003, AISI retained $2,136,991 for such services and
reimbursed fees for the Institutional Class shares of $39.
The Trust has entered into master distribution agreements with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Class A, Class B, Class C, Class R and the Institutional Class shares of the
Fund. The Trust has adopted plans pursuant to Rule 12b-1 under the 1940 Act with
respect to the Fund's Class A, Class B, Class C and Class R shares (collectively
the "Plans"). The Fund, pursuant to the Plans, pays AIM Distributors
compensation at the annual rate of 0.25% of the Fund's average daily net assets
of Class A shares, 1.00% of the average daily net assets of Class B and Class C
shares and 0.50% of the average daily net assets of Class R shares. Of these
amounts, up to 0.25% of the average daily net assets of the Class A, Class B,
Class C or Class R shares may be paid to furnish continuing personal shareholder
services to customers who purchase and own shares of such classes. Any amounts
not paid as a service fee under the Plans would constitute an asset-based sales
charge. NASD Rules also impose a cap on the total sales charges, including
asset-based sales charges that may be paid by any class of shares of the Fund.
Pursuant to the Plans, for the year ended December 31, 2003, the Class A, Class
B, Class C and Class R shares paid $3,397,488, $7,336,443, $2,791,836 and
$13,795, respectively.
Front-end sales commissions and contingent deferred sales charges
("CDSC")(collectively the "sales charges") are not recorded as expenses of the
Fund. Front-end sales commissions are deducted from proceeds from the sales of
Fund shares prior to investment in Class A shares of the Fund. CDSC are deducted
from redemption proceeds prior to remittance to the shareholder. During year
ended December 31, 2003, AIM Distributors retained $167,714 in front-end sales
commissions from the sale of Class A shares and $2,908, $982, $11,040 and $0
from Class A, Class B, Class C and Class R shares, respectively, for CDSC
imposed upon redemptions by shareholders.
Certain officers and trustees of the Trust are officers and directors of
AIM, AISI and/or AIM Distributors.
F-13
NOTE 3--INVESTMENTS IN AFFILIATES
The Fund is permitted pursuant to an exemptive order from the Securities and
Exchange Commission ("SEC") and approved procedures by the Board of Trustees to
invest daily available cash balances and cash collateral from securities lending
transactions in affiliated money market funds. Each day the prior day's balance
invested in the affiliated money market fund is redeemed in full and a new
purchase amount is submitted to invest the current day's available cash and/or
cash collateral received from securities lending transactions. The table below
shows the transactions in and earnings from investments in affiliated money
market funds for the period ended December 31, 2003.
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND
12/31/2002 AT COST FROM SALES (DEPRECIATION) 12/31/2003 INCOME
- -----------------------------------------------------------------------------------------------------------------------------
Liquid Assets Portfolio $46,270,207 $ 452,053,407 $ (498,323,614) $ -- $ -- $ 557,046
- -----------------------------------------------------------------------------------------------------------------------------
STIC Prime Portfolio 46,270,207 452,053,407 (498,323,614) -- -- 535,880
=============================================================================================================================
Subtotal $92,540,414 $ 904,106,814 $ (996,647,228) $ -- $ -- $1,092,926
=============================================================================================================================
<Caption>
REALIZED
GAIN (LOSS)
-----------
- -----------------------
Liquid Assets Portfolio $ --
- -----------------------
STIC Prime Portfolio --
=======================
Subtotal $ --
=======================
</Table>
INVESTMENTS OF CASH COLLATERAL FROM SECURITIES LENDING TRANSACTIONS:
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND
12/31/2002 AT COST FROM SALES (DEPRECIATION) 12/31/2003 INCOME*
- -----------------------------------------------------------------------------------------------------------------------------
Liquid Assets Portfolio $198,527,731 $ 399,316,028 $ (537,648,160) $ -- $60,195,599 $ 352,885
- -----------------------------------------------------------------------------------------------------------------------------
STIC Prime Portfolio 198,527,731 399,316,028 (537,648,160) -- 60,195,599 341,163
=============================================================================================================================
Subtotal $397,055,462 $ 798,632,056 $(1,075,296,320) $ -- $120,391,198 $ 694,048
=============================================================================================================================
Total $489,595,876 $1,702,738,870 $(2,071,943,548) $ -- $120,391,198 $1,786,974
_____________________________________________________________________________________________________________________________
=============================================================================================================================
<Caption>
REALIZED
GAIN (LOSS)
-----------
- -----------------------
Liquid Assets Portfolio $ --
- -----------------------
STIC Prime Portfolio --
=======================
Subtotal $ --
=======================
Total $ --
_______________________
=======================
</Table>
* Dividend income is net of fees paid to security lending counterparties of
$2,129,155.
NOTE 4--EXPENSE OFFSET ARRANGEMENTS
Indirect expenses under expense offset arrangements are comprised of transfer
agency credits resulting from Demand Deposit Account (DDA) balances in transfer
agency clearing accounts and custodian credits resulting from periodic overnight
cash balances at the custodian. For the year ended December 31, 2003, the Fund
received reductions in transfer agency fees from AISI (an affiliate of AIM) of
$33,550 and reductions in custodian fees of $1,914 under expense offset
arrangements which resulted in a reduction of the Fund's total expenses of
$35,464.
NOTE 5--TRUSTEES' FEES
Trustees' fees represent remuneration paid to each Trustee of the Trust who is
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 and INVESCO Funds in which their deferral accounts
shall be deemed to be invested.
Current Trustees are eligible to participate in a retirement plan that
provides for benefits to be paid upon retirement to Trustees over a period of
time based on the number of years of service. The Fund may have certain former
Trustees that also participate in a retirement plan and receive benefits under
such plan.
During the year ended December 31, 2003, the Fund paid legal fees of $10,207
for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the
Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 6--BORROWINGS
The Fund may participate in an interfund lending facility that AIM has
established for temporary borrowings by the AIM Funds and the INVESCO Funds. An
interfund loan will be made under this facility only if the loan rate (an
average of the rate available on bank loans and the rate available on
investments in overnight repurchase agreements) is favorable to both the lending
fund and the borrowing fund. Under certain circumstances, a loan will be secured
by collateral. To the extent that the loan is required to be secured by
collateral, the collateral is marked to market daily to ensure that the market
value is at least 102% of the outstanding principal value of the loan.
Effective June 26, 2003, the Fund became a participant in an uncommitted
unsecured revolving credit facility with State Street Bank and Trust Company
("SSB"). The Fund may borrow up to the lesser of (i) $125,000,000 or (ii) the
limits set by its prospectus for borrowings. The Fund and other funds advised by
AIM which are parties to the credit facility can borrow on a first come, first
served basis. Principal on each loan outstanding shall bear interest at the bid
rate quoted by SSB at the time of the request for the loan.
During the reporting period, the Fund was a participant in a committed
credit facility with a syndicate administered by Citibank, N.A. The Fund could
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 were
parties to the credit facility could borrow on a first come, first served basis.
The funds which were party to the credit facility were charged a commitment fee
of 0.09% on the unused balance of the committed line. The commitment fee was
allocated among the funds based on their respective average net assets for the
period. The committed credit facility expired May 20, 2003.
During the year ended December 31, 2003, the Fund did not borrow or lend
under the interfund lending facility or borrow under either the uncommitted
unsecured revolving credit facility or the committed credit facility.
F-14
Additionally the Fund is permitted to temporarily carry a negative or
overdrawn balance in its account with the custodian bank. To compensate the
custodian bank for such overdrafts, the overdrawn Fund may either (i) leave
funds in the account so the custodian can be compensated by earning the
additional interest; or (ii) compensate by paying the custodian bank. In either
case, the custodian bank will be compensated an amount equal to the Federal
Funds rate plus 100 basis points.
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 of the loaned securities determined daily. Such collateral will be
cash or debt securities issued or guaranteed by the U.S. Government or any of
its agencies. Cash collateral received in connection with to these loans is
invested in short-term money market instruments or affiliated money market
funds. It is the Fund's policy to obtain additional collateral from or return
excess collateral to the borrower by the end of the next business day, following
the valuation date of the securities loaned. Therefore, the value of the
collateral held may be temporarily less than the value of the securities on
loan. Lending securities entails a risk of loss to the Fund if and to the extent
that the market value of the securities loaned were to increase and the borrower
did not increase the collateral accordingly, and the borrower fails to return
the securities. The Fund could also experience delays and costs in gaining
access to collateral. The Fund bears the risk of any deficiency in the amount of
the collateral available for return to the borrower due to a loss on the
collateral invested.
At December 31, 2003, securities with an aggregate value of $118,156,505
were on loan to brokers. The loans were secured by cash collateral of
$120,391,198, received by the Fund and subsequently invested in affiliated money
market funds. For the year ended December 31, 2003, the Fund received dividends
on cash collateral net of fees paid to counterparties of $694,048 for securities
lending transactions.
NOTE 8--OPTION CONTRACTS WRITTEN
<Table>
<Caption>
TRANSACTIONS DURING THE PERIOD
- ------------------------------------------------------------
CALL OPTION CONTRACTS
------------------------
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
- ------------------------------------------------------------
Beginning of year -- $ --
- ------------------------------------------------------------
Written 19,352 2,647,691
- ------------------------------------------------------------
Closed (11,352) (1,383,087)
- ------------------------------------------------------------
Exercised (7,145) (1,219,291)
- ------------------------------------------------------------
Expired (855) (45,313)
============================================================
End of year -- $ --
____________________________________________________________
============================================================
</Table>
NOTE 9--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
Distributions to Shareholders:
The tax character of distributions paid during the years ended December 31, 2003
and 2002 was as follows:
<Table>
<Caption>
2003 2002
- --------------------------------------------------------------
Distributions paid from ordinary
income $38,251,053 $63,628,273
______________________________________________________________
==============================================================
</Table>
Tax Components of Net Assets:
As of December 31, 2003, the components of net assets on a tax basis were as
follows:
<Table>
Undistributed ordinary income $ 851,264
- ------------------------------------------------------------
Unrealized appreciation -- investments 127,385,446
- ------------------------------------------------------------
Temporary book/tax differences (176,364)
- ------------------------------------------------------------
Capital loss carryforward (728,173,684)
- ------------------------------------------------------------
Shares of beneficial interest 2,905,249,675
============================================================
Total net assets $2,305,136,337
____________________________________________________________
============================================================
</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, bond premium amortization and the treatment of defaulted bonds.
The tax basis unrealized appreciation (depreciation) on investments amount
includes depreciation on foreign currencies written of $(44,631).
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
trustee retirement plan expenses.
The Fund utilized $100,558,720 of capital loss carryforward in the current
period to offset net realized capital gain for Federal Income Tax purposes. The
Fund has a capital loss carryforward for tax purposes which expires as follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD
- ----------------------------------------------------------
December 31, 2009 $194,280,842
- ----------------------------------------------------------
December 31, 2010 533,892,842
==========================================================
Total capital loss carryforward $728,173,684
__________________________________________________________
==========================================================
</Table>
NOTE 10--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities
and money market funds) purchased and sold by the Fund during the year ended
December 31, 2003 was $2,582,952,020 and $3,074,429,630, respectively.
Receivable for investments matured represents the estimated proceeds to the
fund by Candescent Technologies Corp. which is in default with respect to the
principal payments on $25,012,000 par value, Senior Unsecured Guaranteed
Subordinated Debentures, 8.00%, which were due May 1, 2003. This estimate was
determined in accordance with the fair valuation procedures authorized by the
Board of Trustees.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF
INVESTMENT SECURITIES ON A TAX BASIS
- -----------------------------------------------------------
Aggregate unrealized appreciation of
investment securities $133,885,871
- -----------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (6,455,794)
===========================================================
Net unrealized appreciation of investment
securities $127,430,077
___________________________________________________________
===========================================================
Cost of investments for tax purposes is $2,346,929,728.
</Table>
F-15
NOTE 11--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of foreign currency
transactions, bond premium adjustments and paydown reclassifications, on
December 31, 2003, undistributed net investment income was increased by
$7,609,641, undistributed net realized gains decreased by $7,609,641. This
reclassification had no effect on the net assets of the Fund.
NOTE 12--SHARE INFORMATION
The Fund currently offers five different classes of shares: Class A shares,
Class B shares, Class C shares, Class R shares and the Institutional Class
shares. Class A shares are sold with a front-end sales charge. Class B shares
and Class C shares are sold with a CDSC. Class R shares and the Institutional
Class shares are sold at net asset value. Under some circumstances, Class A
shares and Class R shares are subject to CDSCs. Generally, Class B shares will
automatically convert to Class A shares eight years after the end of the
calendar month of purchase.
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING
- --------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
------------------------------------------------------------
2003 2002
---------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
- --------------------------------------------------------------------------------------------------------------------------
Sold:
Class A 14,724,408 $ 317,421,511 18,401,640 $ 428,141,266
- --------------------------------------------------------------------------------------------------------------------------
Class B 2,822,623 61,571,171 4,099,333 94,890,497
- --------------------------------------------------------------------------------------------------------------------------
Class C 1,078,856 23,496,738 1,843,250 43,002,479
- --------------------------------------------------------------------------------------------------------------------------
Class R* 184,779 4,039,188 14,347 301,147
- --------------------------------------------------------------------------------------------------------------------------
Institutional Class** -- -- 388 10,000
==========================================================================================================================
Issued as reinvestment of dividends:
Class A 1,155,459 25,548,489 1,819,979 40,991,840
- --------------------------------------------------------------------------------------------------------------------------
Class B 362,180 7,982,445 587,872 13,234,876
- --------------------------------------------------------------------------------------------------------------------------
Class C 134,213 2,951,526 232,973 5,254,228
- --------------------------------------------------------------------------------------------------------------------------
Class R* 2,176 48,722 114 2,356
- --------------------------------------------------------------------------------------------------------------------------
Institutional Class** 9 209 10 233
==========================================================================================================================
Automatic conversion of Class B shares to Class A shares:
Class A 1,104,079 24,477,117 706,603 16,411,135
- --------------------------------------------------------------------------------------------------------------------------
Class B (1,106,931) (24,477,117) (708,036) (16,411,135)
==========================================================================================================================
Reacquired:
Class A (31,672,931) (693,233,172) (40,105,433) (904,239,365)
- --------------------------------------------------------------------------------------------------------------------------
Class B (8,005,292) (172,849,445) (12,551,569) (281,464,782)
- --------------------------------------------------------------------------------------------------------------------------
Class C (4,686,941) (102,124,418) (6,202,124) (140,341,508)
- --------------------------------------------------------------------------------------------------------------------------
Class R* (41,885) (938,291) (383) (8,064)
==========================================================================================================================
(23,945,198) $(526,085,327) (31,861,036) $(700,224,797)
__________________________________________________________________________________________________________________________
==========================================================================================================================
</Table>
* Class R shares commenced sales on June 3, 2002.
** Institutional class shares commended sales on March 15, 2002.
F-16
NOTE 13--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
CLASS A
----------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------
2003 2002 2001 2000 1999
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 20.81 $ 25.94 $ 30.10 $ 32.69 $ 28.23
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.35(a) 0.49(a) 0.71(a)(b) 0.92(a) 0.82(a)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized
and unrealized) 3.20 (5.09) (4.14) (2.23) 4.46
=================================================================================================================================
Total from investment operations 3.55 (4.60) (3.43) (1.31) 5.28
=================================================================================================================================
Less distributions:
Dividends from net investment income (0.43) (0.53) (0.73) (0.79) (0.82)
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- -- -- (0.49) --
=================================================================================================================================
Total distributions (0.43) (0.53) (0.73) (1.28) (0.82)
=================================================================================================================================
Net asset value, end of period $ 23.93 $ 20.81 $ 25.94 $ 30.10 $ 32.69
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(c) 17.23% (17.85)% (11.36)% (4.18)% 19.04%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $1,297,378 $1,434,164 $2,284,776 $2,507,641 $1,800,350
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets 1.10%(d) 1.06% 1.01% 0.96% 0.94%
=================================================================================================================================
Ratio of net investment income to average net
assets 1.60%(d) 2.11% 2.60%(b) 2.80% 2.81%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate 114% 78% 73% 55% 65%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) As required, effective January 1, 2001, the Fund has adopted the
provisions of the AICPA Audit and Accounting Guide for Investment
Companies and began amortizing premiums on debt securities. Had the Fund
not amortized premiums on debt securities, the net investment income per
share would have been $0.73 and the ratio of net investment income to
average net assets would have been 2.67%. In accordance with the AICPA
Audit and Accounting Guide for Investment Companies, per share and
ratios for periods prior to January 1, 2001 have not been restated to
reflect this change in presentation.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and does not include sales
charges.
(d) Ratios are based on average daily net assets of $1,358,995,358.
F-17
NOTE 13--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS B
------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------
2003 2002 2001 2000 1999
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 20.77 $ 25.88 $ 30.01 $ 32.61 $ 28.18
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.19(a) 0.31(a) 0.50(a)(b) 0.66(a) 0.58(a)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 3.17 (5.06) (4.11) (2.23) 4.45
=================================================================================================================================
Total from investment operations 3.36 (4.75) (3.61) (1.57) 5.03
=================================================================================================================================
Less distributions:
Dividends from net investment income (0.26) (0.36) (0.52) (0.54) (0.60)
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- -- -- (0.49) --
=================================================================================================================================
Total distributions (0.26) (0.36) (0.52) (1.03) (0.60)
=================================================================================================================================
Net asset value, end of period $ 23.87 $ 20.77 $ 25.88 $ 30.01 $ 32.61
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(c) 16.29% (18.46)% (12.01)% (4.93)% 18.08%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $739,424 $766,330 $1,176,679 $1,358,823 $1,183,215
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets 1.85%(d) 1.81% 1.76% 1.73% 1.75%
=================================================================================================================================
Ratio of net investment income to average net assets 0.85%(d) 1.36% 1.86%(b) 2.03% 2.00%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate 114% 78% 73% 55% 65%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) As required, effective January 1, 2001, the Fund has adopted the
provisions of the AICPA Audit and Accounting Guide for Investment
Companies and began amortizing premiums on debt securities. Had the Fund
not amortized premiums on debt securities, the net investment income per
share would have been $0.52 and the ratio of net investment income to
average net assets would have been 1.93%. In accordance with the AICPA
Audit and Accounting Guide for Investment Companies, per share and
ratios for periods prior to January 1, 2001 have not been restated to
reflect this change in presentation.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and does not include sales
charges.
(d) Ratios are based on average daily net assets of $733,644,320.
<Table>
<Caption>
CLASS C
------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------
2003 2002 2001 2000 1999
- --------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 20.80 $ 25.92 $ 30.05 $ 32.65 $ 28.21
- --------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.19(a) 0.31(a) 0.50(a)(b) 0.66(a) 0.58(a)
- --------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 3.18 (5.07) (4.11) (2.23) 4.46
================================================================================================================================
Total from investment operations 3.37 (4.76) (3.61) (1.57) 5.04
================================================================================================================================
Less distributions:
Dividends from net investment income (0.26) (0.36) (0.52) (0.54) (0.60)
- --------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- -- -- (0.49) --
================================================================================================================================
Total distributions (0.26) (0.36) (0.52) (1.03) (0.60)
================================================================================================================================
Net asset value, end of period $ 23.91 $ 20.80 $ 25.92 $ 30.05 $ 32.65
________________________________________________________________________________________________________________________________
================================================================================================================================
Total return(c) 16.32% (18.46)% (11.99)% (4.93)% 18.09%
________________________________________________________________________________________________________________________________
================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $264,513 $302,346 $483,644 $365,510 $200,585
________________________________________________________________________________________________________________________________
================================================================================================================================
Ratio of expenses to average net assets 1.85%(d) 1.81% 1.76% 1.73% 1.75%
================================================================================================================================
Ratio of net investment income to average net assets 0.85%(d) 1.36% 1.85%(b) 2.03% 2.00%
________________________________________________________________________________________________________________________________
================================================================================================================================
Portfolio turnover rate 114% 78% 73% 55% 65%
________________________________________________________________________________________________________________________________
================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) As required, effective January 1, 2001, the Fund has adopted the
provisions of the AICPA Audit and Accounting Guide for Investment
Companies and began amortizing premiums on debt securities. Had the Fund
not amortized premiums on debt securities, the net investment income per
share would have been $0.52 and the ratio of net investment income to
average net assets would have been 1.92%. In accordance with the AICPA
Audit and Accounting Guide for Investment Companies, per share and
ratios for periods prior to January 1, 2001 have not been restated to
reflect this change in presentation.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and does not include sales
charges.
(d) Ratios are based on average daily net assets of $279,183,614.
F-18
NOTE 13--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS R
------------------------------------
YEAR ENDED JUNE 3, 2002 (DATE
DECEMBER SALES COMMENCED)
31, TO DECEMBER 31,
2003 2002
- --------------------------------------------------------------------------------------------------
Net asset value, beginning of period $20.83 $ 23.73
- --------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.30(a) 0.22(a)
- --------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 3.19 (2.78)
==================================================================================================
Total from investment operations 3.49 (2.56)
==================================================================================================
Less distributions from net investment income (0.37) (0.34)
==================================================================================================
Net asset value, end of period $23.95 $ 20.83
__________________________________________________________________________________________________
==================================================================================================
Total return(b) 16.92% (10.82)%
__________________________________________________________________________________________________
==================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $3,812 $ 293
__________________________________________________________________________________________________
==================================================================================================
Ratio of expenses to average net assets 1.35%(c) 1.33%(d)
==================================================================================================
Ratio of net investment income to average net assets 1.35%(c) 1.83%(d)
__________________________________________________________________________________________________
==================================================================================================
Portfolio turnover rate(e) 114% 78%
__________________________________________________________________________________________________
==================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and is not annualized for
periods less than one year.
(c) Ratios are based on average daily net assets of $2,759,046.
(d) Annualized.
(e) Not annualized for periods less than one year.
<Table>
<Caption>
INSTITUTIONAL CLASS
---------------------------------------
MARCH 15, 2002 (DATE
YEAR ENDED SALES COMMENCED)
DECEMBER 31, TO DECEMBER 31,
2003 2002
- -----------------------------------------------------------------------------------------------------
Net asset value, beginning of period $20.82 $ 25.81
- -----------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.44(a) 0.44(a)
- -----------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 3.20 (4.83)
=====================================================================================================
Total from investment operations 3.64 (4.39)
=====================================================================================================
Less distributions from net investment income (0.52) (0.60)
=====================================================================================================
Net asset value, end of period $23.94 $ 20.82
_____________________________________________________________________________________________________
=====================================================================================================
Total return(b) 17.71% (17.16)%
_____________________________________________________________________________________________________
=====================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 10 $ 8
_____________________________________________________________________________________________________
=====================================================================================================
Ratio of expenses to average net assets
With fee waivers 0.68%(c) 0.67%(d)
- -----------------------------------------------------------------------------------------------------
Without fee waivers 1.13%(c) 0.80%(d)
=====================================================================================================
Ratio of net investment income to average net assets 2.02%(c) 2.50%(d)
_____________________________________________________________________________________________________
=====================================================================================================
Portfolio turnover rate(e) 114% 78%
_____________________________________________________________________________________________________
=====================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and is not annualized for
periods less than one year.
(c) Ratios are based on average daily net assets of $8,824.
(d) Annualized.
(e) Not annualized for periods less than one year.
F-19
NOTE 14--LEGAL PROCEEDINGS
Your Fund's investment advisor, A I M Advisors, Inc. ("AIM"), is an indirect
wholly owned subsidiary of AMVESCAP PLC ("AMVESCAP"). Another indirect wholly
owned subsidiary of AMVESCAP, INVESCO Funds Group, Inc. ("IFG"), was formerly
the investment advisor to the INVESCO Funds. IFG continues to serve as the
investment advisor to INVESCO Variable Investment Funds, Inc. ("IVIF"). On
November 25, 2003, AIM succeeded IFG as the investment advisor to the INVESCO
Funds other than IVIF.
The mutual fund industry as a whole is currently subject to a wide range of
inquiries and litigation related to issues of "market timing" and "late
trading." Both AIM and IFG are the subject of a number of such inquiries, as
described below.
A. Regulatory Inquiries and Actions
1. IFG
On December 2, 2003 each of the Securities and Exchange Commission ("SEC") and
the Office of the Attorney General of the State of New York ("NYAG") filed civil
proceedings against IFG and Raymond R. Cunningham, in his capacity as the Chief
Executive Officer of IFG. Mr. Cunningham currently holds the positions of Chief
Operating Officer and Senior Vice President of A I M Management Group Inc., the
parent of AIM, and the position of Senior Vice President of AIM. In addition, on
December 2, 2003, the State of Colorado filed civil proceedings against IFG.
Neither the Fund nor any of the other AIM or INVESCO Funds has been named as a
defendant in any of these proceedings.
The SEC complaint alleges that IFG failed to disclose in the INVESCO Funds'
prospectuses and to the INVESCO Funds' independent directors that IFG had
entered into certain arrangements permitting market timing of the INVESCO Funds.
The SEC is seeking injunctions, including permanent injunctions from serving as
an investment advisor, officer or director of an investment company; an
accounting of all market timing as well as certain fees and compensation
received; disgorgement; civil monetary penalties; and other relief.
The NYAG and Colorado complaints make substantially similar allegations. The
NYAG is seeking injunctions, including permanent injunctions from directly or
indirectly selling or distributing shares of mutual funds; disgorgement of all
profits obtained, including fees collected, and payment of all restitution and
damages caused, directly or indirectly from the alleged illegal activities;
civil monetary penalties; and other relief. The State of Colorado is seeking
injunctions; restitution, disgorgement and other equitable relief, civil
monetary penalties; and other relief.
In addition, IFG has received inquiries in the form of subpoenas or other oral
or written requests for information from various regulators concerning market
timing activity, late trading, fair value pricing and related issues concerning
the INVESCO Funds. These regulators include the Florida Department of Financial
Services, the Commissioner of Securities for the State of Georgia, the Office of
the State Auditor for the State of West Virginia, and the Office of the
Secretary of State for West Virginia. IFG has also received more limited
inquiries concerning related matters from the United States Department of Labor,
NASD, Inc., and the SEC. IFG is providing full cooperation with respect to these
inquiries.
2. AIM
AIM has also received inquiries in the form of subpoenas or other oral or
written requests for information from various regulators concerning market
timing activity, late trading, fair value pricing, and related issues concerning
the AIM Funds. AIM has received requests for information and documents
concerning these and related matters from the SEC and the Massachusetts
Secretary of the Commonwealth. In addition, AIM has received subpoenas
concerning these and related matters from the NYAG, the United States Attorney's
Office for the District of Massachusetts, the Commissioner of Securities for the
State of Georgia, the Office of the State Auditor for the State of West
Virginia, and the Office of the Secretary of State for West Virginia. AIM has
also received more limited inquiries from the SEC and NASD, Inc. concerning
specific funds, entities and/or individuals, none of which directly bears upon
the Fund. AIM is providing full cooperation with respect to these inquiries.
3. AMVESCAP Response
AMVESCAP is seeking to resolve both the pending regulatory complaints against
IFG alleging market timing and the ongoing market timing investigations with
respect to IFG and AIM. AMVESCAP recently found, in its ongoing review of these
matters, that shareholders were not always effectively protected from the
potential adverse impact of market timing and illegal late trading through
intermediaries. These findings were based, in part, on an extensive economic
analysis by outside experts who have been retained by AMVESCAP to examine the
impact of these activities. In light of these findings, AMVESCAP has publicly
stated that any AIM or INVESCO Fund, or any shareholders thereof, harmed by
these activities will receive full restitution. AMVESCAP has informed regulators
of these findings. In addition, AMVESCAP has retained outside counsel to
undertake a comprehensive review of AIM's and IFG's policies, procedures and
practices, with the objective that they rank among the most effective in the
fund industry.
There can be no assurance that AMVESCAP will be able to reach a satisfactory
settlement with the regulators, or that any such settlement will not include
terms which would have the effect of barring either or both of IFG and AIM, or
any other investment advisor directly or indirectly owned by AMVESCAP, from
serving as an investment advisor to any registered investment company including
the Fund. The Fund has been informed by AIM that, if either of these results
occurs, AIM will seek exemptive relief from the SEC to permit it to continue to
serve as the Fund's investment advisor. There can be no assurance that such
exemptive relief will be granted. Any settlement with the regulators could also
include terms which would bar Mr. Cunningham from serving as an officer or
director of any registered investment company.
B. Private Actions
In addition to the complaints described above, multiple lawsuits, including
purported class action and shareholder derivative suits, have been filed against
various parties (including, depending on the lawsuit, certain INVESCO Funds,
certain AIM Funds, IFG, AIM, A I M Management Group Inc., the parent of AIM,
AMVESCAP, certain related entities and certain of their officers, including Mr.
Cunningham). The allegations in the majority of the lawsuits are substantially
similar to the allegations in the regulatory complaints against IFG described
above. Certain other lawsuits allege that certain AIM and INVESCO Funds
inadequately employed fair value pricing. Such lawsuits allege a variety of
theories of recovery, including but not limited to: (i) violation of various
provisions of the Federal and state securities laws; (ii) violation of various
provisions of the Employee Retirement Income Security Act
F-20
NOTE 14--LEGAL PROCEEDINGS (CONTINUED)
("ERISA"); (iii) breach of fiduciary duty; and (iv) breach of contract. The
lawsuits have been filed in both Federal and state courts and seek such remedies
as compensatory damages; restitution; rescission; accounting for wrongfully
gotten gains, profits and compensation; injunctive relief; disgorgement;
equitable relief; various corrective measures under ERISA; rescission of certain
Funds' advisory agreements with AIM; declaration that the advisory agreement is
unenforceable or void; refund of advisory fees; interest; and attorneys' and
experts' fees.
IFG has removed certain of the state court proceedings to Federal District
Court. At a hearing before the Judicial Panel on Multidistrict Litigation
concerning the most efficient way to manage the numerous lawsuits alleging
market timing in mutual funds throughout the industry, IFG and AIM supported
transfer of all cases pending against them to one district for consolidated
proceedings. The Panel has not issued a ruling.
Additional lawsuits or regulatory actions arising out of these circumstances
and presenting similar allegations and requests for relief may be filed against
the Fund, IFG, AIM, AMVESCAP and related entities and individuals in the future.
As a result of these developments, investors in the AIM and INVESCO Funds
might react by redeeming their investments. This might require the Funds to sell
investments to provide for sufficient liquidity and could also have an adverse
effect on the investment performance of the Funds.
At the present time, management of AIM and the Fund is unable to estimate the
impact, if any, that the outcome of the matters described above may have on the
Fund or AIM.
F-21
REPORT OF INDEPENDENT AUDITORS
To the Board of Trustees and Shareholders of AIM Balanced Fund
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the AIM Balanced Fund (one of the
funds constituting AIM Funds Group; hereafter referred to as the "Fund") at
December 31, 2003, the results of its operations for the year then ended, the
changes in its net assets for each of the two years in the period then ended and
the financial highlights for each of the periods indicated in the four years
then ended, in conformity with accounting principles generally accepted in the
United States of America. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Fund's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with auditing standards generally accepted in
the United States of America, which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 2003 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion. The financial highlights for each of the periods ended on or before
December 31, 1999 were audited by other independent auditors whose report dated
February 14, 2000, expressed an unqualified opinion thereon.
PRICEWATERHOUSECOOPERS LLP
February 20, 2004
Houston, Texas
F-22
PROXY RESULTS (UNAUDITED)
A Special Meeting of Shareholders of AIM Balanced Fund, a portfolio of AIM Funds
Group, a Delaware statutory trust, was held on October 21, 2003. The meeting was
held for the following purpose:
(1)* To elect sixteen individuals to the Board, each of whom will serve until
his or her successor is elected and qualified: Bob R. Baker, Frank S.
Bayley, James T. Bunch, Bruce L. Crockett, Albert R. Dowden, Edward K.
Dunn, Jr., Jack M. Fields, Carl Frischling, Robert H. Graham, Gerald J.
Lewis, Prema Mathai-Davis, Lewis F. Pennock, Ruth H. Quigley, Louis S.
Sklar, Larry Soll, Ph D. and Mark H. Williamson.
The results of the voting on the above matter were as follows:
<Table>
<Caption>
WITHHOLDING
TRUSTEES/MATTER VOTES FOR AUTHORITY
- ---------------------------------------------------------------------------------
(1)* Bob R. Baker................................. 822,704,205 11,194,804
Frank S. Bayley.............................. 822,781,451 11,117,558
James T. Bunch............................... 822,886,061 11,012,948
Bruce L. Crockett............................ 822,942,379 10,956,630
Albert R. Dowden............................. 822,923,043 10,975,966
Edward K. Dunn, Jr........................... 822,752,667 11,146,342
Jack M. Fields............................... 823,013,560 10,885,449
Carl Frischling.............................. 822,602,646 11,296,363
Robert H. Graham............................. 822,881,635 11,017,374
Gerald J. Lewis.............................. 822,460,720 11,438,289
Prema Mathai-Davis........................... 822,715,053 11,183,956
Lewis F. Pennock............................. 822,839,481 11,059,528
Ruth H. Quigley.............................. 822,446,309 11,452,700
Louis S. Sklar............................... 822,882,710 11,016,299
Larry Soll, Ph.D............................. 822,748,856 11,150,153
Mark H. Williamson........................... 822,801,778 11,097,231
</Table>
* Proposal required approval by a combined vote of all the portfolios of AIM
Funds Group.
F-23
OTHER INFORMATION
TRUSTEES AND OFFICERS
As of January 1, 2004
The address of each trustee and officer of AIM Funds Group (the "Trust"), is 11
Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee oversees 104
portfolios in the AIM and INVESCO Funds complex, except for Messrs. Baker,
Bunch, Lewis and Soll who oversee 96 portfolios and Mr. Williamson who oversees
117 portfolios in the AIM and INVESCO Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
<Table>
<Caption>
NAME, YEAR OF BIRTH AND TRUSTEE AND/
POSITION(S) HELD WITH THE OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- -------------------------------------------------------------------------------------------------------------------------------
INTERESTED PERSONS
- -------------------------------------------------------------------------------------------------------------------------------
Robert H. Graham(1) -- 1946 1992 Director and Chairman, A I M Management Group Inc. None
Trustee, Chairman and (financial services holding company); and Director
President and Vice Chairman, AMVESCAP PLC and Chairman of
AMVESCAP PLC -- AIM Division (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), AIM Investment Services, Inc.,
(registered transfer agent), and Fund Management
Company (registered broker dealer); and Chief
Executive Officer, AMVESCAP PLC -- Managed
Products
- -------------------------------------------------------------------------------------------------------------------------------
Mark H. Williamson(2) -- 1951 2003 Director, President and Chief Executive Officer, None
Trustee and Executive Vice A I M Management Group Inc. (financial services
President holding company); Director, Chairman and
President, A I M Advisors, Inc. (registered
investment advisor); Director, A I M Capital
Management, Inc. (registered investment advisor)
and A I M Distributors, Inc. (registered broker
dealer); Director and Chairman, AIM Investment
Services, Inc. (registered transfer agent), and
Fund Management Company (registered broker
dealer); and Chief Executive Officer, AMVESCAP
PLC -- AIM Division (parent of AIM and a global
investment management firm)
Formerly: Director, Chairman, President and Chief
Executive Officer, INVESCO Funds Group, Inc. and
INVESCO Distributors, Inc.; Chief Executive
Officer, AMVESCAP PLC -- Managed Products;
Chairman and Chief Executive Officer of
NationsBanc Advisors, Inc.; and Chairman of
NationsBanc Investments, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- -------------------------------------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 2003 Consultant None
Trustee
Formerly: President and Chief Executive Officer,
AMC Cancer Research Center; and Chairman and Chief
Executive Officer, First Columbia Financial
Corporation
- -------------------------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2001 Of Counsel, law firm of Baker & McKenzie Badgley Funds, Inc.
Trustee (registered investment
company)
- -------------------------------------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 2003 Co-President and Founder, Green, Manning & Bunch None
Trustee Ltd., (investment banking firm); and Director,
Policy Studies, Inc. and Van Gilder Insurance
Corporation
Formerly: General Counsel and Director, Boettcher
& Co.; and Chairman and Managing Partner, law firm
of Davis, Graham & Stubbs
- -------------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett -- 1944 1987 Chairman, Crockett Technology Associates ACE Limited (insurance
Trustee (technology consulting company) company); and
Captaris, Inc.
(unified messaging
provider)
- -------------------------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2000 Director of a number of public and private Cortland Trust, Inc.
Trustee business corporations, including the Boss Group (Chairman) (registered
Ltd. (private investment and management) and investment company);
Magellan Insurance Company Annuity and Life Re
(Holdings), Ltd.
Formerly: Director, President and Chief Executive (insurance company)
Officer, Volvo Group North America, Inc.; Senior
Vice President, AB Volvo; and director of various
affiliated Volvo companies
- -------------------------------------------------------------------------------------------------------------------------------
Edward K. Dunn, Jr. -- 1935 1998 Formerly: Chairman, Mercantile Mortgage Corp.; None
Trustee President and Chief Operating Officer,
Mercantile-Safe Deposit & Trust Co.; and
President, Mercantile Bankshares Corp.
- -------------------------------------------------------------------------------------------------------------------------------
Jack M. Fields -- 1952 1997 Chief Executive Officer, Twenty First Century Administaff
Trustee Group, Inc. (government affairs company) and
Texana Timber LP
- -------------------------------------------------------------------------------------------------------------------------------
</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.
Trustees and Officers (continued)
As of January 1, 2004
The address of each trustee and officer of AIM Funds Group (the "Trust"), is 11
Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee oversees 104
portfolios in the AIM and INVESCO Funds complex, except for Messrs. Baker,
Bunch, Lewis and Soll who oversee 96 portfolios and Mr. Williamson who oversees
117 portfolios in the AIM and INVESCO Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
<Table>
<Caption>
NAME, YEAR OF BIRTH AND TRUSTEE AND/ PRINCIPAL OCCUPATION(S)
POSITION(S) HELD WITH THE TRUST OR OFFICER SINCE DURING PAST 5 YEARS
- -------------------------------------------------------------------------------------------------------------------
Carl Frischling -- 1937 1993 Partner, law firm of Kramer Levin Naftalis and Frankel LLP
Trustee
- -------------------------------------------------------------------------------------------------------------------
Gerald J. Lewis -- 1933 2003 Chairman, Lawsuit Resolution Services (San Diego,
Trustee California)
Formerly: Associate Justice of the California Court of
Appeals
- -------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA of the USA
Trustee
- -------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 1992 Partner, law firm of Pennock & Cooper
Trustee
- -------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2001 Retired
Trustee
- -------------------------------------------------------------------------------------------------------------------
Louis S. Sklar -- 1939 1993 Executive Vice President, Development and Operations Hines
Trustee Interests Limited Partnership (real estate development
company)
- -------------------------------------------------------------------------------------------------------------------
Larry Soll, Ph.D. -- 1942 2003 Retired
Trustee
- -------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- -------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 2003 Director, Senior Vice President, Secretary and General
Senior Vice President and Chief Counsel, A I M Management Group Inc. (financial services
Legal Officer holding company) and A I M Advisors, Inc.; Vice President,
A I M Capital Management, Inc., A I M Distributors, Inc. and
AIM Investment Services, Inc.; and Director, Vice President
and General Counsel, Fund Management Company
Formerly: Senior Vice President and General Counsel, Liberty
Financial Companies, Inc.; and Senior Vice President and
General Counsel, Liberty Funds Group, LLC
- -------------------------------------------------------------------------------------------------------------------
Robert G. Alley -- 1948 1992 Managing Director, Chief Fixed Income Officer and Senior
Vice President Investment Officer, A I M Capital Management, Inc.; and Vice
President, A I M Advisors, Inc.
- -------------------------------------------------------------------------------------------------------------------
Stuart W. Coco -- 1955 1992 Managing Director and Chief Research Officer -- Fixed
Vice President Income, 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 Advisors,
Vice President Inc. and A I M Capital Management, Inc.; and Vice President,
AIM Investment Services, Inc.
- -------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, A I M Advisors, Inc.;
Vice President and Treasurer Senior Vice President, AIM Investment Services, Inc.; and
Vice President, A I M Distributors, Inc.
- -------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 1992 Managing Director and Chief Management Officer, A I M
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 President, Chief
Vice President Executive Officer and Chief Investment Officer, A I M
Capital Management, Inc.
- -------------------------------------------------------------------------------------------------------------------
<Caption>
NAME, YEAR OF BIRTH AND OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST HELD BY TRUSTEE
- --------------------------------- ----------------------
Carl Frischling -- 1937 Cortland Trust, Inc.
Trustee (registered investment
company)
- -------------------------------------------------------------------------------------------------------------------
Gerald J. Lewis -- 1933 General Chemical
Trustee Group, Inc.,
Wheelabrator
Technologies, Inc.
(waste management
company), Fisher
Scientific, Inc.,
Henley Manufacturing,
Inc. (laboratory
supplies), and
California Coastal
Properties, Inc.
- -------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 None
Trustee
- -------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 None
Trustee
- -------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 None
Trustee
- -------------------------------------------------------------------------------------------------------------------
Louis S. Sklar -- 1939 None
Trustee
- -------------------------------------------------------------------------------------------------------------------
Larry Soll, Ph.D. -- 1942 None
Trustee
- -------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- -------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 N/A
Senior Vice President and Chief
Legal Officer
- -------------------------------------------------------------------------------------------------------------------
Robert G. Alley -- 1948 N/A
Vice President
- -------------------------------------------------------------------------------------------------------------------
Stuart W. Coco -- 1955 N/A
Vice President
- -------------------------------------------------------------------------------------------------------------------
Melville B. Cox -- 1943 N/A
Vice President
- -------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961
Vice President and Treasurer
- -------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 N/A
Vice President
- -------------------------------------------------------------------------------------------------------------------
Edgar M. Larsen -- 1940 N/A
Vice President
- -------------------------------------------------------------------------------------------------------------------
</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 LLP
Suite 100 11 Greenway Plaza 11 Greenway Plaza 1201 Louisiana, Suite 2900
Houston, TX 77046-1173 Suite 100 Suite 100 Houston, TX 77002-5678
Houston, TX 77046-1173 Houston, TX 77046-1173
COUNSEL TO THE FUND COUNSEL TO THE TRUSTEES TRANSFER AGENT CUSTODIAN
Ballard Spahr Kramer, Levin, Naftalis & AIM Investment 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 19103-7599 New York, NY 10022-3852 Boston, MA 02110
</Table>
REQUIRED FEDERAL INCOME TAX INFORMATION (UNAUDITED)
Of ordinary dividends paid to shareholders during the Fund's tax year ended
December 31, 2003, 49.19% is eligible for the dividends received deduction for
corporations.
For its tax year ended December 31, 2003 the Fund designated 53.57%, or the
maximum amount allowable, of its dividend distributions as qualified dividend
income. The actual percentages for the calendar year will be designated in the
Fund's year-end tax statement.
REQUIRED STATE INCOME TAX INFORMATION (UNAUDITED)
Of the ordinary dividends paid, 8.08% was derived from U.S. Treasury
obligations.
<Table>
DOMESTIC EQUITY INTERNATIONAL/GLOBAL EQUITY FIXED INCOME
AIM Aggressive Growth Fund AIM Asia Pacific Growth Fund TAXABLE
AIM Balanced Fund* AIM Developing Markets Fund
AIM Basic Balanced Fund* AIM European Growth Fund AIM Floating Rate Fund
AIM Basic Value Fund AIM European Small Company Fund AIM High Yield Fund
AIM Blue Chip Fund AIM Global Aggressive Growth Fund AIM Income Fund
AIM Capital Development Fund AIM Global Growth Fund AIM Intermediate Government Fund
AIM Charter Fund AIM Global Trends Fund AIM Limited Maturity Treasury Fund
AIM Constellation Fund AIM Global Value Fund(5) AIM Money Market Fund
AIM Dent Demographic Trends Fund AIM International Emerging Growth Fund AIM Short Term Bond Fund
AIM Diversified Dividend Fund(1) AIM International Growth Fund AIM Total Return Bond Fund
AIM Emerging Growth Fund AIM Trimark Fund INVESCO U.S. Government Money Fund
AIM Large Cap Basic Value Fund INVESCO International Core Equity Fund(6)
AIM Large Cap Growth Fund TAX-FREE
AIM Libra Fund SECTOR EQUITY
AIM Mid Cap Basic Value Fund AIM High Income Municipal Fund
AIM Mid Cap Core Equity Fund(2) AIM Global Health Care Fund AIM Municipal Bond Fund
AIM Mid Cap Growth Fund AIM Real Estate Fund AIM Tax-Exempt Cash Fund
AIM Opportunities I Fund INVESCO Advantage Health Sciences Fund AIM Tax-Free Intermediate Fund
AIM Opportunities II Fund INVESCO Energy Fund
AIM Opportunities III Fund INVESCO Financial Services Fund
AIM Premier Equity Fund INVESCO Gold & Precious Metals Fund
AIM Select Equity Fund INVESCO Health Sciences Fund
AIM Small Cap Equity Fund(3) INVESCO Leisure Fund
AIM Small Cap Growth Fund(4) INVESCO Multi-Sector Fund
AIM Trimark Endeavor Fund INVESCO Technology Fund
AM Trimark Small Companies Fund INVESCO Utilities Fund
AIM Weingarten Fund
INVESCO Core Equity Fund
INVESCO Dynamics Fund
INVESCO Mid-Cap Growth Fund
INVESCO Small Company Growth Fund
INVESCO S&P 500 Index Fund
INVESCO Total Return Fund*
</Table>
* Domestic equity and income fund
(1) Effective May 2, 2003, AIM Large Cap Core Equity Fund was renamed AIM
Diversified Dividend Fund. (2) As of the close of business on February 27, 2004,
AIM Mid Cap Core Equity Fund is available to new investors on a limited basis.
For information on who may continue to invest in AIM Mid Cap Core Equity Fund,
please contact your financial advisor. (3) AIM Small Cap Equity Fund was closed
to most investors on December 19, 2003. For information on who may continue to
invest in AIM Small Cap Equity Fund, please contact your financial advisor. (4)
AIM Small Cap Growth Fund was closed to most investors on March 18, 2002. For
information on who may continue to invest in AIM Small Cap Growth Fund, please
contact your financial advisor. (5) Effective April 30, 2003, AIM Worldwide
Spectrum Fund was renamed AIM Global Value Fund. (6) Effective November 24,
2003, INVESCO International Blue Chip Value Fund was renamed INVESCO
International Core Equity Fund.
For more complete information about any AIM or INVESCO fund, including sales
charges and expenses, ask your financial advisor for a prospectus. Please read
the prospectus carefully and consider the investment objectives, risks, and
charges and expenses of the investment carefully before investing. If used after
April, 2004, this brochure must be accompanied by a fund Performance &
Commentary or by an AIM Quarterly Performance Review for the most recent
quarter-end. Mutual funds distributed by A I M Distributors, Inc.
A I M Management Group Inc. has provided leadership in the investment management
industry since 1976 and manages $149 billion in assets for approximately 11
million shareholders, including individual investors, corporate clients and
financial institutions. AIM is a subsidiary of AMVESCAP PLC, one of the world's
largest independent financial services companies with $371 billion in assets
under management. Data as of December 31, 2003.
AIMinvestments.com BAL-AR-1
<Table>
YOUR GOALS. OUR SOLUTIONS.--Servicemark--
- -----------------------------------------------------------------------------------------------
Mutual Retirement Annuities College Separately Offshore Alternative Cash [AIM INVESTMENTS LOGO APPEARS HERE]
Funds Products Savings Managed Products Investments Management --Servicemark--
Plans Accounts
- -----------------------------------------------------------------------------------------------
</Table>
AIM Basic Balanced Fund
Annual Report to Shareholders o December 31, 2003
[COVER IMAGE]
YOUR GOALS. OUR SOLUTIONS. [AIM INVESTMENTS LOGO APPEARS HERE]
--Servicemark-- --Servicemark--
================================================================================
AIM BASIC BALANCED FUND SEEKS LONG-TERM GROWTH OF CAPITAL AND CURRENT INCOME.
================================================================================
o Unless otherwise stated, information presented is as of 12/31/03 and is based
on total net assets.
ABOUT SHARE CLASSES
<Table>
o Effective 9/30/03, Class B shares are OTHER INFORMATION: o The unmanaged Lipper Balanced Fund
not available as an investment for Index represents an average of the 30
retirement plans maintained pursuant to o The average credit quality of the largest balanced funds tracked by
Section 401 of the Internal Revenue fund's holdings as of the close of the Lipper, Inc., an independent mutual
Code, including 401(k) plans, money reporting period represents the fund performance monitor. It is
purchase pension plans and profit weighted average quality rating of the calculated daily, with adjustments
sharing plans. Plans that have existing securities in the portfolio as for distributions as of the
accounts invested in Class B shares will assigned by Nationally Recognized ex-dividend dates.
continue to be allowed to make Statistical Rating Organizations based
additional purchases. on assessment of the credit quality of o The unmanaged Standard & Poor's
the individual securities. Composite Index of 500 Stocks (the S&P
PRINCIPAL RISKS OF INVESTING IN THE FUND: 500--Registered Trademark--) is an
o Effective duration is a measure of a index of common stocks frequently used
o International investing presents bond fund's price sensitivity to as a general measure of U.S. stock market
certain risks not associated with changes in interest rates. It also performance.
investing solely in the United States. takes into account mortgage prepayments,
These include risks relating to puts, adjustable coupons and potential o A direct investment cannot be made in
fluctuations in the value of the U.S. call dates. an index. Unless otherwise indicated,
dollar relative to the values of other index results include reinvested
currencies, the custody arrangements ABOUT INDEXES USED IN THIS REPORT: dividends, and they do not reflect sales
made for the fund's foreign holdings, charges. Performance of an index of
differences in accounting, political o The fund uses a blended index composed funds reflects fund expenses;
risks and the lesser degree of public of 60% Russell 1000--Registered Trademark-- performance of a market index does not.
information required to be provided by Value Index and 40% Lehman U.S. Aggregate
non-U.S. companies. Bond Index. The unmanaged Russell Industry classifications used in this
1000--Registered Trademark-- Index report are generally according to the
o The fund may participate in the represents the performance of the stocks Global Industry Classification Standard,
initial public offering (IPO) market in of large- capitalization companies; the which was developed by and is the
some market cycles. Because of the Value segment measures the performance of exclusive property and a service mark
fund's small asset base, any investment Russell 1000 companies with lower of Morgan Stanley Capital International
the fund may make in IPOs may price/book ratios and lower forecasted Inc. and Standard & Poor's.
significantly affect the fund's total growth values. The unmanaged Lehman U.S.
return. As the fund's assets grow, the Aggregate Bond Index, which represents A description of the policies and
impact of IPO investments will decline, the U.S. investment-grade fixed-rate bond procedures that the Fund uses to
which may reduce the effect of IPO market (including government and corporate determine how to vote proxies relating
investments on the fund's total return. securities, mortgage pass-through to portfolio securities is available
securities and asset- backed securities), without charge, upon request, by calling
is compiled by Lehman Brothers, a global 800-959-4246, or on the AIM Web site,
investment bank. AIMInvestments.com.
</Table>
<Table>
=================================================
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE THIS REPORT MAY BE DISTRIBUTED ONLY TO SHAREHOLDERS OR TO PERSONS
================================================= WHO HAVE RECEIVED A CURRENT PROSPECTUS OF THE FUND. PLEASE READ
THE PROSPECTUS CAREFULLY AND CONSIDER THE INVESTMENT OBJECTIVES,
RISKS, AND CHARGES AND EXPENSES OF THE INVESTMENT CAREFULLY
BEFORE INVESTING.
</Table>
AIMinvestments.com
TO OUR SHAREHOLDERS
DEAR FELLOW SHAREHOLDER IN THE AIM FAMILY OF
FUNDS--Registered Trademark--:
[PHOTO OF The fiscal year ended December 31, 2003, was a welcome
ROBERT H. change from the bear market of the previous three years.
GRAHAM Major stock market indexes here and abroad delivered
positive performance, with double-digit returns more the
ROBERT H. GRAHAM rule than the exception. As is historically the case, bond
market returns were more modest, but nonetheless positive as
well. The U.S. economy appears to have turned a corner, with
solid growth in gross domestic product. Overseas,
particularly in Europe, economic performance was not so
robust but appeared to pick up during the second half of the
year.
U.S. investors seem to have regained their confidence,
putting $152.77 billion in new money into stock mutual funds
during 2003 and $31.40 billion into bond funds. By contrast,
money market funds, considered a safe haven because of their emphasis on
stability of net asset value, suffered large net outflows during 2003.
The durability of these trends is, of course, unpredictable, but the economy
does appear to have the wind at its back in terms of fiscal, monetary and tax
stimulus, and corporate earnings have been strong. Nevertheless, we caution all
our shareholders against thinking that 2004 will be a repeat of 2003. We simply
do not know.
What should investors do? They should do what we have always urged: Keep
their eyes on their long-term goals, keep their portfolios diversified, and work
with their financial advisors to tailor their investments to their risk
tolerance and investment objectives. We cannot overemphasize the importance of
professional guidance when it comes to selecting investments.
For information on your fund's performance and management during the fiscal
year, please see the management discussion that begins on the following page.
VISIT OUR WEB SITE
As you are aware, the mutual fund industry, including AIM Investments, has been
the subject of allegations and investigations of late surrounding the issues of
market timing and late trading in funds. We understand how unsettling this may
be for many of our shareholders. We encourage you to visit AIMinvestments.com
often to monitor developments. We will continue to post updates on these issues
as information becomes available.
The Securities and Exchange Commission, which regulates our industry, has
already proposed new rules and regulations, and is planning to propose several
more, that address the issues of market timing and late trading, among others.
We welcome these efforts, as does the industry trade group, the Investment
Company Institute. We believe comprehensive rule making is necessary and is the
best way to establish new industry responsibilities designed to protect
shareholders. We support practical rule changes and structural modifica- tions
that are fair, enforceable and, most importantly, beneficial for investors.
Should you visit our Web site, we invite you to explore the other material
available there, including general investing information, performance updates on
our funds, and market and economic commentary from our financial experts.
As always, AIM is committed to building solutions for your investment goals,
and we thank you for your continued participation in AIM Investments. If you
have any questions, you can contact one of our Client Service representatives at
800-959-4246.
Sincerely,
/s/ ROBERT H. GRAHAM
Robert H. Graham
Chairman and President
February 9, 2004
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
<Table>
AIM BASIC BALANCED FUND our stock selection within these sectors
OUTPERFORMS ITS PEERS generated above-average returns. The
sectors that had the most material impact
AIM Basic Balanced Fund finished the rate ending the year at 5.7%. On June 25, on our relative outperformance were
fiscal year ended December 31, 2003, the Federal Reserve cut the influential industrials, consumer discretionary,
with total returns at net asset value federal funds rate from 1.25% to a financials and health care. Sectors
of 22.35% for Class A shares. (If sales 58-year low of 1.00%, where it remained exhibiting relative underperformance were
charges were included, performance would for the rest of the year. consumer staples, utilities and basic
be lower.) Results for other share materials.
classes are shown in a table on page 4. The best-performing equity sectors
The fund outperformed its peers, as and industries during 2003 were those The fund's fixed-income returns
represented by the Lipper Balanced Fund that are most likely to benefit from an essentially matched those of the U.S.
Index, which returned 19.94%. The fund economic recovery--consumer investment-grade bond market, as measured
underperformed the 28.67% return of the discretionary, financials, technology, by the Lehman U.S. Aggregate Bond Index,
S&P 500 Index, which is to be expected business services, industrial capital which returned 4.10% for the 12-month
during a period when equities goods and raw materials producers. period. Here also, the more economically
outperformed fixed-income securities, Utilities, consumer staples and other sensitive sectors performed best, with
as they did during 2003. The S&P 500 economically defensive groups did not U.S. corporate instruments posting the
includes only equities, whereas the perform as well. highest returns within the index.
fund's portfolio is roughly 40% fixed- Corporate bonds also proved to be the
income securities, and the fund's YOUR FUND biggest contributor to fund performance
performance reflected the effects of among all fixed-rate holdings.
its bonds' more modest, single-digit Based on our valuation estimates during
rates of return. 2002, we believed the most compelling We manage the fund based on the
valuation opportunities were concentrated philosophy that business value is
MARKET CONDITIONS in companies leveraged to an economic separate from, but eventually determines,
recovery scenario. As a result, the market value. Our goal is to grow your
Amid generally improving economic changes we made to the equity portfolio capital by investing primarily in U.S.
conditions, the equity market rallied. in 2002 were many of the key drivers of companies that are significantly
The nation's real gross domestic our 2003 performance. undervalued on an absolute basis. The AIM
product, generally considered the Basic Value philosophy recognizes
broadest measure of economic activity, The fund's equity portfolio businesses have an intrinsic value that
expanded at an annualized rate of 3.1% outperformed the S&P 500 because we were is independent of the market, stock
for 2003. The job market, though slightly more exposed to the prices are more volatile than business
improving, remained weak, with the best-performing sectors, and values, investors often overreact to
unemployment negative news, and a long-term investment
horizon is required.
</Table>
<Table>
===================================================================================================================================
PORTFOLIO COMPOSITION BY INVESTMENT TYPE TOP 10 EQUITY HOLDINGS TOP 10 FIXED INCOME ISSUERS
1. Tyco International Ltd. 2.6% 1. U.S. Treasury Securities 11.0%
(PIE CHART)
2. Computer Associates 2.4 2. Federal Home Loan Mortgage 6.5
International, Inc. Corp. (FHLMC)
EQUITIES 64.2%
3. Fannie Mae 2.0 3. Federal National Mortgage 6.1
U.S. GOVERNMENT & Association (FNMA)
AGENCY BONDS 14.0% 4. Waste Management, Inc. 2.0
4. Government National Mortgage 1.4
U.S. TREASURIES 11.0% 5. American Standard Cos. Inc. 2.0 Association (GNMA)
BONDS & NOTES 10.4% 6. Cendant Corp. 2.0 5. Sprint Capital Corp. 0.6
CASH & OTHER 0.4% 7. Citigroup Inc. 1.8 6. Verizon Communications Inc. 0.4
8. Interpublic Group of Cos., Inc.(The) 1.8 7. Citicorp Lease-Series 1999-1 0.4
9. Bank One Corp. 1.7 8. Tritel 0.3
10. Omnicom Group Inc. 1.6 9. Telecorp 0.3
10. General Motors Acceptance Corp. 0.3
The fund's holdings are subject to change, and there is no assurance that the fund will continue to hold any particular security.
===================================================================================================================================
</Table>
2
<Table>
When the stock market is viewed accounting practices. Both stocks remain BRET W. STANLEY
through this intrinsic-value lens, it undervalued, in our opinion, and continue Mr. Stanley, Chartered
becomes clear that investment risk has to be among the fund's largest holdings. [PHOTO OF Financial Analyst, is lead
little to do with historical prices and BRET W. portfolio manager of AIM
popular volatility measures. In fact, we Fannie Mae was among our more STANLEY Basic Balanced Fund. He
believe that risk is often inversely significant new investments during 2003. began his investment career
related to price. This creates a paradox: We believe its depressed value results in 1988 and joined AIM in
investment risk may, in fact, be low from external factors and accounting 1998. He received a B.B.A.
precisely where it appears high. The complexity. While this investment has yet in finance from The University of Texas
bridge across this gap in market to meaningfully contribute to our at Austin and an M.S. in finance from the
perception is a long-term investment performance, we believe it is a University of Houston.
horizon. As price declines significantly compelling long-term opportunity.
below intrinsic value, what is known as a R. CANON COLEMAN II
Margin of Safety is created. While this IN CLOSING Mr. Coleman, Chartered
discount to value may be of no use to a [PHOTO OF Financial Analyst, is a
short-term trader, it is highly relevant While 2003 was a strong year relative to R. CANON portfolio manager of AIM
to the long-term investor. If this Margin our peers, it needs to be considered in a COLEMAN II Basic Balanced Fund. He
of Safety is large enough, it creates an longer-term context. Last year, we joined AMVESCAP in 1999 and
attractive risk-to-reward equation that estimated that the fund had a significant joined AIM in 2000. He
suggests significantly higher upside discount between year-end market value earned a B.S. and M.S. in
potential with a lower risk of a and our estimate of intrinsic value for accounting from the University of Florida
permanent loss of capital. the total portfolio. Following a 22% and an M.B.A. from The Wharton School at
increase in market value this year, we the University of Pennsylvania.
As we suggested last year, we thought believe this discount is still attractive
this was the case with Tyco International but clearly more modest as of the end of JAN H. FRIEDLI
and Computer Associates. Those and other this year. However, we remain pleased Mr. Friedli is a portfolio
controversial but significantly with our estimate of portfolio value [PHOTO OF manager of AIM Basic
undervalued stocks that we purchased content and will be working hard to grow JAN H. Balanced Fund. He began
during 2002 were big drivers of our this intrinsic value over the next few FRIEDLI his investment career in
outperformance this year. Tyco years. 1990 and joined AIM in
International is now under new 1999. Mr. Friedli
management, and is working to move beyond See important fund and index graduated cum laude from
the controversy associated with its disclosures inside front cover. Villanova University with a B.S. in
former CEO, while Computer Associates computer science and earned an M.B.A.
continues to produce substantial and with honors from the University of
stable cash flow that has allayed Chicago.
investor fears over the company's
SCOT W. JOHNSON
TOP 10 INDUSTRIES TOTAL NUMBER OF HOLDINGS 274 Mr. Johnson, Chartered
TOTAL NET ASSETS $154.8 million [PHOTO OF Financial Analyst, is a
1. U.S. Government Agency 14.0% SCOT W. portfolio manager of AIM
Securities Average Credit Quality Rating (Bonds) AA JOHNSON Basic Balanced Fund. He
joined AIM in 1994. He
2. U.S. Treasury Securities 11.0 Average Bond Coupon 5.98% received both his B.A. in
economics and an M.B.A. in
3. Advertising 3.5 Average Bond Maturity 5.21 years finance from Vanderbilt University.
4. Other Diversified Financial 3.3 Average Effective Duration 3.82 years MATTHEW W. SEINSHEIMER
Services Mr. Seinsheimer, Chartered
[PHOTO OF Financial Analyst, is a
5. Diversified Commercial Services 3.3 MATTHEW W. portfolio manager of AIM
SEINSHEIMER Basic Balanced Fund. He
6. Data Processing & Outsourced 3.0 began his investment career
Services in 1992. He joined AIM as a
senior analyst in 1998 and
7. Pharmaceuticals 2.8 assumed his current responsibilities in
2000. Mr. Seinsheimer received a B.B.A.
8. Industrial Conglomerates 2.7 from Southern Methodist University and
an M.B.A. from The University of Texas at
9. Oil & Gas Drilling 2.5 Austin.
10. Health Care Distributors 2.5 MICHAEL J. SIMON
Mr. Simon, Chartered
[PHOTO OF Financial Analyst, is a
MICHAEL J. portfolio manager of AIM
SIMON Basic Balanced Fund. Mr.
Simon started his investment
career in 1989 and joined
AIM in 2001. He received a
B.B.A. in finance from Texas Christian
University and an M.B.A. from the
University of Chicago.
Assisted by Basic Value Team and
Investment Grade Team
</Table>
3
FUND PERFORMANCE
RESULTS OF A $10,000 INVESTMENT
9/28/01 12/31/03
Index data from 9/30/01
<Table>
<Caption>
DATE AIM BASIC AIM BASIC AIM BASIC
BALANCED FUND BALANCED FUND BALANCED FUND S&P500 60% RUSSELL 1000 VALUE/ LIPPER BALANCED
CLASS A SHARES CLASS B SHARES CLASS C SHARES INDEX 40% LEHMAN U.S. FUND INDEX
AGGREGATE BOND INDEX
9/28/01 9525 10000 10000 10000 10000 10000
10/31/2001 9696 10180 10180 10191 10032 10167
11/30/2001 10135 10630 10630 10972 10326 10572
12/31/2001 10281 10776 10776 11068 10446 10648
01/31/2002 10214 10706 10706 10907 10432 10555
02/28/2002 10137 10616 10616 10697 10482 10483
03/31/2002 10503 10992 10992 11099 10710 10713
04/30/2002 10350 10822 10822 10426 10573 10455
05/31/2002 10330 10802 10812 10350 10640 10451
06/30/2002 9771 10219 10221 9613 10311 10005
07/31/2002 9156 9566 9568 8864 9785 9492
08/31/2002 9290 9697 9708 8922 9896 9589
[MOUNTAIN CHART] 09/30/2002 8635 9008 9008 7953 9300 9017
10/31/2002 8992 9380 9381 8652 9696 9393
11/30/2002 9464 9862 9863 9161 10062 9774
12/31/2002 9152 9531 9531 8623 9883 9510
01/31/2003 8987 9359 9360 8398 9743 9368
02/28/2003 8813 9168 9178 8272 9641 9298
03/31/2003 8740 9088 9097 8352 9647 9335
04/30/2003 9263 9632 9642 9039 10189 9841
05/31/2003 9933 10318 10328 9515 10659 10276
06/30/2003 10010 10392 10402 9637 10731 10354
07/31/2003 10059 10443 10443 9807 10683 10378
08/31/2003 10312 10696 10696 9997 10811 10553
09/30/2003 10269 10645 10645 9892 10862 10566
10/31/2003 10542 10927 10938 10451 11220 10915
11/30/2003 10726 11109 11120 10543 11323 11012
12/31/03 11197 11291 11591 11095 11787 11406
Source: Lipper, Inc.
</Table>
Past performance cannot guarantee comparable future results.
Your fund's total return includes sales charges, expenses and management fees.
Results for B shares are calculated as if a hypothetical shareholder had
liquidated his entire investment in the fund at the close of the reporting
period and paid the applicable contingent deferred sales charges. The
performance of the fund's share classes will differ due to different sales
charge structures and class expenses. For fund performance calculations and
indexes used in this report, please see the inside front cover. Performance
shown in the chart and table does not reflect deduction of taxes a shareholder
would pay on fund distributions or sale of fund shares. Performance of the
indexes does not reflect the effects of taxes.
<Table>
AVERAGE ANNUAL TOTAL RETURNS The fund's performance figures are FUND VS. INDEXES
As of 12/31/03, including sales charges historical, and they reflect fund Total returns, 12/31/02-12/31/03,
Class A Shares expenses, the reinvestment of excluding sales charges. If sales charges
Inception (9/28/01) 5.14% distributions, and changes in net asset were included, performance would be
1 Year 16.56 value. Performance data quoted represent lower.
past performance, and the investment
Class B Shares return and principal value of an Class A Shares
Inception (9/28/01) 5.53% investment will fluctuate so that an 22.35%
1 Year 16.64 investor's shares, when redeemed, may be
worth more or less than their original Class B Shares 21.64
Class C Shares cost.
Inception (9/28/01) 6.76% Class C Shares 21.64
1 Year 20.64 Class A share performance reflects the
maximum 4.75% sales charge, and Class B S&P 500 (Broad Market Index) 28.67
and Class C share performance reflects
Current performance may be lower or the applicable contingent deferred sales 60% Russell 1000 Value/ 19.27
higher than the performance data quoted. charge (CDSC) for the period involved. 40% Lehman U.S. Aggregate Bond
Past performance cannot guarantee com- The CDSC on Class B shares declines from (Custom Style-specific Index)
parable future results. Due to 5% beginning at the time of purchase to
significant market volatility, results of 0% at the beginning of the seventh year. Lipper Balanced Fund Index 19.94
an investment made today may differ The CDSC on Class C shares is 1% for the (Peer Group Index)
substantially from the historical first year after purchase. The Source: Lipper, Inc.
performance shown. Please visit performance of the fund's share classes
AIMinvestments.com for the most current will differ due to different sales charge
month-end performance. structures and class expenses.
</Table>
4
FINANCIALS
SCHEDULE OF INVESTMENTS
December 31, 2003
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
COMMON STOCKS & OTHER EQUITY INTERESTS-64.16%
ADVERTISING-3.45%
Interpublic Group of Cos., Inc. (The)(a) 180,000 $ 2,808,000
- ------------------------------------------------------------------------
Omnicom Group Inc. 28,900 2,523,837
========================================================================
5,331,837
========================================================================
APPAREL RETAIL-1.56%
Gap, Inc. (The) 103,900 2,411,519
========================================================================
ASSET MANAGEMENT & CUSTODY BANKS-2.06%
Bank of New York Co., Inc. (The) 68,200 2,258,784
- ------------------------------------------------------------------------
Janus Capital Group Inc. 56,700 930,447
========================================================================
3,189,231
========================================================================
BUILDING PRODUCTS-1.97%
American Standard Cos. Inc.(a) 30,200 3,041,140
========================================================================
COMMUNICATIONS EQUIPMENT-0.80%
Motorola, Inc. 88,100 1,239,567
========================================================================
CONSTRUCTION, FARM MACHINERY & HEAVY
TRUCKS-0.61%
Deere & Co. 14,500 943,225
========================================================================
CONSUMER ELECTRONICS-1.08%
Koninklijke (Royal) Philips Electronics
N.V.-New York Shares (Netherlands) 57,700 1,678,493
========================================================================
CONSUMER FINANCE-1.09%
American Express Co. 35,100 1,692,873
========================================================================
DATA PROCESSING & OUTSOURCED SERVICES-2.95%
Ceridian Corp.(a) 99,400 2,081,436
- ------------------------------------------------------------------------
First Data Corp. 60,600 2,490,054
========================================================================
4,571,490
========================================================================
DIVERSIFIED BANKS-1.68%
Bank One Corp. 56,900 2,594,071
========================================================================
DIVERSIFIED CAPITAL MARKETS-0.98%
J.P. Morgan Chase & Co. 41,300 1,516,949
========================================================================
DIVERSIFIED CHEMICALS-1.30%
E. I. du Pont de Nemours & Co. 44,000 2,019,160
========================================================================
DIVERSIFIED COMMERCIAL SERVICES-3.29%
Cendant Corp.(a) 135,700 3,022,039
- ------------------------------------------------------------------------
H&R Block, Inc. 37,400 2,070,838
========================================================================
5,092,877
========================================================================
</Table>
<Table>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
<Caption>
ELECTRIC UTILITIES-0.22%
FirstEnergy Corp. 9,600 $ 337,920
========================================================================
ELECTRONIC EQUIPMENT MANUFACTURERS-1.00%
Waters Corp.(a) 46,600 1,545,256
========================================================================
ENVIRONMENTAL SERVICES-1.98%
Waste Management, Inc. 103,500 3,063,600
========================================================================
FOOD RETAIL-2.33%
Kroger Co. (The)(a) 121,400 2,247,114
- ------------------------------------------------------------------------
Safeway Inc.(a) 62,000 1,358,420
========================================================================
3,605,534
========================================================================
GENERAL MERCHANDISE STORES-1.42%
Target Corp. 57,400 2,204,160
========================================================================
HEALTH CARE DISTRIBUTORS-2.45%
Cardinal Health, Inc. 30,900 1,889,844
- ------------------------------------------------------------------------
McKesson Corp. 59,000 1,897,440
========================================================================
3,787,284
========================================================================
HEALTH CARE FACILITIES-1.47%
HCA Inc. 52,800 2,268,288
========================================================================
HEALTH CARE SERVICES-1.11%
IMS Health Inc. 68,800 1,710,368
========================================================================
HOTELS, RESORTS & CRUISE LINES-1.14%
Starwood Hotels & Resorts Worldwide, Inc. 48,900 1,758,933
========================================================================
HOUSEHOLD APPLIANCES-1.49%
Black & Decker Corp. (The) 46,800 2,308,176
========================================================================
INDUSTRIAL CONGLOMERATES-2.63%
Tyco International Ltd. (Bermuda) 153,600 4,070,400
========================================================================
INDUSTRIAL MACHINERY-1.35%
SPX Corp.(a) 35,600 2,093,636
========================================================================
INVESTMENT BANKING & BROKERAGE-1.42%
Morgan Stanley 38,100 2,204,847
========================================================================
LIFE & HEALTH INSURANCE-1.22%
Prudential Financial, Inc. 45,300 1,892,181
========================================================================
MANAGED HEALTH CARE-1.16%
UnitedHealth Group Inc. 30,900 1,797,762
========================================================================
MOVIES & ENTERTAINMENT-1.27%
Walt Disney Co. (The) 84,500 1,971,385
========================================================================
</Table>
F-1
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
OIL & GAS DRILLING-2.48%
Pride International, Inc.(a) 94,200 $ 1,755,888
- ------------------------------------------------------------------------
Transocean Inc. (Cayman Islands)(a) 86,900 2,086,469
========================================================================
3,842,357
========================================================================
OIL & GAS EQUIPMENT & SERVICES-1.76%
Cooper Cameron Corp.(a) 17,400 810,840
- ------------------------------------------------------------------------
Halliburton Co. 40,000 1,040,000
- ------------------------------------------------------------------------
Schlumberger Ltd. (Netherlands) 15,900 870,048
========================================================================
2,720,888
========================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES-1.84%
Citigroup Inc. 58,600 2,844,444
========================================================================
PHARMACEUTICALS-2.84%
Aventis S.A. (France) 35,200 2,320,171
- ------------------------------------------------------------------------
Wyeth 48,700 2,067,315
========================================================================
4,387,486
========================================================================
PROPERTY & CASUALTY INSURANCE-1.49%
ACE Ltd. (Cayman Islands) 55,600 2,302,952
========================================================================
REINSURANCE-0.65%
PartnerRe Ltd. (Bermuda) 17,400 1,010,070
========================================================================
SEMICONDUCTOR EQUIPMENT-1.01%
Novellus Systems, Inc.(a) 37,100 1,560,055
========================================================================
SPECIALIZED FINANCE-1.27%
CIT Group Inc. 54,700 1,966,465
========================================================================
SYSTEMS SOFTWARE-2.36%
Computer Associates International, Inc. 133,800 3,658,092
========================================================================
THRIFTS & MORTGAGE FINANCE-1.98%
Fannie Mae 40,900 3,069,954
========================================================================
Total Common Stocks & Other Equity
Interests (Cost $78,899,856) 99,304,925
========================================================================
<Caption>
PRINCIPAL
AMOUNT
BONDS & NOTES-9.81%
AEROSPACE & DEFENSE-0.03%
Lockheed Martin Corp.-Series A, Medium Term
Notes, 8.66%, 11/30/06 $ 35,000 40,095
========================================================================
ALTERNATIVE CARRIERS-0.07%
INTELSAT Ltd. (Bermuda), Notes, 6.50%,
11/01/13 (Acquired 10/31/03; Cost
$101,875)(b)(c) 100,000 104,610
========================================================================
AUTOMOBILE MANUFACTURERS-0.03%
DaimlerChrysler N.A. Holding Corp.-Series D,
Gtd. Medium Term Notes, 3.40%, 12/15/04 50,000 50,719
========================================================================
</Table>
<Table>
- ------------------------------------------------------------------------
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
BROADCASTING & CABLE TV-0.84%
British Sky Broadcasting Group PLC (United
Kingdom), Unsec. Gtd. Global Notes, 7.30%,
10/15/06 $ 200,000 $ 223,132
- ------------------------------------------------------------------------
Clear Channel Communications, Inc., Sr.
Unsec. Gtd. Notes, 8.00%, 11/01/08 100,000 116,904
- ------------------------------------------------------------------------
Comcast Corp.,
Sr. Unsec. Sub. Notes, 10.50%, 06/15/06 50,000 58,750
- ------------------------------------------------------------------------
Sr. Unsec. Notes, 8.88%, 04/01/07 150,000 154,353
- ------------------------------------------------------------------------
Continental Cablevision, Inc., Sr. Unsec.
Deb., 9.50%, 08/01/13 100,000 114,260
- ------------------------------------------------------------------------
Cox Radio, Inc.-Class A, Sr. Unsec. Notes,
6.63%, 02/15/06 75,000 80,973
- ------------------------------------------------------------------------
TCI Communications Financing III, Gtd. Bonds,
9.65%, 03/31/27 75,000 92,464
- ------------------------------------------------------------------------
Time Warner Cos. Inc.,
Sr. Unsec. Gtd. Deb.,
6.88%, 06/15/18 150,000 163,611
- ------------------------------------------------------------------------
7.25%, 10/15/17 55,000 62,709
- ------------------------------------------------------------------------
7.57%, 02/01/24 65,000 73,274
- ------------------------------------------------------------------------
Unsec. Notes, 7.75%, 06/15/05 150,000 162,388
========================================================================
1,302,818
========================================================================
CONSUMER FINANCE-1.10%
Associates Corp. of North America, Sr. Global
Deb., 6.95%, 11/01/18 200,000 232,204
- ------------------------------------------------------------------------
Capital One Financial Corp.,
Sr. Global Notes, 8.25%, 06/15/05 100,000 108,149
- ------------------------------------------------------------------------
Sr. Unsec. Notes, 7.25%, 05/01/06 300,000 323,319
- ------------------------------------------------------------------------
Ford Motor Credit Co.,
Unsec. Global Notes,
6.88%, 02/01/06 250,000 266,635
- ------------------------------------------------------------------------
7.50%, 03/15/05 150,000 158,464
- ------------------------------------------------------------------------
General Motors Acceptance Corp.,
Global Notes, 4.50%, 07/15/06 90,000 92,515
- ------------------------------------------------------------------------
Medium Term Notes, 5.25%, 05/16/05 55,000 57,072
- ------------------------------------------------------------------------
Unsec. Unsub. Global Notes, 6.75%, 01/15/06 300,000 321,384
- ------------------------------------------------------------------------
Hertz Corp. (The)-Class A, Floating Rate
Global Notes, 1.71%, 08/13/04(d) 150,000 148,500
========================================================================
1,708,242
========================================================================
DIVERSIFIED BANKS-0.70%
American Savings Bank, Notes, 6.63%, 02/15/06
(Acquired 03/05/03; Cost $27,726)(b)(c) 25,000 26,767
- ------------------------------------------------------------------------
Bank of America Corp.-Series B, Putable Sub.
Medium Term Notes, 8.57%, 11/15/04 50,000 65,249
- ------------------------------------------------------------------------
Barclays Bank PLC (United Kingdom), Bonds,
8.55%, 09/19/49 (Acquired 11/05/03; Cost
$123,064)(b)(c)(e) 100,000 121,686
- ------------------------------------------------------------------------
Barnett Capital I, Gtd. Bonds, 8.06%,
12/01/26 60,000 68,959
- ------------------------------------------------------------------------
Barnett Capital II, Gtd. Bonds, 7.95%,
12/01/26 35,000 38,907
- ------------------------------------------------------------------------
</Table>
F-2
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
- ------------------------------------------------------------------------
DIVERSIFIED BANKS-(CONTINUED)
Centura Capital Trust I, Gtd. Notes, 8.85%,
06/01/27 (Acquired 05/22/03; Cost
$75,926)(b)(c) $ 60,000 $ 72,149
- ------------------------------------------------------------------------
Corestates Capital Trust I, Bonds, 8.00%,
12/15/26 (Acquired 06/18/03; Cost
$47,662)(b)(c) 40,000 45,573
- ------------------------------------------------------------------------
Corporacion Andina de Fomento (Venezuela),
Global Notes, 5.20%, 05/21/13 140,000 138,545
- ------------------------------------------------------------------------
HSBC Capital Funding L.P. (United Kingdom),
Gtd. Bonds, 4.61%, 12/29/49 (Acquired
11/05/03; Cost $46,626)(b)(c)(e) 50,000 47,057
- ------------------------------------------------------------------------
Lloyds Bank PLC (United Kingdom)-Series 1,
Unsec. Sub. Floating Rate Euro Notes,
1.25%, 06/29/49(f) 140,000 118,705
- ------------------------------------------------------------------------
NBD Bank N.A. Michigan, Unsec. Putable Sub.
Deb., 8.25%, 11/01/04 100,000 127,115
- ------------------------------------------------------------------------
RBS Capital Trust I, Bonds, 4.71%, 12/29/49
(Acquired 11/05/03; Cost $47,457)(e) 50,000 47,597
- ------------------------------------------------------------------------
Santander Financial Issuances (Cayman
Islands), Unsec. Gtd. Sub. Yankee Notes,
7.00%, 04/01/06 150,000 163,564
========================================================================
1,081,873
========================================================================
DIVERSIFIED CAPITAL MARKETS-0.15%
UBS Preferred Funding Trust I, Gtd. Global
Bonds, 8.62%, 10/29/49(e) 185,000 227,798
========================================================================
ELECTRIC UTILITIES-0.78%
AmerenEnergy Generating Co.-Series C, Sr.
Unsec. Global Notes, 7.75%, 11/01/05 20,000 21,915
- ------------------------------------------------------------------------
American Electric Power Co., Inc., Sr. Unsec.
Unsub. Notes, 5.25%, 06/01/15 45,000 44,195
- ------------------------------------------------------------------------
CenterPoint Energy, Inc., Notes, 5.88%,
06/01/08 (Acquired 05/21/03; Cost
$45,383)(b) 45,000 46,587
- ------------------------------------------------------------------------
Cinergy Corp., Unsec. Sub. Global Deb.,
6.25%, 09/01/04 30,000 30,826
- ------------------------------------------------------------------------
Consolidated Edison Co. of New York, Unsec.
Deb., 7.75%, 06/01/26(g) 55,000 60,546
- ------------------------------------------------------------------------
Consumers Energy Co., First Mortgage Bonds,
6.00%, 02/15/14 (Acquired 10/03/03; Cost
$102,230)(b)(c) 100,000 104,576
- ------------------------------------------------------------------------
Hydro-Quebec (Canada), Gtd. Floating Rate
Euro Notes, 1.25%, 09/29/49(f) 180,000 161,767
- ------------------------------------------------------------------------
Kansas City Power & Light Co., Sr. Unsec.
Notes, 7.13%, 12/15/05 350,000 381,370
- ------------------------------------------------------------------------
South Carolina Electric & Gas Co., First
Mortgage Bonds, 5.25%, 11/01/18 200,000 199,930
- ------------------------------------------------------------------------
Southern Power Co., Bonds, 4.88%, 07/15/15
(Acquired 07/01/03; Cost $49,869)(b) 50,000 47,720
- ------------------------------------------------------------------------
United Energy Distribution Holdings Pty Ltd.
(Australia), Sr. Unsec. Unsub. Notes,
4.70%, 04/15/11 (Acquired 11/12/03; Cost
$54,944)(b)(c) 55,000 55,549
- ------------------------------------------------------------------------
</Table>
<Table>
- ------------------------------------------------------------------------
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
ELECTRIC UTILITIES-(CONTINUED)
Xcel Energy, Inc., Sr. Global Notes, 3.40%,
07/01/08 $ 60,000 $ 58,698
========================================================================
1,213,679
========================================================================
ENVIRONMENTAL SERVICES-0.11%
Waste Management, Inc., Sr. Unsec. Unsub.
Notes, 7.38%, 08/01/10 150,000 173,193
========================================================================
FOOD RETAIL-0.09%
Kroger Co., Sr. Unsec. Gtd. Notes, 7.38%,
03/01/05 40,000 42,669
- ------------------------------------------------------------------------
Safeway Inc., Notes, 2.50%, 11/01/05 100,000 99,992
========================================================================
142,661
========================================================================
GAS UTILITIES-0.07%
CenterPoint Energy Resources Corp., Unsec.
Deb., 6.50%, 02/01/08 60,000 64,505
- ------------------------------------------------------------------------
MCN Corp., First Mortgage Bonds, 5.70%,
03/15/33 45,000 43,668
========================================================================
108,173
========================================================================
HEALTH CARE FACILITIES-0.04%
HCA Inc., Notes, 6.25%, 02/15/13 55,000 56,641
========================================================================
HOMEBUILDING-0.05%
Lennar Corp.-Series B, Class A, Sr. Unsec.
Gtd. Global Notes, 9.95%, 05/01/10 75,000 85,687
========================================================================
HYPERMARKETS & SUPER CENTERS-0.06%
Wal-Mart Stores, Inc., Unsec. Deb., 8.50%,
09/15/24 85,000 92,148
========================================================================
INDUSTRIAL CONGLOMERATES-0.04%
URC Holdings Corp., Sr. Notes, 7.88%,
06/30/06 (Acquired 10/08/03; Cost
$56,614)(b)(c) 50,000 55,757
========================================================================
INTEGRATED OIL & GAS-0.07%
Repsol International Finance B.V.
(Netherlands), Unsec. Gtd. Global Notes,
7.45%, 07/15/05 45,000 48,555
- ------------------------------------------------------------------------
TGT Pipeline LLC, Global Bonds, 5.20%,
06/01/18 60,000 56,420
========================================================================
104,975
========================================================================
INTEGRATED TELECOMMUNICATION SERVICES-1.47%
British Telecommunications PLC (United
Kingdom), Global Notes, 7.88%, 12/15/05 15,000 16,521
- ------------------------------------------------------------------------
Citizens Communications Co., Sr. Unsec.
Notes, 9.25%, 05/15/11 25,000 29,563
- ------------------------------------------------------------------------
Deutsche Telekom International Finance B.V.
(Netherlands), Unsec. Gtd. Unsub. Global
Bonds, 7.75%, 06/15/05 65,000 70,655
- ------------------------------------------------------------------------
France Telecom S.A. (France), Sr. Unsec.
Global Notes, 9.75%, 03/01/31 60,000 79,312
- ------------------------------------------------------------------------
GTE Hawaiian Telephone Co., Inc.-Series A,
Unsec. Deb., 7.00%, 02/01/06 75,000 81,808
- ------------------------------------------------------------------------
New England Telephone & Telegraph Co., Sr.
Unsec. Notes, 7.65%, 06/15/07 30,000 33,708
- ------------------------------------------------------------------------
</Table>
F-3
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
- ------------------------------------------------------------------------
INTEGRATED TELECOMMUNICATION SERVICES-(CONTINUED)
Sprint Capital Corp.,
Sr. Unsec. Gtd. Global Notes,
6.00%, 01/15/07 $ 150,000 $ 159,794
- ------------------------------------------------------------------------
7.13%, 01/30/06 275,000 294,918
- ------------------------------------------------------------------------
Sr. Unsec. Gtd. Unsub. Global Notes, 6.13%,
11/15/08 150,000 159,410
- ------------------------------------------------------------------------
Unsec. Gtd. Global Notes,
7.90%, 03/15/05 205,000 218,583
- ------------------------------------------------------------------------
8.75%, 03/15/32 60,000 71,108
- ------------------------------------------------------------------------
TELUS Corp. (Canada), Yankee Notes,
7.50%, 06/01/07 300,000 333,375
- ------------------------------------------------------------------------
8.00%, 06/01/11 60,000 70,350
- ------------------------------------------------------------------------
Verizon Communications Inc., Unsec. Deb.,
6.36%, 04/15/06(g) 400,000 433,312
- ------------------------------------------------------------------------
Verizon Global Funding Corp., Sr. Unsec.
Unsub. Global Notes, 7.75%, 12/01/30 50,000 58,500
- ------------------------------------------------------------------------
Verizon Pennsylvania Inc.-Series A, Global
Notes, 5.65%, 11/15/11 150,000 157,869
========================================================================
2,268,786
========================================================================
INVESTMENT BANKING & BROKERAGE-0.22%
Goldman Sachs Group, Inc. (The), Unsec.
Global Notes, 4.13%, 01/15/08 150,000 153,509
- ------------------------------------------------------------------------
Lehman Brothers Inc.,
Sr. Sub. Deb., 11.63%, 05/15/05 75,000 83,701
- ------------------------------------------------------------------------
Sr. Unsec. Sub. Notes, 7.63%, 06/01/06 50,000 55,967
- ------------------------------------------------------------------------
Merrill Lynch & Co., Inc.-Series B, Medium
Term Notes, 4.54%, 03/08/05 40,000 41,203
========================================================================
334,380
========================================================================
LIFE & HEALTH INSURANCE-0.15%
John Hancock Global Funding II, Notes, 5.00%,
07/27/07 (Acquired 06/12/02; Cost
$49,973)(b)(c) 50,000 53,128
- ------------------------------------------------------------------------
Lincoln National Corp., Unsec. Deb., 9.13%,
10/01/24 135,000 146,810
- ------------------------------------------------------------------------
ReliaStar Financial Corp., Unsec. Notes,
8.00%, 10/30/06 25,000 28,041
========================================================================
227,979
========================================================================
MULTI-LINE INSURANCE-0.06%
MassMutual Global Funding II, Notes, 3.80%,
04/15/09(b) 100,000 99,774
========================================================================
MULTI-UTILITIES & UNREGULATED POWER-0.01%
Duke Energy Corp., First Mortgage Bonds,
3.75%, 03/05/08 20,000 20,086
========================================================================
</Table>
<Table>
- ------------------------------------------------------------------------
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
MUNICIPALITIES-0.18%
Illinois (State of); Unlimited Tax Pension
Series 2003 GO, 5.10%, 06/01/33 $ 300,000 $ 275,841
========================================================================
OIL & GAS DRILLING-0.05%
Transocean Inc. (Cayman Islands), Sr. Unsec.
Unsub. Global Deb., 8.00%, 04/15/27 60,000 72,076
========================================================================
OIL & GAS EXPLORATION & PRODUCTION-0.25%
Pemex Project Funding Master Trust, Unsec.
Unsub. Gtd. Global Notes, 7.38%, 12/15/14 365,000 385,152
========================================================================
OIL & GAS REFINING, MARKETING &
TRANSPORTATION-0.07%
Petroleos Mexicanos (Mexico), Gtd. Unsub.
Global Notes, 6.50%, 02/01/05 60,000 62,850
- ------------------------------------------------------------------------
Plains All American Pipeline L.P./PAA Finance
Corp., Sr. Notes, 5.63%, 12/15/13 (Acquired
12/03/03; Cost $49,867)(b)(c) 50,000 50,378
========================================================================
113,228
========================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES-1.01%
CIT Group Inc.,
Sr. Global Notes, 7.13%, 10/15/04 50,000 52,184
- ------------------------------------------------------------------------
Sr. Unsec. Notes, 6.63%, 06/15/05 150,000 159,870
- ------------------------------------------------------------------------
Sr. Unsec. Unsub. Global Notes, 7.63%,
08/16/05 50,000 54,288
- ------------------------------------------------------------------------
Citigroup Inc., Unsec. Sub. Global Bonds,
6.00%, 10/31/33 250,000 250,375
- ------------------------------------------------------------------------
General Electric Capital Corp., Gtd. Sub.
Notes, 8.13%, 05/15/12 100,000 121,210
- ------------------------------------------------------------------------
Sr. Medium Term Global Notes, 4.25%,
12/01/10 70,000 69,548
- ------------------------------------------------------------------------
Series A, Medium Term Global Notes,
2.85%, 01/30/06 20,000 20,257
- ------------------------------------------------------------------------
5.88%, 02/15/12 70,000 75,399
- ------------------------------------------------------------------------
6.00%, 06/15/12 40,000 43,302
- ------------------------------------------------------------------------
Heller Financial, Inc.-Class A, Sr. Unsec.
Global Notes, 8.00%, 06/15/05 100,000 108,597
- ------------------------------------------------------------------------
Household Finance Corp., Global Notes, 6.38%,
11/27/12 160,000 175,019
- ------------------------------------------------------------------------
Medium Term Notes, 3.38%, 02/21/06 20,000 20,397
- ------------------------------------------------------------------------
Sr. Unsec. Global Notes, 6.50%, 01/24/06 50,000 54,139
- ------------------------------------------------------------------------
ING Capital Funding Trust III, Gtd. Global
Bonds, 8.44%, 12/30/49(e) 125,000 151,136
- ------------------------------------------------------------------------
Pemex Finance Ltd. (Cayman Islands)- Series
1999-2, Class A1, Global Bonds, 9.69%,
08/15/09 180,000 208,912
========================================================================
1,564,633
========================================================================
</Table>
F-4
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
- ------------------------------------------------------------------------
PUBLISHING-0.11%
News America Holdings, Inc., Unsec. Gtd.
Deb., 7.75%, 01/20/24 $ 65,000 $ 76,032
- ------------------------------------------------------------------------
Sr. Unsec. Gtd. Deb., 7.70%, 10/30/25 75,000 87,414
========================================================================
163,446
========================================================================
REAL ESTATE-0.07%
EOP Operating L.P., Unsec. Notes, 8.38%,
03/15/06 100,000 112,276
========================================================================
REAL ESTATE MANAGEMENT & DEVELOPMENT-0.23%
Dominion Resources, Inc. Sr. Unsec. Putable
Notes, 5.25%, 08/01/15 350,000 349,580
========================================================================
REGIONAL BANKS-0.37%
Branch Banking & Trust Co., Unsec. Sub.
Global Notes, 5.20%, 12/23/15 165,000 164,578
- ------------------------------------------------------------------------
Greater Bay Bancorp.-Series B, Sr. Notes,
5.25%, 03/31/08 350,000 353,217
- ------------------------------------------------------------------------
Union Planters Corp., Notes, 4.38%, 12/01/10 55,000 54,696
========================================================================
572,491
========================================================================
REINSURANCE-0.07%
GE Global Insurance Holding Corp., Unsec.
Notes, 7.50%, 06/15/10 100,000 114,934
========================================================================
RESTAURANTS-0.04%
McDonald's Corp., Unsec. Deb., 7.05%,
11/15/25 55,000 60,326
========================================================================
SOVEREIGN DEBT-0.29%
Japan Bank for International Coop. (Japan),
Unsec. Gtd. Euro Bonds, 6.50%, 10/06/05 100,000 107,716
- ------------------------------------------------------------------------
New Brunswick (Province of) (Canada), Sec.
Yankee Deb., 6.75%, 08/15/13 40,000 46,701
- ------------------------------------------------------------------------
Quebec (Province of) (Canada), Sr. Unsec.
Unsub. Global Deb., 5.75%, 02/15/09 55,000 60,254
- ------------------------------------------------------------------------
United Mexican States (Mexico),
Global Notes,
4.63%, 10/08/08 50,000 50,813
- ------------------------------------------------------------------------
6.63%, 03/03/15 60,000 62,325
- ------------------------------------------------------------------------
7.50%, 04/08/33 120,000 125,250
========================================================================
453,059
========================================================================
THRIFTS & MORTGAGE FINANCE-0.13%
Countrywide Home Loans, Inc.-Series J, Gtd.
Medium Term Global Notes, 5.50%, 08/01/06 15,000 16,044
- ------------------------------------------------------------------------
Countrywide Home Loans, Inc.-Series K, Medium
Term Global Notes, 3.50%, 12/19/05 80,000 82,004
- ------------------------------------------------------------------------
Washington Mutual Financial Corp., Sr. Unsec.
Notes, 8.25%, 06/15/05 100,000 108,847
========================================================================
206,895
========================================================================
</Table>
<Table>
- ------------------------------------------------------------------------
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
TOBACCO-0.04%
Altria Group, Inc., Notes, 7.00%, 11/04/13 $ 40,000 $ 42,705
- ------------------------------------------------------------------------
Unsec. Notes, 6.38%, 02/01/06 20,000 20,991
========================================================================
63,696
========================================================================
TRUCKING-0.11%
Roadway Corp., Sr. Unsec. Gtd. Global Notes,
8.25%, 12/01/08 150,000 169,301
========================================================================
WIRELESS TELECOMMUNICATION SERVICES-0.65%
TeleCorp PCS, Inc., Sr. Unsec. Gtd. Sub.
Global Notes, 10.63%, 07/15/10 420,000 498,582
- ------------------------------------------------------------------------
Tritel PCS Inc., Sr. Unsec. Gtd. Sub. Global
Notes, 10.38%, 01/15/11 425,000 512,287
========================================================================
1,010,869
========================================================================
Total Bonds & Notes (Cost $15,038,086) 15,187,877
========================================================================
ASSET-BACKED SECURITIES-0.63%
ELECTRIC UTILITIES-0.02%
Public Service Co. of Colorado, Global
Collateral Trust, 4.88%, 03/01/13 30,000 29,893
========================================================================
OIL & GAS EXPLORATION & PRODUCTION-0.16%
Kern River Funding Corp., Sr. Gtd. Notes,
4.89%, 04/30/18 (Acquired 04/28/03; Cost
$243,892)(b)(c) 243,892 243,380
========================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES-0.45%
Citicorp Lease-Series 1999-1, Class A1, Pass
Through Ctfs., 7.22%, 06/15/05 (Acquired
05/08/02-09/23/03; Cost $417,246)(b)(c) 390,009 418,027
- ------------------------------------------------------------------------
Class A2, Pass Through Ctfs., 8.04%,
12/15/19 (Acquired 08/20/02; Cost
$166,614)(b)(c) 150,000 176,349
- ------------------------------------------------------------------------
First Industrial Realty Trust, Inc., PATS,
7.38%, 05/15/04 (Acquired 02/06/03; Cost
$52,425)(b)(c) 50,000 50,928
- ------------------------------------------------------------------------
Yorkshire Power Finance (Cayman Islands)-
Series 2000-1, Pass Through Ctfs., 8.25%,
02/15/05 (Acquired 11/12/03; Cost
$53,400)(b)(c) 50,000 53,017
========================================================================
698,321
========================================================================
Total Asset-Backed Securities (Cost
$954,686) 971,594
========================================================================
</Table>
F-5
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
- ------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY SECURITIES-13.96%
FEDERAL HOME LOAN MORTGAGE CORP.
(FHLMC)-6.49%
Pass Through Ctfs.,
6.50%, 01/01/16 to 01/01/31 $ 296,152 $ 310,980
- ------------------------------------------------------------------------
6.00%, 05/01/17 to 02/01/33 1,072,070 1,111,666
- ------------------------------------------------------------------------
5.50%, 12/01/17 to 12/01/33 1,389,693 1,412,315
- ------------------------------------------------------------------------
4.50%, 10/01/18 396,293 396,831
- ------------------------------------------------------------------------
7.00%, 07/01/29 to 06/01/32 693,332 733,823
- ------------------------------------------------------------------------
7.50%, 11/01/30 to 12/01/30 41,612 44,699
- ------------------------------------------------------------------------
5.00%, 10/01/33 499,495 493,454
- ------------------------------------------------------------------------
Unsec. Disc. Notes, 0.75%, 01/02/04 5,448,000 5,447,886
- ------------------------------------------------------------------------
Unsec. Global Notes, 2.75%, 03/15/08 100,000 97,951
========================================================================
10,049,605
========================================================================
FEDERAL NATIONAL MORTGAGE ASSOCIATION
(FNMA)-6.10%
Pass Through Ctfs.,
7.50%, 11/01/15 to 05/01/32 176,115 188,269
- ------------------------------------------------------------------------
7.00%, 02/01/16 to 03/01/32 307,371 326,324
- ------------------------------------------------------------------------
6.50%, 10/01/16 to 12/01/33 1,828,321 1,915,144
- ------------------------------------------------------------------------
5.50%, 11/01/16 to 12/01/33 2,142,912 2,197,161
- ------------------------------------------------------------------------
6.00%, 05/01/17 to 03/01/33 2,329,198 2,420,786
- ------------------------------------------------------------------------
5.00%, 10/01/17 to 02/01/18 954,557 975,077
- ------------------------------------------------------------------------
8.00%, 10/01/30 33,875 36,635
- ------------------------------------------------------------------------
Unsec. Global Notes,
1.88%, 09/15/05 250,000 250,292
- ------------------------------------------------------------------------
4.38%, 09/15/12 60,000 59,298
- ------------------------------------------------------------------------
Unsec. Notes,
5.25%, 06/15/06 500,000 534,850
- ------------------------------------------------------------------------
6.20%, 06/13/17 250,000 260,320
- ------------------------------------------------------------------------
Unsec. Sub. Notes,
5.25%, 08/01/12 270,000 277,123
========================================================================
9,441,279
========================================================================
</Table>
<Table>
- ------------------------------------------------------------------------
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
(GNMA)-1.37%
Pass Through Ctfs.,
7.50%, 06/15/23 to 10/15/31 $ 111,539 $ 120,060
- ------------------------------------------------------------------------
8.50%, 02/15/25 41,930 46,046
- ------------------------------------------------------------------------
8.00%, 08/15/25 27,523 30,096
- ------------------------------------------------------------------------
7.00%, 02/15/31 to 05/15/32 324,654 346,194
- ------------------------------------------------------------------------
6.50%, 05/15/31 to 12/15/33 462,285 487,722
- ------------------------------------------------------------------------
6.00%, 12/15/31 to 02/15/33 853,327 887,932
- ------------------------------------------------------------------------
5.50%, 09/15/33 199,559 203,151
========================================================================
2,121,201
========================================================================
Total U.S. Government Agency Securities
(Cost $21,496,566) 21,612,085
========================================================================
U.S. TREASURY SECURITIES-11.01%
U.S. TREASURY NOTES-9.45%
2.13%, 10/31/04 8,730,000 8,800,276
- ------------------------------------------------------------------------
1.50%, 02/28/05 3,050,000 3,057,625
- ------------------------------------------------------------------------
6.75%, 05/15/05 200,000 214,438
- ------------------------------------------------------------------------
6.50%, 10/15/06 500,000 557,190
- ------------------------------------------------------------------------
3.50%, 11/15/06 400,000 413,624
- ------------------------------------------------------------------------
3.13%, 10/15/08 1,285,000 1,283,394
- ------------------------------------------------------------------------
5.00%, 08/15/11 275,000 294,550
========================================================================
14,621,097
========================================================================
U.S. TREASURY BONDS-1.56%
7.25%, 05/15/16 325,000 405,691
- ------------------------------------------------------------------------
7.50%, 11/15/16 1,575,000 2,006,408
========================================================================
2,412,099
========================================================================
Total U.S. Treasury Securities (Cost
$17,000,843) 17,033,196
========================================================================
TOTAL INVESTMENTS-99.57% (Cost $133,390,037) 154,109,677
========================================================================
OTHER ASSETS LESS LIABILITIES-0.43% 659,758
========================================================================
NET ASSETS-100.00% $154,769,435
________________________________________________________________________
========================================================================
</Table>
Investment Abbreviations:
<Table>
Ctfs. - Certificates
Deb. - Debentures
Disc. - Discounted
GO - General Obligation Bonds
Gtd. - Guaranteed
PATS - Putable Asset Term Securities
Sec. - Secured
Sr. - Senior
Sub. - Subordinated
Unsec. - Unsecured
Unsub. - Unsubordinated
</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 Fund has no rights to demand registration of these securities.
The aggregate market value of these securities at 12/31/03 was $1,873,012,
which represented 1.18% of the Fund's net assets. Unless otherwise
indicated, these securities are considered to be liquid.
(c) Security considered to be illiquid. The aggregate market value of these
securities considered illiquid at 12/31/03 was $1,678,931 which represented
1.12% of the Fund's net assets.
(d) Interest rates are redetermined quarterly. Rates shown are rates in effect
on 12/31/03.
(e) Perpetual bond with no specified maturity date.
(f) Interest rates are redetermined semi-annually. Rates shown are rates in
effect on 12/31/03.
(g) Principal and interest payments are secured by bond insurance provided by
MBIA Insurance Corp.
See accompanying notes which are an integral part of the financial statements.
F-6
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2003
<Table>
ASSETS:
Investments, at market value (cost
$133,390,037) $154,109,677
- -----------------------------------------------------------
Cash 381
- -----------------------------------------------------------
Receivables for:
Fund shares sold 572,289
- -----------------------------------------------------------
Dividends and interest 521,181
- -----------------------------------------------------------
Due from advisor 5,136
- -----------------------------------------------------------
Investment for deferred compensation and
retirement plans 3,868
- -----------------------------------------------------------
Other assets 19,551
===========================================================
Total assets 155,232,083
___________________________________________________________
===========================================================
LIABILITIES:
Payables for:
Fund shares reacquired 198,434
- -----------------------------------------------------------
Dividends 119
- -----------------------------------------------------------
Deferred compensation and retirement plans 4,991
- -----------------------------------------------------------
Accrued distribution fees 98,184
- -----------------------------------------------------------
Accrued transfer agent fees 102,291
- -----------------------------------------------------------
Accrued operating expenses 58,629
===========================================================
Total liabilities 462,648
===========================================================
Net assets applicable to shares outstanding $154,769,435
___________________________________________________________
===========================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $137,480,249
- -----------------------------------------------------------
Undistributed net investment income (loss) (9,211)
- -----------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities and foreign
currencies (3,421,243)
- -----------------------------------------------------------
Unrealized appreciation of investment
securities 20,719,640
===========================================================
$154,769,435
___________________________________________________________
===========================================================
NET ASSETS:
Class A $ 53,675,074
___________________________________________________________
===========================================================
Class B $ 76,304,395
___________________________________________________________
===========================================================
Class C $ 24,789,966
___________________________________________________________
===========================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER
SHARE, UNLIMITED NUMBER OF SHARES
AUTHORIZED:
Class A 4,666,888
___________________________________________________________
===========================================================
Class B 6,643,374
___________________________________________________________
===========================================================
Class C 2,157,003
___________________________________________________________
===========================================================
Class A:
Net asset value per share $ 11.50
- -----------------------------------------------------------
Offering price per share:
(Net asset value of $11.50 divided by
95.25%) $ 12.07
___________________________________________________________
===========================================================
Class B:
Net asset value and offering price per
share $ 11.49
___________________________________________________________
===========================================================
Class C:
Net asset value and offering price per
share $ 11.49
___________________________________________________________
===========================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
F-7
STATEMENT OF OPERATIONS
For the year ended December 31, 2003
<Table>
INVESTMENT INCOME:
Interest $ 1,431,735
- -------------------------------------------------------------------------
Dividends (net of foreign withholding tax of $2,907) 806,338
- -------------------------------------------------------------------------
Dividends from affiliated money market funds 65,983
=========================================================================
Total investment income 2,304,056
=========================================================================
EXPENSES:
Advisory fees 762,772
- -------------------------------------------------------------------------
Administrative services fees 50,000
- -------------------------------------------------------------------------
Custodian fees 41,570
- -------------------------------------------------------------------------
Distribution fees:
Class A 140,541
- -------------------------------------------------------------------------
Class B 587,179
- -------------------------------------------------------------------------
Class C 184,770
- -------------------------------------------------------------------------
Transfer agent fees 411,227
- -------------------------------------------------------------------------
Trustees' fees 10,597
- -------------------------------------------------------------------------
Other 160,658
=========================================================================
Total expenses 2,349,314
=========================================================================
Less: Fees waived and expense offset arrangements (88,985)
=========================================================================
Net expenses 2,260,329
=========================================================================
Net investment income 43,727
=========================================================================
REALIZED AND UNREALIZED GAIN FROM INVESTMENT SECURITIES AND
FOREIGN CURRENCIES:
Net realized gain from:
Investment securities 201,370
- -------------------------------------------------------------------------
Foreign currencies 2,986
=========================================================================
204,356
=========================================================================
Change in net unrealized appreciation of Investment
securities 24,575,727
=========================================================================
Net gain from investment securities and foreign currencies 24,780,083
=========================================================================
Net increase in net assets resulting from operations $24,823,810
_________________________________________________________________________
=========================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
F-8
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 2003 and 2002
<Table>
<Caption>
2003 2002
- -----------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 43,727 $ 480,316
- -----------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities 204,356 (3,175,000)
- -----------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities 24,575,727 (5,004,736)
=========================================================================================
Net increase (decrease) in net assets resulting from
operations 24,823,810 (7,699,420)
=========================================================================================
Distributions to shareholders from net investment income:
Class A (252,338) (294,551)
- -----------------------------------------------------------------------------------------
Class B (76,078) (179,374)
- -----------------------------------------------------------------------------------------
Class C (23,549) (55,465)
=========================================================================================
Decrease in net assets resulting from distributions (351,965) (529,390)
=========================================================================================
Share transactions-net:
Class A 12,879,782 24,754,098
- -----------------------------------------------------------------------------------------
Class B 16,497,602 35,476,082
- -----------------------------------------------------------------------------------------
Class C 5,182,557 11,748,646
=========================================================================================
Net increase in net assets resulting from share
transactions 34,559,941 71,978,826
=========================================================================================
Net increase in net assets 59,031,786 63,750,016
=========================================================================================
NET ASSETS:
Beginning of year 95,737,649 31,987,633
=========================================================================================
End of year (including undistributed net investment income
(loss) of $(9,211) and $12,621 for 2003 and 2002,
respectively) $154,769,435 $95,737,649
_________________________________________________________________________________________
=========================================================================================
</Table>
NOTES TO FINANCIAL STATEMENTS
December 31, 2003
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Basic Balanced Fund (the "Fund") is a series portfolio of AIM Funds Group
(the "Trust"). The Trust is a Delaware statutory trust registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
series management investment company consisting of nine separate portfolios,
each authorized to issue an unlimited number of shares of beneficial interest.
The Fund currently offers multiple classes of shares. Matters affecting each
portfolio or class will be voted on exclusively by the shareholders of such
portfolio or class. The assets, liabilities and operations of each portfolio are
accounted for separately. Information presented in these financial statements
pertains only to the Fund.
The Fund's investment objective is long-term growth of capital and current
income. Each company listed in the Schedule of Investments is organized in the
United States of America unless otherwise noted.
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 on the basis of prices furnished
by independent pricing services or market makers. Each security reported on
the NASDAQ National Market System is valued at the NASDAQ Official Closing
Price ("NOCP") as of the close of the customary trading session on the
valuation date or absent a NOCP, at the closing bid price. 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
F-9
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.
Issuer specific events, market trends, bid/ask quotes of brokers and
information providers and other market data may be reviewed in the course
of making a good faith determination of a security's fair value. 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
ordinarily be reflected in the computation of the Fund's net asset value.
If a development/event is so significant such 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. Adjustments to closing prices to reflect fair value on affected
foreign securities may be provided by an independent pricing service.
Multiple factors may be considered by the independent pricing service in
determining adjustments to reflect fair value and may include information
relating to sector indices, ADRs, domestic and foreign index futures and
exchange-traded funds.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions
are accounted for on a trade date basis. Realized gains or losses on sales
are computed on the basis of specific identification of the securities
sold. Interest income is recorded on the accrual basis from settlement
date. Dividend income is recorded on the ex-dividend date. Bond premiums
and discounts are amortized and/or accreted for financial reporting
purposes.
The Fund allocates income and realized and unrealized capital gains and
losses to a class based on the relative net assets of each class.
C. 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
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 may 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. The difference between the selling price and
the future repurchase price is recorded as realized gain (loss). At the
time the Fund enters into the dollar roll, it will segregate liquid assets
having a dollar value equal to the repurchase price.
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. The return
earned by the Fund with the proceeds of the dollar roll transaction may not
exceed transaction costs.
D. DISTRIBUTIONS -- Distributions from income are declared and paid quarterly
and are recorded on ex-dividend date. Distributions from net realized
capital gain, if any, are generally paid annually and recorded on
ex-dividend date. The Fund may elect to use a portion of the proceeds from
redemptions as distributions for federal income tax purposes.
E. 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. The combined results of changes in foreign exchange rates
and the fluctuation of market prices on investments are included with the
net realized and unrealized gain or loss from investments in the Statement
of Operations. Reported net realized foreign currency gains or losses arise
from, (i) sales of foreign currencies, (ii) currency gains or losses
realized between the trade and settlement dates on securities transactions,
and (iii) the difference between the amounts of dividends, interest, and
foreign withholding taxes recorded on the Fund's books and the U.S. dollar
equivalent of the amounts actually received or paid. Net unrealized foreign
currency gains and losses arise from changes in the fair values of assets
and liabilities, other than investments in securities at fiscal period end,
resulting from changes in exchange rates.
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
F-10
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. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of
Subchapter M of the Internal Revenue Code necessary to qualify as a
regulated investment company and, as such, will not be subject to federal
income taxes on otherwise taxable income (including net realized capital
gain) which is distributed to shareholders. Therefore, no provision for
federal income taxes is recorded in the financial statements. Any capital
loss carryforwards listed are reduced for limitations, if any, to the
extent required by the Internal Revenue Code.
H. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund and which are directly attributable to that class are
charged to the operations of such class. All other expenses are allocated
among the classes based on relative net assets.
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement,
the Fund pays an advisory fee to AIM at the annual rate of 0.65% of the first $1
billion of the Fund's average daily net assets, plus 0.60% of the Fund's average
daily net assets on the next $4 billion, plus 0.55% of the Fund's average daily
net assets in excess of $5 billion. AIM has voluntarily agreed to waive fees
and/or reimburse expenses (excluding interest, taxes, fund merger and
reorganization expenses, extraordinary items, including other items designated
as such by the Board of Trustees 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 shares to
1.50%. Voluntary fee waivers or reimbursements may be modified or discontinued
at any time without further notice to investors. Further, AIM has also
voluntarily agreed to waive advisory fees of the Fund in the amount of 25% of
the advisory fee AIM receives from the affiliated money market funds on
investments by the Fund in such affiliated money market funds. For the year
ended December 31, 2003, AIM waived fees of $87,087.
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, 2003, AIM was
paid $50,000 for such services.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay AIM Investment Services, Inc. ("AISI"), formerly known as A I M Fund
Services, Inc., a fee for providing transfer agency and shareholder services to
the Fund. During the year ended December 31, 2003, AISI retained $180,714 for
such services.
The Trust has entered into a master distribution agreement 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,
Class B 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 Class C shares. Of these amounts, up to 0.25% of the
average daily net assets of the Class A, Class B or Class C shares may be paid
to furnish continuing personal shareholder services to customers who purchase
and own shares of such classes. Any amounts not paid as a service fee under the
Plans would constitute an asset-based sales charge. NASD Rules also impose a cap
on the total sales charges, including asset-based sales charges that may be paid
by any class of shares of the Fund. Pursuant to the Plans, for the year ended
December 31, 2003, the Class A, Class B and Class C shares paid $140,541,
$587,179 and $184,770, respectively.
Front-end sales commissions and contingent deferred sales charges ("CDSC")
(collectively the "sales charges") are not recorded as expenses of the Fund.
Front-end sales commissions are deducted from proceeds from the sales of Fund
shares prior to investment in Class A shares of the Fund. CDSC are deducted from
redemption proceeds prior to remittance to the shareholder. During the year
ended December 31, 2003, AIM Distributors retained $54,699 in front-end sales
commissions from the sale of Class A shares and $46, $1,708 and $1,663 from
Class A, Class B and Class C shares, respectively, for CDSC imposed upon
redemptions by shareholders.
Certain officers and trustees of the Trust are officers and directors of
AIM, AISI and/or AIM Distributors.
NOTE 3--INVESTMENTS IN AFFILIATES
The Fund is permitted pursuant to an exemptive order from the Securities and
Exchange Commission ("SEC") and approved procedures by the Board of Trustees to
invest daily available cash balances in affiliated money market funds. Each day
the prior day's balance invested in the affiliated money market fund is redeemed
in full and a new purchase amount is submitted to invest the current day's
available cash. The table below shows the transactions in and earnings from
investments in affiliated money market funds for the period ended December 31,
2003.
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 12/31/2002 AT COST FROM SALES (DEPRECIATION) 12/31/2003 INCOME GAIN (LOSS)
- ------------------------------------------------------------------------------------------------------------------------------------
Liquid Assets Portfolio $3,066,692 $28,357,173 $(31,423,865) $ -- $ -- $33,624 $ --
- ------------------------------------------------------------------------------------------------------------------------------------
STIC Prime Portfolio 3,066,692 28,357,173 (31,423,865) -- $ -- 32,359 --
====================================================================================================================================
$6,133,384 $56,714,346 $(62,847,730) $ -- $ -- $65,983 $ --
____________________________________________________________________________________________________________________________________
====================================================================================================================================
</Table>
F-11
NOTE 4--EXPENSE OFFSET ARRANGEMENTS
Indirect expenses under expense offset arrangements are comprised of transfer
agency credits resulting from Demand Deposit Account (DDA) balances in transfer
agency clearing accounts and custodian credits resulting from periodic overnight
cash balances at the custodian. For the year ended December 31, 2003, the Fund
received reductions in transfer agency fees from AISI (an affiliate of AIM) of
$1,826 and reductions in custodian fees of $72 under expense offset arrangements
which resulted in a reduction of the Fund's total expenses of $1,898.
NOTE 5--TRUSTEES' FEES
Trustees' fees represent remuneration paid to each Trustee of the Trust who is
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 and INVESCO Funds in which their deferral accounts
shall be deemed to be invested.
Current Trustees are eligible to participate in a retirement plan that
provides for benefits to be paid upon retirement to Trustees over a period of
time based on the number of years of service. Certain former Trustees also
participate in a retirement plan and receive benefits under such plan.
During the year ended December 31, 2003, the Fund paid legal fees of $3,789
for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the
Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 6--BORROWINGS
The Fund may participate in an interfund lending facility that AIM has
established for temporary borrowings by the AIM Funds and the INVESCO Funds. An
interfund loan will be made under this facility only if the loan rate (an
average of the rate available on bank loans and the rate available on
investments in overnight repurchase agreements) is favorable to both the lending
fund and the borrowing fund. Under certain circumstances, a loan will be secured
by collateral. To the extent that the loan is required to be secured by
collateral, the collateral is marked to market daily to ensure that the market
value is at least 102% of the outstanding principal value of the loan.
Effective June 26, 2003, the Fund became a participant in an uncommitted
unsecured revolving credit facility with State Street Bank and Trust Company
("SSB"). The Fund may borrow up to the lesser of (i) $125,000,000 or (ii) the
limits set by its prospectus for borrowings. The Fund and other funds advised by
AIM which are parties to the credit facility can borrow on a first come, first
served basis. Principal on each loan outstanding shall bear interest at the bid
rate quoted by SSB at the time of the request for the loan.
During the reporting period, the Fund was a participant in a committed
credit facility with a syndicate administered by Citibank, N.A. The Fund could
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 were
parties to the credit facility could borrow on a first come, first served basis.
The funds which were party to the credit facility were charged a commitment fee
of 0.09% on the unused balance of the committed line. The commitment fee was
allocated among the funds based on their respective average net assets for the
period. The committed credit facility expired May 20, 2003.
During the year ended December 31, 2003, the Fund did not borrow or lend
under the interfund lending facility or borrow under either the uncommitted
unsecured revolving credit facility or the committed credit facility.
Additionally the Fund is permitted to temporarily carry a negative or
overdrawn balance in its account with the custodian bank. To compensate the
custodian bank for such overdrafts, the overdrawn Fund may either (i) leave
funds in the account so the custodian can be compensated by earning the
additional interest; or (ii) compensate by paying the custodian bank. In either
case, the custodian bank will be compensated an amount equal to the Federal
Funds rate plus 100 basis points.
NOTE 7--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
Distributions to Shareholders:
The tax character of distributions paid during the years ended December 31, 2003
and 2002 was as follows:
<Table>
<Caption>
2003 2002
- ------------------------------------------------------------
Distributions paid from ordinary
income $351,965 $529,390
____________________________________________________________
============================================================
</Table>
Tax Components of Net Assets:
As of December 31, 2003, the components of net assets on a tax basis were as
follows:
<Table>
Unrealized appreciation -- investments $ 20,643,031
- -----------------------------------------------------------
Temporary book/tax differences (9,212)
- -----------------------------------------------------------
Capital loss carryforward (3,344,633)
- -----------------------------------------------------------
Shares of beneficial interest 137,480,249
===========================================================
Total net assets $154,769,435
___________________________________________________________
===========================================================
</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.
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
trustee retirement plan expenses.
The Fund has a capital loss carryforward for tax purposes which expires as
follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD
- ----------------------------------------------------------
December 31, 2009 $ 1,094
- ----------------------------------------------------------
December 31, 2010 3,076,168
- ----------------------------------------------------------
December 31, 2011 267,371
==========================================================
Total capital loss carryforward $3,344,633
__________________________________________________________
==========================================================
</Table>
F-12
NOTE 8--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities
and money market funds) purchased and sold by the Fund during the year ended
December 31, 2003 was $91,750,155 and $56,996,368, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF
INVESTMENT SECURITIES ON A TAX BASIS
- -----------------------------------------------------------
Aggregate unrealized appreciation of
investment securities $21,802,883
- -----------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (1,159,852)
===========================================================
Net unrealized appreciation of investment
securities $20,643,031
___________________________________________________________
===========================================================
Cost of investments for tax purposes is $133,466,646.
</Table>
NOTE 9--RECLASSIFICATION OF PERMANENT DIFFERENCES
As a result of differing book/tax treatment of foreign currency transactions and
non deductible excise taxes, non deductible stock issuance costs, and other
items, on December 31, 2003, undistributed net investment income was increased
by $286,406, undistributed net realized gains decreased by $279,846 and shares
of beneficial interest decreased by $6,560. This reclassification had no effect
on the net assets of the Fund.
NOTE 10--SHARE INFORMATION
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 CDSC. Under some
circumstances, Class A shares are subject to CDSC. Generally, Class B shares
will automatically convert to Class A shares eight years after the end of the
calendar month of purchase.
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING
- ----------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
2003 2002
-------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------------------------------------------------------------
Sold:
Class A 2,121,267 $ 21,472,774 3,446,333 $ 34,648,200
- ----------------------------------------------------------------------------------------------------------------------
Class B 3,415,758 34,619,858 5,478,972 54,419,155
- ----------------------------------------------------------------------------------------------------------------------
Class C 1,191,376 12,127,632 1,909,258 19,097,434
======================================================================================================================
Issued as reinvestment of dividends:
Class A 23,304 235,426 28,607 280,388
- ----------------------------------------------------------------------------------------------------------------------
Class B 7,181 68,294 15,991 156,480
- ----------------------------------------------------------------------------------------------------------------------
Class C 2,103 20,060 5,190 50,976
======================================================================================================================
Automatic conversion of Class B shares to Class A shares:
Class A 298,876 3,122,514 46,807 451,087
- ----------------------------------------------------------------------------------------------------------------------
Class B (299,162) (3,122,514) (46,781) (451,087)
======================================================================================================================
Reacquired:
Class A (1,204,717) (11,950,932) (1,094,279) (10,625,577)
- ----------------------------------------------------------------------------------------------------------------------
Class B (1,513,543) (15,068,036) (1,910,198) (18,648,466)
- ----------------------------------------------------------------------------------------------------------------------
Class C (698,766) (6,965,135) (732,977) (7,399,764)
======================================================================================================================
3,343,677 $ 34,559,941 7,146,923 $ 71,978,826
______________________________________________________________________________________________________________________
======================================================================================================================
</Table>
F-13
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
----------------------------------------------
SEPTEMBER 28, 2001
YEAR ENDED (DATE OPERATIONS
DECEMBER 31, COMMENCED) TO
--------------------- DECEMBER 31,
2003 2002 2001
- ------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 9.46 $ 10.75 $ 10.00
- ------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.05 0.11(a) 0.03(a)
- ------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 2.05 (1.28) 0.76
============================================================================================================
Total from investment operations 2.10 (1.17) 0.79
============================================================================================================
Less distribution from net investment income (0.06) (0.12) (0.04)
============================================================================================================
Net asset value, end of period $ 11.50 $ 9.46 $ 10.75
____________________________________________________________________________________________________________
============================================================================================================
Total return(b) 22.35% (10.97)% 7.94%
____________________________________________________________________________________________________________
============================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $53,675 $32,414 $10,753
____________________________________________________________________________________________________________
============================================================================================================
Ratio of expenses to average net assets:
With fee waivers 1.50%(c) 1.48% 1.43%(d)
- ------------------------------------------------------------------------------------------------------------
Without fee waivers 1.57%(c) 1.67% 2.89%(d)
============================================================================================================
Ratio of net investment income to average net assets 0.46%(c) 1.15% 1.16%(d)
____________________________________________________________________________________________________________
============================================================================================================
Portfolio turnover rate(e) 51% 42% 7%
____________________________________________________________________________________________________________
============================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include sales charges
and is not annualized for periods less than one year.
(c) Ratios are annualized and based on average net assets of $40,154,641.
(d) Annualized.
(e) Not annualized for periods less than one year.
F-14
NOTE 11--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS B
----------------------------------------------
SEPTEMBER 28, 2001
YEAR ENDED (DATE OPERATIONS
DECEMBER 31, COMMENCED) TO
--------------------- DECEMBER 31,
2003 2002 2001
- ------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 9.46 $ 10.75 $ 10.00
- ------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.02) 0.05(a) 0.01(a)
- ------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 2.06 (1.29) 0.77
============================================================================================================
Total from investment operations 2.04 (1.24) 0.78
============================================================================================================
Less distribution from net investment income (0.01) (0.05) (0.03)
============================================================================================================
Net asset value, end of period $ 11.49 $ 9.46 $ 10.75
____________________________________________________________________________________________________________
============================================================================================================
Total return(b) 21.64% (11.56)% 7.76%
____________________________________________________________________________________________________________
============================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $76,304 $47,597 $16,067
____________________________________________________________________________________________________________
============================================================================================================
Ratio of expenses to average net assets:
With fee waivers 2.15%(c) 2.13% 2.08%(d)
- ------------------------------------------------------------------------------------------------------------
Without fee waivers 2.22%(c) 2.32% 3.54%(d)
============================================================================================================
Ratio of net investment income (loss) to average net assets (0.19)%(c) 0.50% 0.52%(d)
____________________________________________________________________________________________________________
============================================================================================================
Portfolio turnover rate(e) 51% 42% 7%
____________________________________________________________________________________________________________
============================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include sales charges
and is not annualized for periods less than one year.
(c) Ratios are annualized and based on average net assets of $58,717,932.
(d) Annualized.
(e) Not annualized for periods less than one year.
F-15
NOTE 11--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS C
-------------------------------------------
SEPTEMBER 28, 2001
YEAR ENDED (DATE OPERATIONS
DECEMBER 31, COMMENCED) TO
--------------------- DECEMBER 31,
2003 2002 2001
- ---------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 9.46 $ 10.75 $10.00
- ---------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.02) 0.05(a) 0.01(a)
- ---------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 2.06 (1.29) 0.77
=========================================================================================================
Total from investment operations 2.04 (1.24) 0.78
=========================================================================================================
Less distribution from net investment income (0.01) (0.05) (0.03)
=========================================================================================================
Net asset value, end of period $ 11.49 $ 9.46 $10.75
_________________________________________________________________________________________________________
=========================================================================================================
Total return(b) 21.64% (11.57)% 7.76%
_________________________________________________________________________________________________________
=========================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $24,790 $15,727 $5,168
_________________________________________________________________________________________________________
=========================================================================================================
Ratio of expenses to average net assets:
With fee waivers 2.15%(c) 2.13% 2.08%(d)
- ---------------------------------------------------------------------------------------------------------
Without fee waivers 2.22%(c) 2.32% 3.54%(d)
=========================================================================================================
Ratio of net investment income (loss) to average net assets (0.19)%(c) 0.50% 0.52%(d)
_________________________________________________________________________________________________________
=========================================================================================================
Portfolio turnover rate(e) 51% 42% 7%
_________________________________________________________________________________________________________
=========================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include sales charges
and is not annualized for periods less than one year.
(c) Ratios are annualized and based on average net assets of $18,476,969.
(d) Annualized.
(e) Not annualized for periods less than one year.
NOTE 12--LEGAL PROCEEDINGS
Your Fund's investment advisor, A I M Advisors, Inc. ("AIM"), is an indirect
wholly owned subsidiary of AMVESCAP PLC ("AMVESCAP"). Another indirect wholly
owned subsidiary of AMVESCAP, INVESCO Funds Group, Inc. ("IFG"), was formerly
the investment advisor to the INVESCO Funds. IFG continues to serve as the
investment advisor to INVESCO Variable Investment Funds, Inc. ("IVIF"). On
November 25, 2003, AIM succeeded IFG as the investment advisor to the INVESCO
Funds other than IVIF.
The mutual fund industry as a whole is currently subject to a wide range of
inquiries and litigation related to issues of "market timing" and "late
trading." Both AIM and IFG are the subject of a number of such inquiries, as
described below.
A. Regulatory Inquiries and Actions
1. IFG
On December 2, 2003 each of the Securities and Exchange Commission ("SEC") and
the Office of the Attorney General of the State of New York ("NYAG") filed civil
proceedings against IFG and Raymond R. Cunningham, in his capacity as the Chief
Executive Officer of IFG. Mr. Cunningham currently holds the positions of Chief
Operating Officer and Senior Vice President of A I M Management Group Inc., the
parent of AIM, and the position of Senior Vice President of AIM. In addition, on
December 2, 2003, the State of Colorado filed civil proceedings against IFG.
Neither the Fund nor any of the other AIM or INVESCO Funds has been named as a
defendant in any of these proceedings.
The SEC complaint alleges that IFG failed to disclose in the INVESCO Funds'
prospectuses and to the INVESCO Funds' independent directors that IFG had
entered into certain arrangements permitting market timing of the INVESCO Funds.
The SEC is seeking injunctions, including permanent injunctions from serving as
an investment advisor, officer or director of an investment company; an
accounting of all market timing as well as certain fees and compensation
received; disgorgement; civil monetary penalties; and other relief.
The NYAG and Colorado complaints make substantially similar allegations. The
NYAG is seeking injunctions, including permanent injunctions from directly or
indirectly selling or distributing shares of mutual funds; disgorgement of all
profits obtained, including fees collected, and payment of all restitution and
damages caused, directly or indirectly from the alleged illegal activities;
civil monetary penalties; and other relief. The State of Colorado is seeking
injunctions; restitution, disgorgement and other equitable relief, civil
monetary penalties; and other relief.
In addition, IFG has received inquiries in the form of subpoenas or other oral
or written requests for information from various regulators concerning market
timing activity, late trading, fair value pricing and related issues concerning
the INVESCO Funds. These regulators include the Florida Department of Financial
Services, the Commissioner of Securities for the State of Georgia, the Office of
the State Auditor for the State of West Virginia, and the Office
F-16
NOTE 12--LEGAL PROCEEDINGS (CONTINUED)
of the Secretary of State for West Virginia. IFG has also received more limited
inquiries concerning related matters from the United States Department of Labor,
NASD, Inc., and the SEC. IFG is providing full cooperation with respect to these
inquiries.
2. AIM
AIM has also received inquiries in the form of subpoenas or other oral or
written requests for information from various regulators concerning market
timing activity, late trading, fair value pricing, and related issues concerning
the AIM Funds. AIM has received requests for information and documents
concerning these and related matters from the SEC and the Massachusetts
Secretary of the Commonwealth. In addition, AIM has received subpoenas
concerning these and related matters from the NYAG, the United States Attorney's
Office for the District of Massachusetts, the Commissioner of Securities for the
State of Georgia, the Office of the State Auditor for the State of West
Virginia, and the Office of the Secretary of State for West Virginia. AIM has
also received more limited inquiries from the SEC and NASD, Inc. concerning
specific funds, entities and/or individuals, none of which directly bears upon
the Fund. AIM is providing full cooperation with respect to these inquiries.
3. AMVESCAP Response
AMVESCAP is seeking to resolve both the pending regulatory complaints against
IFG alleging market timing and the ongoing market timing investigations with
respect to IFG and AIM. AMVESCAP recently found, in its ongoing review of these
matters, that shareholders were not always effectively protected from the
potential adverse impact of market timing and illegal late trading through
intermediaries. These findings were based, in part, on an extensive economic
analysis by outside experts who have been retained by AMVESCAP to examine the
impact of these activities. In light of these findings, AMVESCAP has publicly
stated that any AIM or INVESCO Fund, or any shareholders thereof, harmed by
these activities will receive full restitution. AMVESCAP has informed regulators
of these findings. In addition, AMVESCAP has retained outside counsel to
undertake a comprehensive review of AIM's and IFG's policies, procedures and
practices, with the objective that they rank among the most effective in the
fund industry.
There can be no assurance that AMVESCAP will be able to reach a satisfactory
settlement with the regulators, or that any such settlement will not include
terms which would have the effect of barring either or both of IFG and AIM, or
any other investment advisor directly or indirectly owned by AMVESCAP, from
serving as an investment advisor to any registered investment company including
the Fund. The Fund has been informed by AIM that, if either of these results
occurs, AIM will seek exemptive relief from the SEC to permit it to continue to
serve as the Fund's investment advisor. There can be no assurance that such
exemptive relief will be granted. Any settlement with the regulators could also
include terms which would bar Mr. Cunningham from serving as an officer or
director of any registered investment company.
B. Private Actions
In addition to the complaints described above, multiple lawsuits, including
purported class action and shareholder derivative suits, have been filed against
various parties (including, depending on the lawsuit, certain INVESCO Funds,
certain AIM Funds, IFG, AIM, A I M Management Group Inc., the parent of AIM,
AMVESCAP, certain related entities and certain of their officers, including Mr.
Cunningham). The allegations in the majority of the lawsuits are substantially
similar to the allegations in the regulatory complaints against IFG described
above. Certain other lawsuits allege that certain AIM and INVESCO Funds
inadequately employed fair value pricing. Such lawsuits allege a variety of
theories of recovery, including but not limited to: (i) violation of various
provisions of the Federal and state securities laws; (ii) violation of various
provisions of the Employee Retirement Income Security Act ("ERISA"); (iii)
breach of fiduciary duty; and (iv) breach of contract. The lawsuits have been
filed in both Federal and state courts and seek such remedies as compensatory
damages; restitution; rescission; accounting for wrongfully gotten gains,
profits and compensation; injunctive relief; disgorgement; equitable relief;
various corrective measures under ERISA; rescission of certain Funds' advisory
agreements with AIM; declaration that the advisory agreement is unenforceable or
void; refund of advisory fees; interest; and attorneys' and experts' fees.
IFG has removed certain of the state court proceedings to Federal District
Court. At a hearing before the Judicial Panel on Multidistrict Litigation
concerning the most efficient way to manage the numerous lawsuits alleging
market timing in mutual funds throughout the industry, IFG and AIM supported
transfer of all cases pending against them to one district for consolidated
proceedings. The Panel has not issued a ruling.
Additional lawsuits or regulatory actions arising out of these circumstances
and presenting similar allegations and requests for relief may be filed against
the Fund, IFG, AIM, AMVESCAP and related entities and individuals in the future.
As a result of these developments, investors in the AIM and INVESCO Funds
might react by redeeming their investments. This might require the Funds to sell
investments to provide for sufficient liquidity and could also have an adverse
effect on the investment performance of the Funds.
At the present time, management of AIM and the Fund is unable to estimate the
impact, if any, that the outcome of the matters described above may have on the
Fund or AIM.
F-17
REPORT OF INDEPENDENT AUDITORS
To the Board of Trustees and Shareholders
of AIM Basic Balanced Fund
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the AIM Basic Balanced Fund (one of
the funds constituting AIM Funds Group; hereafter referred to as the "Fund") at
December 31, 2003, the results of its operations for the year then ended, the
changes in its net assets for each of the two years in the period then ended and
the financial highlights for each of the periods indicated, in conformity with
accounting principles generally accepted in the United States of America. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with 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, 2003 by correspondence with the
custodian and brokers, provide a reasonable basis for our opinion.
PRICEWATERHOUSECOOPERS LLP
February 20, 2004
Houston, Texas
F-18
PROXY RESULTS (UNAUDITED)
A Special Meeting of Shareholders of AIM Basic Balanced Fund, a portfolio of AIM
Funds Group, a Delaware statutory trust, was held on October 21, 2003. The
meeting was held for the following purpose:
(1)* To elect sixteen individuals to the Board, each of whom will serve until
his or her successor is elected and qualified: Bob R. Baker, Frank S.
Bayley, James T. Bunch, Bruce L. Crockett, Albert R. Dowden, Edward K.
Dunn, Jr., Jack M. Fields, Carl Frischling, Robert H. Graham, Gerald J.
Lewis, Prema Mathai-Davis, Lewis F. Pennock, Ruth H. Quigley, Louis S.
Sklar, Larry Soll, Ph D. and Mark H. Williamson.
The results of the voting on the above matter were as follows:
<Table>
<Caption>
WITHHOLDING
TRUSTEES/MATTER VOTES FOR AUTHORITY
- ---------------------------------------------------------------------------------
(1)* Bob R. Baker................................. 822,704,205 11,194,804
Frank S. Bayley.............................. 822,781,451 11,117,558
James T. Bunch............................... 822,886,061 11,012,948
Bruce L. Crockett............................ 822,942,379 10,956,630
Albert R. Dowden............................. 822,923,043 10,975,966
Edward K. Dunn, Jr........................... 822,752,667 11,146,342
Jack M. Fields............................... 823,013,560 10,885,449
Carl Frischling.............................. 822,602,646 11,296,363
Robert H. Graham............................. 822,881,635 11,017,374
Gerald J. Lewis.............................. 822,460,720 11,438,289
Prema Mathai-Davis........................... 822,715,053 11,183,956
Lewis F. Pennock............................. 822,839,481 11,059,528
Ruth H. Quigley.............................. 822,446,309 11,452,700
Louis S. Sklar............................... 822,882,710 11,016,299
Larry Soll, Ph.D............................. 822,748,856 11,150,153
Mark H. Williamson........................... 822,801,778 11,097,231
</Table>
* Proposal required approval by a combined vote of all the portfolios of AIM
Funds Group.
F-19
OTHER INFORMATION
TRUSTEES AND OFFICERS
As of January 1, 2004
The address of each trustee and officer of AIM Funds Group (the "Trust"), is 11
Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee oversees 104
portfolios in the AIM and INVESCO Funds complex, except for Messrs. Baker,
Bunch, Lewis and Soll who oversee 96 portfolios and Mr. Williamson who oversees
117 portfolios in the AIM and INVESCO Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
<Table>
<Caption>
NAME, YEAR OF BIRTH AND TRUSTEE AND/
POSITION(S) HELD WITH THE OR OFFICER PRINCIPAL OCCUPATION(S)
TRUST SINCE DURING PAST 5 YEARS
- ----------------------------------------------------------------------------------------------------------------
INTERESTED PERSONS
- ----------------------------------------------------------------------------------------------------------------
Robert H. Graham(1) -- 1946 1992 Director and Chairman, A I M Management Group Inc.
Trustee, Chairman and (financial services holding company); and Director and Vice
President Chairman, AMVESCAP PLC and Chairman of AMVESCAP PLC -- AIM
Division (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), AIM Investment Services, Inc.,
(registered transfer agent), and Fund Management Company
(registered broker dealer); and Chief Executive Officer,
AMVESCAP PLC -- Managed Products
- ----------------------------------------------------------------------------------------------------------------
Mark H. Williamson(2) -- 1951 2003 Director, President and Chief Executive Officer, A I M
Trustee and Executive Vice Management Group Inc. (financial services holding company);
President Director, Chairman and President, A I M Advisors, Inc.
(registered investment advisor); Director, A I M Capital
Management, Inc. (registered investment advisor) and A I M
Distributors, Inc. (registered broker dealer); Director and
Chairman, AIM Investment Services, Inc. (registered transfer
agent), and Fund Management Company (registered broker
dealer); and Chief Executive Officer, AMVESCAP PLC -- AIM
Division (parent of AIM and a global investment management
firm)
Formerly: Director, Chairman, President and Chief Executive
Officer, INVESCO Funds Group, Inc. and INVESCO Distributors,
Inc.; Chief Executive Officer, AMVESCAP PLC -- Managed
Products; Chairman and Chief Executive Officer of
NationsBanc Advisors, Inc.; and Chairman of NationsBanc
Investments, Inc.
- ----------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- ----------------------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 2003 Consultant
Trustee
Formerly: President and Chief Executive Officer, AMC Cancer
Research Center; and Chairman and Chief Executive Officer,
First Columbia Financial Corporation
- ----------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2001 Of Counsel, law firm of Baker & McKenzie
Trustee
- ----------------------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 2003 Co-President and Founder, Green, Manning & Bunch Ltd.,
Trustee (investment banking firm); and Director, Policy Studies,
Inc. and Van Gilder Insurance Corporation
Formerly: General Counsel and Director, Boettcher & Co.; and
Chairman and Managing Partner, law firm of Davis, Graham &
Stubbs
- ----------------------------------------------------------------------------------------------------------------
Bruce L. Crockett -- 1944 1987 Chairman, Crockett Technology Associates (technology
Trustee consulting company)
- ----------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2000 Director of a number of public and private business
Trustee corporations, including the Boss Group Ltd. (private
investment and management) and Magellan Insurance Company
Formerly: Director, President and Chief Executive Officer,
Volvo Group North America, Inc.; Senior Vice President, AB
Volvo; and director of various affiliated Volvo companies
- ----------------------------------------------------------------------------------------------------------------
Edward K. Dunn, Jr. -- 1935 1998 Formerly: Chairman, Mercantile Mortgage Corp.; President and
Trustee Chief Operating Officer, Mercantile-Safe Deposit & Trust
Co.; and President, Mercantile Bankshares Corp.
- ----------------------------------------------------------------------------------------------------------------
Jack M. Fields -- 1952 1997 Chief Executive Officer, Twenty First Century Group, Inc.
Trustee (government affairs company) and Texana Timber LP
- ----------------------------------------------------------------------------------------------------------------
<Caption>
NAME, YEAR OF BIRTH AND
POSITION(S) HELD WITH THE OTHER DIRECTORSHIP(S)
TRUST HELD BY TRUSTEE
- -------------------------------- ----------------------
INTERESTED PERSONS
- -------------------------------------------------------------------------------
Robert H. Graham(1) -- 1946 None
Trustee, Chairman and
President
- ------------------------------------------------------------------------------------------------------
Mark H. Williamson(2) -- 1951 None
Trustee and Executive Vice
President
- ----------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- ----------------------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 None
Trustee
- ----------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 Badgley Funds, Inc.
Trustee (registered investment
company)
- ----------------------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 None
Trustee
- ----------------------------------------------------------------------------------------------------------------
Bruce L. Crockett -- 1944 ACE Limited (insurance
Trustee company); and
Captaris, Inc.
(unified messaging
provider)
- ----------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 Cortland Trust, Inc.
Trustee (Chairman) (registered
investment company);
Annuity and Life Re
(Holdings), Ltd.
(insurance company)
- ----------------------------------------------------------------------------------------------------------------
Edward K. Dunn, Jr. -- 1935 None
Trustee
- ----------------------------------------------------------------------------------------------------------------
Jack M. Fields -- 1952 Administaff
Trustee
- ----------------------------------------------------------------------------------------------------------------
</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.
Trustees and Officers (continued)
As of January 1, 2004
The address of each trustee and officer of AIM Funds Group (the "Trust"), is 11
Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee oversees 104
portfolios in the AIM and INVESCO Funds complex, except for Messrs. Baker,
Bunch, Lewis and Soll who oversee 96 portfolios and Mr. Williamson who oversees
117 portfolios in the AIM and INVESCO Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
<Table>
<Caption>
NAME, YEAR OF BIRTH AND TRUSTEE AND/ PRINCIPAL OCCUPATION(S)
POSITION(S) HELD WITH THE TRUST OR OFFICER SINCE DURING PAST 5 YEARS
- -------------------------------------------------------------------------------------------------------------------
Carl Frischling -- 1937 1993 Partner, law firm of Kramer Levin Naftalis and Frankel LLP
Trustee
- -------------------------------------------------------------------------------------------------------------------
Gerald J. Lewis -- 1933 2003 Chairman, Lawsuit Resolution Services (San Diego,
Trustee California)
Formerly: Associate Justice of the California Court of
Appeals
- -------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA of the USA
Trustee
- -------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 1992 Partner, law firm of Pennock & Cooper
Trustee
- -------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2001 Retired
Trustee
- -------------------------------------------------------------------------------------------------------------------
Louis S. Sklar -- 1939 1993 Executive Vice President, Development and Operations Hines
Trustee Interests Limited Partnership (real estate development
company)
- -------------------------------------------------------------------------------------------------------------------
Larry Soll, Ph.D. -- 1942 2003 Retired
Trustee
- -------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- -------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 2003 Director, Senior Vice President, Secretary and General
Senior Vice President and Chief Counsel, A I M Management Group Inc. (financial services
Legal Officer holding company) and A I M Advisors, Inc.; Vice President,
A I M Capital Management, Inc., A I M Distributors, Inc. and
AIM Investment Services, Inc.; and Director, Vice President
and General Counsel, Fund Management Company
Formerly: Senior Vice President and General Counsel, Liberty
Financial Companies, Inc.; and Senior Vice President and
General Counsel, Liberty Funds Group, LLC
- -------------------------------------------------------------------------------------------------------------------
Robert G. Alley -- 1948 1992 Managing Director, Chief Fixed Income Officer and Senior
Vice President Investment Officer, A I M Capital Management, Inc.; and Vice
President, A I M Advisors, Inc.
- -------------------------------------------------------------------------------------------------------------------
Stuart W. Coco -- 1955 1992 Managing Director and Chief Research Officer -- Fixed
Vice President Income, 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 Advisors,
Vice President Inc. and A I M Capital Management, Inc.; and Vice President,
AIM Investment Services, Inc.
- -------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, A I M Advisors, Inc.;
Vice President and Treasurer Senior Vice President, AIM Investment Services, Inc.; and
Vice President, A I M Distributors, Inc.
- -------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 1992 Managing Director and Chief Management Officer, A I M
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 President, Chief
Vice President Executive Officer and Chief Investment Officer, A I M
Capital Management, Inc.
- -------------------------------------------------------------------------------------------------------------------
<Caption>
NAME, YEAR OF BIRTH AND OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST HELD BY TRUSTEE
- --------------------------------- ----------------------
Carl Frischling -- 1937 Cortland Trust, Inc.
Trustee (registered investment
company)
- -------------------------------------------------------------------------------------------------------------------
Gerald J. Lewis -- 1933 General Chemical
Trustee Group, Inc.,
Wheelabrator
Technologies, Inc.
(waste management
company), Fisher
Scientific, Inc.,
Henley Manufacturing,
Inc. (laboratory
supplies), and
California Coastal
Properties, Inc.
- -------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 None
Trustee
- -------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 None
Trustee
- -------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 None
Trustee
- -------------------------------------------------------------------------------------------------------------------
Louis S. Sklar -- 1939 None
Trustee
- -------------------------------------------------------------------------------------------------------------------
Larry Soll, Ph.D. -- 1942 None
Trustee
- -------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- -------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 N/A
Senior Vice President and Chief
Legal Officer
- -------------------------------------------------------------------------------------------------------------------
Robert G. Alley -- 1948 N/A
Vice President
- -------------------------------------------------------------------------------------------------------------------
Stuart W. Coco -- 1955 N/A
Vice President
- -------------------------------------------------------------------------------------------------------------------
Melville B. Cox -- 1943 N/A
Vice President
- -------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 N/A
Vice President and Treasurer
- -------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 N/A
Vice President
- -------------------------------------------------------------------------------------------------------------------
Edgar M. Larsen -- 1940 N/A
Vice President
- -------------------------------------------------------------------------------------------------------------------
</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 LLP
Suite 100 11 Greenway Plaza 11 Greenway Plaza 1201 Louisiana, Suite 2900
Houston, TX 77046-1173 Suite 100 Suite 100 Houston, TX 77002-5678
Houston, TX 77046-1173 Houston, TX 77046-1173
COUNSEL TO THE FUND COUNSEL TO THE TRUSTEES TRANSFER AGENT CUSTODIAN
Ballard Spahr Kramer, Levin, Naftalis & AIM Investment 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 19103-7599 New York, NY 10022-3852 Boston, MA 02110
</Table>
REQUIRED FEDERAL INCOME TAX INFORMATION (UNAUDITED)
Of ordinary dividends paid to shareholders during the Fund's tax year ended
December 31, 2003, 99.84% is eligible for the dividends received deduction for
corporations.
For its tax year ended December 31, 2003, the Fund designated 94.92%, or the
maximum amount allowable, of its dividend distributions as qualified dividend
income. The actual percentages for the calendar year will be designated in the
Fund's year end tax statement.
<Table>
DOMESTIC EQUITY INTERNATIONAL/GLOBAL EQUITY FIXED INCOME
AIM Aggressive Growth Fund AIM Asia Pacific Growth Fund TAXABLE
AIM Balanced Fund* AIM Developing Markets Fund
AIM Basic Balanced Fund* AIM European Growth Fund AIM Floating Rate Fund
AIM Basic Value Fund AIM European Small Company Fund AIM High Yield Fund
AIM Blue Chip Fund AIM Global Aggressive Growth Fund AIM Income Fund
AIM Capital Development Fund AIM Global Growth Fund AIM Intermediate Government Fund
AIM Charter Fund AIM Global Trends Fund AIM Limited Maturity Treasury Fund
AIM Constellation Fund AIM Global Value Fund(5) AIM Money Market Fund
AIM Dent Demographic Trends Fund AIM International Emerging Growth Fund AIM Short Term Bond Fund
AIM Diversified Dividend Fund(1) AIM International Growth Fund AIM Total Return Bond Fund
AIM Emerging Growth Fund AIM Trimark Fund INVESCO U.S. Government Money Fund
AIM Large Cap Basic Value Fund INVESCO International Core Equity Fund(6)
AIM Large Cap Growth Fund TAX-FREE
AIM Libra Fund SECTOR EQUITY
AIM Mid Cap Basic Value Fund AIM High Income Municipal Fund
AIM Mid Cap Core Equity Fund(2) AIM Global Health Care Fund AIM Municipal Bond Fund
AIM Mid Cap Growth Fund AIM Real Estate Fund AIM Tax-Exempt Cash Fund
AIM Opportunities I Fund INVESCO Advantage Health Sciences Fund AIM Tax-Free Intermediate Fund
AIM Opportunities II Fund INVESCO Energy Fund
AIM Opportunities III Fund INVESCO Financial Services Fund
AIM Premier Equity Fund INVESCO Gold & Precious Metals Fund
AIM Select Equity Fund INVESCO Health Sciences Fund
AIM Small Cap Equity Fund(3) INVESCO Leisure Fund
AIM Small Cap Growth Fund(4) INVESCO Multi-Sector Fund
AIM Trimark Endeavor Fund INVESCO Technology Fund
AM Trimark Small Companies Fund INVESCO Utilities Fund
AIM Weingarten Fund
INVESCO Core Equity Fund
INVESCO Dynamics Fund
INVESCO Mid-Cap Growth Fund
INVESCO Small Company Growth Fund
INVESCO S&P 500 Index Fund
INVESCO Total Return Fund*
</Table>
* Domestic equity and income fund
(1) Effective May 2, 2003, AIM Large Cap Core Equity Fund was renamed AIM
Diversified Dividend Fund. (2) As of the close of business on February 27, 2004,
AIM Mid Cap Core Equity Fund is available to new investors on a limited basis.
For information on who may continue to invest in AIM Mid Cap Core Equity Fund,
please contact your financial advisor. (3) AIM Small Cap Equity Fund was closed
to most investors on December 19, 2003. For information on who may continue to
invest in AIM Small Cap Equity Fund, please contact your financial advisor. (4)
AIM Small Cap Growth Fund was closed to most investors on March 18, 2002. For
information on who may continue to invest in AIM Small Cap Growth Fund, please
contact your financial advisor. (5) Effective April 30, 2003, AIM Worldwide
Spectrum Fund was renamed AIM Global Value Fund. (6) Effective November 24,
2003, INVESCO International Blue Chip Value Fund was renamed INVESCO
International Core Equity Fund.
For more complete information about any AIM or INVESCO fund, including sales
charges and expenses, ask your financial advisor for a prospectus. Please read
the prospectus carefully and consider the investment objectives, risks, and
charges and expenses of the investment carefully before investing. If used after
April, 2004, this brochure must be accompanied by a fund Performance &
Commentary or by an AIM Quarterly Performance Review for the most recent
quarter-end. Mutual funds distributed by A I M Distributors, Inc.
A I M Management Group Inc. has provided leadership in the investment management
industry since 1976 and manages $149 billion in assets for approximately 11
million shareholders, including individual investors, corporate clients and
financial institutions. AIM is a subsidiary of AMVESCAP PLC, one of the world's
largest independent financial services companies with $371 billion in assets
under management. Data as of December 31, 2003.
AIMinvestments.com BBA-AR-1
<Table>
YOUR GOALS. OUR SOLUTIONS.--Servicemark--
- -------------------------------------------------------------------------------------
Mutual Retirement Annuities College Separately Offshore Alternative Cash [AIM INVESTMENTS LOGO APPEARS HERE]
Funds Products Savings Managed Products Investments Management
Plans Accounts
</Table>
AIM EUROPEAN SMALL COMPANY FUND
Annual Report to Shareholders o December 31, 2003
[COVER IMAGE]
YOUR GOALS. OUR SOLUTIONS. [AIM INVESTMENTS LOGO APPEARS HERE]
--Servicemark-- --Servicemark--
================================================================================
AIM EUROPEAN SMALL COMPANY FUND SEEKS TO PROVIDE LONG-TERM GROWTH OF CAPITAL.
================================================================================
o Unless otherwise stated, information presented is as of 12/31/03 and is based
on total net assets.
ABOUT SHARE CLASSES
<Table>
o Effective 9/30/03, Class B shares are o The fund may participate in the initial o A direct investment cannot be made in
not available as an investment for public offering (IPO) market in some an index. Unless otherwise indicated,
retirement plans maintained pursuant to market cycles. Because of the fund's index results include reinvested
Section 401 of the Internal Revenue Code, small asset base, any investments the dividends, and they do not reflect sales
including 401(k) plans, money purchase fund may make in IPOs may significantly charges. Performance of an index of funds
pension plans and profit sharing plans. affect the fund's total return. As the reflects fund expenses; performance of a
Plans that have existing accounts fund's assets grow, the impact of IPO market index does not.
invested in Class B shares will continue investments will decline, which may
to be allowed to make additional reduce the effect of IPO investments on Industry classifications used in this
purchases. the fund's total return. report are generally according to the
Global Industry Classification Standard,
PRINCIPAL RISKS OF INVESTING IN THE FUND ABOUT INDEXES USED IN THIS REPORT which was developed by and is the
exclusive property and a service mark of
o International investing presents o The unmanaged MSCI Europe, Australasia Morgan Stanley Capital International Inc.
certain risks not associated with and the Far East Index (the and Standard & Poor's.
investing solely in the United States. EAFE--Registered Trademark--) is a group
These include risks relating to of foreign securities tracked by Morgan A description of the policies and
fluctuations in the value of the U.S. Stanley Capital International. procedures that the Fund uses to
dollar relative to the values of other determine how to vote proxies relating to
currencies, the custody arrangements made o The unmanaged Lipper European Region portfolio securities is available without
for the fund's foreign holdings, Fund Index represents an average of the charge, upon request, by calling
differences in accounting, political 30 largest European funds tracked by 800-959-4246, or on the AIM Web site,
risks and the lesser degree of public Lipper, Inc., an independent mutual fund AIMinvestments.com.
information required to be provided by performance monitor.
non-U.S. companies.
o The unmanaged MSCI European Small-Cap
o Investing in a single-sector or Index is a price-only index that is
single-region mutual fund involves comprised of a group of small-cap
greater risk and potential reward than European securities tracked by Morgan
investing in a more diversified fund. Stanley Capital International.
o Investing in small and mid-size o The unmanaged MSCI Europe Index is a
companies involves risks not associated group of European securities tracked by
with investing in more established Morgan Stanley Capital International.
companies. Also, small companies have
business risk, significant stock price
fluctuations and illiquidity.
</Table>
<Table>
===================================================
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE THIS REPORT MAY BE DISTRIBUTED ONLY TO SHAREHOLDERS OR TO PERSONS
=================================================== WHO HAVE RECEIVED A CURRENT PROSPECTUS OF THE FUND. PLEASE READ
THE PROSPECTUS CAREFULLY AND CONSIDER THE INVESTMENT OBJECTIVES,
RISKS, AND CHARGES AND EXPENSES OF THE INVESTMENT CAREFULLY
BEFORE INVESTING.
</Table>
AIMinvestments.com
TO OUR SHAREHOLDERS
DEAR FELLOW SHAREHOLDER IN THE AIM FAMILY OF
FUNDS--Registered Trademark--:
[PHOTO OF The fiscal year ended December 31, 2003, was a welcome
ROBERT H. change from the bear market of the previous three years.
GRAHAM Major stock market indexes here and abroad delivered
positive performance, with double-digit returns more the
ROBERT H. GRAHAM rule than the exception. As is historically the case, bond
market returns were more modest, but nonetheless positive as
well. The U.S. economy appears to have turned a corner, with
solid growth in gross domestic product. Overseas,
particularly in Europe, economic performance was not so
robust but appeared to pick up during the second half of the
year.
U.S. investors seem to have regained their confidence,
putting $152.77 billion in new money into stock mutual funds
during 2003 and $31.40 billion into bond funds. By contrast,
money market funds, considered a safe haven because of their emphasis on
stability of net asset value, suffered large net outflows during 2003.
The durability of these trends is, of course, unpredictable, but the economy
does appear to have the wind at its back in terms of fiscal, monetary and tax
stimulus, and corporate earnings have been strong. Nevertheless, we caution all
our shareholders against thinking that 2004 will be a repeat of 2003. We simply
do not know.
What should investors do? They should do what we have always urged: Keep
their eyes on their long-term goals, keep their portfolios diversified, and work
with their financial advisors to tailor their investments to their risk
tolerance and investment objectives. We cannot overemphasize the importance of
professional guidance when it comes to selecting investments.
For information on your fund's performance and management during the fiscal
year, please see the management discussion that begins on the following page.
VISIT OUR WEB SITE
As you are aware, the mutual fund industry, including AIM Investments, has been
the subject of allegations and investigations of late surrounding the issues of
market timing and late trading in funds. We understand how unsettling this may
be for many of our shareholders. We encourage you to visit AIMinvestments.com
often to monitor developments. We will continue to post updates on these issues
as information becomes available.
The Securities and Exchange Commission, which regulates our industry, has
already proposed new rules and regulations, and is planning to propose several
more, that address the issues of market timing and late trading, among others.
We welcome these efforts, as does the industry trade group, the Investment
Company Institute. We believe comprehensive rule making is necessary and is the
best way to establish new industry responsibilities designed to protect
shareholders. We support practical rule changes and structural modifications
that are fair, enforceable and, most importantly, beneficial for investors.
Should you visit our Web site, we invite you to explore the other material
available there, including general investing information, performance updates on
our funds, and market and economic commentary from our financial experts.
As always, AIM is committed to building solutions for your investment goals,
and we thank you for your continued participation in AIM Investments. If you
have any questions, you can contact one of our Client Service representatives at
800-959-4246.
Sincerely,
/s/ ROBERT H. GRAHAM
Robert H. Graham
Chairman and President
February 9, 2004
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
<Table>
FUND OUTPERFORMS INDEXES AMID The European Central Bank reduced
EUROPEAN SMALL-CAP RALLY short-term interest rates at both its
March and June meetings, leaving rates at
For the fiscal year ended December 31, While European stock markets posted 2.00% at the end of 2003. The Bank of
2003, AIM European Small Company Fund gains, the Bank of England reported that England also reduced rates in February
Class A shares at net asset value economic growth remained weak for much of and again in July; however, citing
returned 63.96%. If sales charges were the year. In its October policy meeting, underlying inflationary pressure, the
included, performance would be lower. In the bank reported that there continued to bank raised rates in November leaving its
comparison, the fund's broad market be a contrast between weak euro area benchmark rate at 3.75% at the end of the
index, the MSCI EAFE Index, returned economic data and more promising business reporting period.
38.59%; the fund's style-specific index, survey indicators. Indeed, annualized
the MSCI European Small-Cap Index, euro zone gross domestic product (GDP) On the currency front, the euro
returned 57.20%; and the fund's fell by 0.1% in the second quarter (In continued to make headlines as it
peer-group index, the Lipper European contrast, annualized GDP in Europe's appreciated more than 20% against the
Region Fund Index, returned 38.15%. We largest non-euro country--the United U.S. dollar over the fiscal year. The
attribute the fund's measure of Kingdom--rose during the second quarter) British pound and Swiss franc also proved
outperformance relative to its benchmark German retail sales (excluding car- stronger, both appreciating approximately
indexes to the fund's focus on European related sales) and French consumer 11% against the dollar during 2003.
small-cap stocks and to strong stock spending on manufactured goods both
selection. European small-cap stocks declined in August. YOUR FUND
significantly outperformed their
large-cap peers during the fiscal year. Economic activity picked up in the Currency appreciation, the strong
second half of the year, with the euro performance of European small-cap
MARKET CONDITIONS zone annualized GDP rising 0.4% for the securities, and stock selection were the
third quarter. (Preliminary estimates primary drivers of absolute and relative
In April, as the uncertainty about the indicated that U.K. third quarter fund performance during the fiscal year.
outcome of the war in Iraq began to fade, annualized GDP rose 0.7 %.) Late-year As noted, foreign currencies generally
European markets generally rallied and business surveys also offered promise. outperformed the U.S. dollar during the
continued to show strength through the European Commission Business Survey data fiscal year.
remainder of the reporting period. suggested that confidence in the
manufacturing sector continued to This outperformance had a positive
strengthen from September through impact on fund performance as we do not
November. hedge currencies. We buy securities in
local currency and then translate that
value back into U.S. dollars for the
fund. Currency appreciation contributed
approximately 17% to fund returns during
the fiscal year.
</Table>
<Table>
===================================================================================================================================
TOTAL RETURNS TOP 10 EQUITY HOLDINGS* TOP 10 INDUSTRIES*
12/31/02-12/31/03
1. Anglo Irish Bank Corp. PLC (Ireland) 2.6% 1. Publishing 5.5%
(BAR GRAPH)
2. Puma A.G. Rudolf Dassler Sport (Germany) 2.5 2. Diversified Banks 5.4
AIM EUROPEAN SMALL COMPANY FUND 63.96%
CLASS A SHARES AT NAV 3. Merloni Elettrodomestici S.p.A. (Italy) 1.9 3. Apparel & Accessories 3.8
MSCI EAFE INDEX 38.59% 4. Vossloh A.G. (Germany) 1.6 4. Footwear 3.1
5. Bijou Brigitte Modische Accessories A.G. 5. Restaurants 3.0
(Germany) 1.6
6. Industrial Machinery 2.7
6. Depfa Banks PLC (Ireland) 1.6
7. Pharmaceuticals 2.6
7. Gedeon Richter Rt. (Hungary) 1.5
8. Diversified Commercial
8. Topdanmark A.S. (Denmark) 1.5 Services 2.4
9. Mobistar S.A. (Belgium) 1.4 9. Specialized Finance 2.3
10. SBS Broadcasting S.A. (Luxembourg) 1.4 10. Leisure Products 2.2
Source: Lipper, Inc.
*Excludes money market fund holdings.
Performance comparisons for other share classes can be found in the Fund vs. Index table on the opposite page.
The fund's holdings are subject to change, and there is no assurance that the fund will continue to hold any particular security.
===================================================================================================================================
</Table>
2
<Table>
European small-cap stocks markedly Considering the performance of BORGE ENDRESEN
outperformed their large-cap counterparts European small-cap stocks during the Mr. Endresen, Chartered
during the fiscal year. In fact, the MSCI year, the fund had few detractors to [PHOTO OF Financial Analyst, is manager
Europe Small-Cap Index outperformed the report. Cranswick, a U.K. agricultural BORGE of AIM European Small Company
MSCI Europe Index by more than 1,800 processor, proved to be a drag on ENDRESEN Fund. Mr. Endresen joined AIM
basis points for the year ended December performance due to a poor earnings in 1999 and graduated summa
31, 2003. Strong small-cap performance outlook. And Ebookers, a U.K. online cum laude from the University
helped the fund's relative performance as travel company, also detracted from fund of Oregon with a B.S. in
it greatly outperformed its Lipper peer performance as the company suffered from finance. He also earned an M.B.A. from The
group by more than 2,500 basis points. travel industry weakness. We sold both University of Texas at Austin.
stocks during the fiscal year.
Stock selection continued to drive JASON T. HOLZER
fund performance. Our portfolio On a sector basis, all sectors Mr. Holzer, Chartered
composition reflects our bottom-up, stock contributed positively to fund returns. [PHOTO OF Financial Analyst, is lead
selection approach rather than Consumer discretionary, the largest JASON T. manager of AIM European Small
macroeconomic or geographical trends. sector weight in the fund throughout the HOLZER Company Fund. Mr. Holzer
That said, holdings in Germany, year, and financial stocks contributed joined AIM in 1996. He
Switzerland, Denmark and the Netherlands the most to fund performance. The received a B.A. in
appreciated significantly during the consumer staples and energy sectors quantitative economics and an
fiscal year. contributed the least but were still M.S. in engineering-economic systems from
positive for the fiscal year. Stanford University.
Long-time holding, Puma Rudolf Dassler
Sport, a German sporting goods IN CLOSING Assisted by Europe/Canada Team
manufacturer, continued to contribute to
fund performance as the stock's price After a few challenging years for
more than doubled during the fiscal year. international markets, we are pleased to
Other stocks that contributed provide shareholders excellent absolute
significantly to fund performance and relative returns for the fiscal year.
included Mobistar, a Belgium And we remain committed to our investment
telecommunications company, and long-time goal of focusing on companies that have ARROW
fund holding Anglo Irish Bank. Puma, experienced above- average, long-term BUTTON For More Information Visit
Mobistar and Anglo Irish Bank all earnings growth with strong prospects for IMAGE AIMinvestments.com
delivered positive earnings surprises future growth.
during the fiscal year.
See important fund and index
disclosures inside front cover.
TOP 10 COUNTRIES* FUND VS. INDEXES TOTAL NUMBER OF HOLDINGS* 114 TOTAL
NET ASSETS $57.9 MILLION
1. United Kingdom 29.1% Total returns, 12/31/02-12/31/03,**
excluding sales charges
2. Germany 9.6 *Excludes money market fund holdings.
Class A Shares 63.96%
3. Ireland 8.5 **If sales charges were included,
Class B Shares 62.86 performance would be lower.
4. France 7.9
Class C Shares 62.86 The fund's holdings are subject to
5. Netherlands 6.5 change, and there is no assurance that
MSCI EAFE Index the fund will continue to hold any
6. Finland 4.1 (Broad Market Index) 38.59 particular security.
7. Norway 3.8 MSCI European Small-Cap Index
(Style-specific Index) 57.20
8. Switzerland 3.7
Lipper European Fund Index
9. Italy 3.3 (Peer Group Index) 38.15
10. Sweden 3.3
Source: Lipper, Inc.
</Table>
3
FUND PERFORMANCE
RESULTS OF A $10,000 INVESTMENT
8/31/00-12/31/03
<Table>
<Caption>
AIM EUROPEAN AIM EUROPEAN AIM EUROPEAN
DATE SMALL COMPANY SMALL COMPANY SMALL COMPANY
FUND CLASS A FUND CLASS B FUND CLASS MSCI EAFE MSCI EUROPE LIPPER EUROPEAN
SHARES SHARES C SHARES INDEX SMALL CAP INDEX REGION FUND INDEX
8/31/00 9450 10000 10000 10000 10000 10000
09/30/2000 9223 9760 9760 9513 9718 9484
10/31/2000 8722 9230 9220 9288 9233 9196
11/30/2000 8118 8580 8570 8940 9020 8704
12/31/2000 8710 9212 9202 9258 9529 9357
01/31/2001 8890 9392 9392 9253 10031 9328
02/28/2001 8149 8600 8600 8559 9635 8542
03/31/2001 7048 7435 7435 7989 8738 7792
[MOUNTAIN CHART] 04/30/2001 7332 7726 7726 8544 9228 8308
05/31/2001 7209 7595 7595 8242 9154 7988
06/30/2001 6877 7244 7244 7905 8704 7662
07/31/2001 6753 7104 7104 7761 8551 7585
08/31/2001 6839 7194 7194 7565 8612 7390
09/30/2001 5851 6141 6141 6799 7153 6561
10/31/2001 6336 6652 6652 6973 7597 6791
11/30/2001 6611 6933 6933 7230 8210 7085
12/31/2001 6830 7174 7164 7273 8342 7236
01/31/2002 6820 7154 7154 6886 8188 6918
02/28/2002 7001 7334 7324 6935 8214 6923
03/31/2002 7323 7675 7666 7343 8739 7270
04/30/2002 7675 8036 8037 7358 8973 7250
05/31/2002 7855 8217 8217 7451 9007 7254
06/30/2002 7903 8267 8268 7155 8676 7060
07/31/2002 7257 7585 7576 6448 7733 6323
08/31/2002 7276 7605 7595 6434 7605 6280
09/30/2002 6573 6863 6852 5743 6764 5502
10/31/2002 6782 7073 7073 6051 7033 5924
11/30/2002 7019 7325 7314 6326 7335 6204
12/31/2002 7000 7295 7294 6113 7145 5975
01/31/2003 6820 7104 7104 5858 6914 5714
02/28/2003 6687 6964 6963 5724 6635 5496
03/31/2003 6858 7134 7133 5611 6592 5429
04/30/2003 7466 7766 7765 6161 7484 6111
05/31/2003 8206 8529 8518 6535 8280 6561
06/30/2003 8349 8679 8669 6693 8438 6614
07/31/2003 8738 9070 9060 6855 8799 6740
08/31/2003 8947 9281 9281 7020 9101 6791
09/30/2003 9659 10023 10013 7236 9510 6943
10/31/2003 10380 10766 10755 7687 10287 7382
11/30/2003 10808 11198 11196 7858 10671 7707
12/31/03 11480 11580 11880 8472 11231 8254
Source: Lipper, Inc.
</Table>
Past performance cannot guarantee comparable future results.
Your fund's total return includes sales charges, expenses and management fees.
Results for B shares are calculated as if a hypothetical shareholder had
liquidated his entire investment in the fund at the close of the reporting
period and paid the applicable contingent deferred sales charges.
The performance of the fund's share classes will differ due to different sales
charge structures and class expenses. Performance shown in the chart and table
does not reflect deduction of taxes a shareholder would pay on fund
distributions or sale of fund shares. Performance of the indexes does not
reflect the effects of taxes.
<Table>
AVERAGE ANNUAL TOTAL RETURNS The fund's performance figures are A redemption fee of 2% will be imposed
As of 12/31/03, including sales charges historical, and they reflect fund on certain redemptions or exchanges out
CLASS A SHARES expenses, the reinvestment of of the fund within 30 days of purchase.
Inception (8/31/00) 4.23% distributions, and changes in net asset Exceptions to the redemption fee are
1 Year 54.92 value. Performance data quoted represent listed in the fund's prospectus.
past performance, and the investment
CLASS B SHARES return and principal value of an Had the advisor not waived fees and/or
Inception (8/31/00) 4.50% investment will fluctuate so that an reimbursed expenses, returns would have
1 Year 57.86 investor's shares, when redeemed, may be been lower.
worth more or less than their original
CLASS C SHARES cost.
Inception (8/31/00) 5.30%
1 Year 61.86 Class A share performance reflects the
maximum 5.50% sales charge, and Class B
Current performance may be lower or and Class C share performance reflects
higher than the performance data quoted. the applicable contingent deferred sales
Past performance cannot guarantee charge (CDSC) for the period involved.
comparable future results. Due to The CDSC on Class B shares declines from
significant market volatility, results of 5% beginning at the time of purchase to
an investment made today may differ 0% at the beginning of the seventh year.
substantially from the historical The CDSC on Class C shares is 1% for the
performance shown. Please visit first year after purchase. The
AIMinvestments.com for the most current performance of the fund's share classes
month-end performance. will differ due to different sales charge
structures and class expenses.
</Table>
4
FINANCIALS
SCHEDULE OF INVESTMENTS
December 31, 2003
<Table>
<Caption>
MARKET
SHARES VALUE
- ----------------------------------------------------------------------
FOREIGN STOCKS & OTHER EQUITY
INTERESTS-93.90%
BELGIUM-2.18%
Colruyt N.V. (Food Retail) 4,600 $ 442,076
- ----------------------------------------------------------------------
Mobistar S.A. (Wireless Telecommunication
Services)(a) 14,600 817,258
======================================================================
1,259,334
======================================================================
BERMUDA-0.80%
Golar LNG Ltd. (Oil & Gas Refining, Marketing
& Transportation)(a) 32,400 463,773
======================================================================
DENMARK-3.30%
GN Store Nord A.S. (Health Care Equipment) 57,200 370,283
- ----------------------------------------------------------------------
Jyske Bank A.S. (Diversified Banks)(a) 7,500 395,507
- ----------------------------------------------------------------------
Novozymes A.S.-Class B (Specialty Chemicals) 8,100 295,033
- ----------------------------------------------------------------------
Topdanmark A.S. (Multi-Line Insurance)(a) 15,850 846,555
======================================================================
1,907,378
======================================================================
FINLAND-4.10%
Lassila & Tikanoja Oyj (Environmental
Services) 11,400 394,352
- ----------------------------------------------------------------------
Marimekko Oyj (Apparel, Accessories & Luxury
Goods) 39,200 451,184
- ----------------------------------------------------------------------
Nokian Renkaat Oyj (Tires & Rubber) 5,100 384,276
- ----------------------------------------------------------------------
SanomaWSOY Oyj-Class B (Publishing) 27,700 580,150
- ----------------------------------------------------------------------
Vacon Oyj (Electrical Components & Equipment) 45,500 560,898
======================================================================
2,370,860
======================================================================
FRANCE-7.85%
Bricolage (Mr.) S.A. (Home Improvement
Retail) 14,069 408,810
- ----------------------------------------------------------------------
Camaieu (Apparel Retail) 7,425 574,404
- ----------------------------------------------------------------------
Gifi (General Merchandise Stores) 7,300 483,468
- ----------------------------------------------------------------------
Guillin Emballages (Metal & Glass Containers) 1,184 100,531
- ----------------------------------------------------------------------
Imerys S.A. (Construction Materials)(a) 2,000 419,887
- ----------------------------------------------------------------------
Ipsos (Advertising) 7,000 651,592
- ----------------------------------------------------------------------
Neopost S.A. (Office Electronics)(a) 7,200 362,275
- ----------------------------------------------------------------------
Obertthur Card Systems (Computer Storage &
Peripherals)(a) 35,000 255,354
- ----------------------------------------------------------------------
SMOBY (Leisure Products) 3,800 311,179
- ----------------------------------------------------------------------
Tessi S.A. (Data Processing & Outsourced
Services) 6,800 250,795
- ----------------------------------------------------------------------
Trigano (Leisure Products) 9,500 451,712
- ----------------------------------------------------------------------
Vet'Affaires (Apparel Retail) 3,100 273,939
======================================================================
4,543,946
======================================================================
GERMANY-9.63%
ADVA A.G. Optical Networking (Communications
Equipment)(a) 77,600 389,476
- ----------------------------------------------------------------------
Bijou Brigitte Modische Accessoires A.G.
(Apparel, Accessories & Luxury Goods) 18,300 942,651
- ----------------------------------------------------------------------
</Table>
<Table>
MARKET
SHARES VALUE
- ----------------------------------------------------------------------
<Caption>
GERMANY-(CONTINUED)
Boewe Systec A.G. (Office Electronics) 11,200 $ 584,672
- ----------------------------------------------------------------------
Funkwerk A.G. (Communications Equipment) 7,800 253,336
- ----------------------------------------------------------------------
GfK A.G. (Diversified Commercial Services) 11,100 318,629
- ----------------------------------------------------------------------
Puma A.G. Rudolf Dassler Sport (Footwear)
(Acquired 07/26/01-08/22/03; Cost
$160,823)(b) 8,060 1,419,414
- ----------------------------------------------------------------------
Rheinmetall A.G.-Pfd. (Industrial
Conglomerates) 14,600 434,340
- ----------------------------------------------------------------------
Telegate A.G. (Diversified Commercial
Services)(a) 25,000 280,512
- ----------------------------------------------------------------------
Vossloh A.G. (Construction, Farm Machinery &
Heavy Trucks) 16,850 949,564
======================================================================
5,572,594
======================================================================
GREECE-2.43%
Athens Stock Exchange S.A. (Specialized
Finance)(a) 69,800 574,221
- ----------------------------------------------------------------------
Folli-Follie (Apparel, Accessories & Luxury
Goods) 15,400 432,375
- ----------------------------------------------------------------------
Germanos S.A. (Computer & Electronics Retail) 16,000 399,308
======================================================================
1,405,904
======================================================================
HUNGARY-1.52%
Gedeon Richter Rt. (Pharmaceuticals) 7,480 877,195
======================================================================
IRELAND-8.54%
Abbey PLC (Homebuilding) 40,900 339,558
- ----------------------------------------------------------------------
Anglo Irish Bank Corp. PLC (Diversified
Banks) 96,270 1,514,936
- ----------------------------------------------------------------------
Depfa Bank PLC (Diversified Banks) 7,400 931,777
- ----------------------------------------------------------------------
Grafton Group PLC (Trading Companies &
Distributors)(c) 83,780 576,466
- ----------------------------------------------------------------------
IAWS Group PLC (Agricultural Products) 26,200 319,683
- ----------------------------------------------------------------------
ICON PLC-ADR (Health Care Services)(a) 7,800 340,080
- ----------------------------------------------------------------------
Independent News & Media PLC (Publishing) 274,222 648,494
- ----------------------------------------------------------------------
United Drug PLC (Health Care Distributors) 93,500 270,511
======================================================================
4,941,505
======================================================================
ITALY-3.32%
Credito Emiliano S.p.A. (Diversified Banks) 40,000 287,304
- ----------------------------------------------------------------------
Davide Campari-Milano S.p.A. (Distillers &
Vintners) 5,000 242,146
- ----------------------------------------------------------------------
Merloni Elettrodomestici S.p.A. (Household
Appliances) 58,197 1,094,430
- ----------------------------------------------------------------------
Mondo TV S.p.A. (Movies & Entertainment)(a) 7,000 298,500
======================================================================
1,922,380
======================================================================
LUXEMBOURG-1.37%
SBS Broadcasting S.A. (Broadcasting & Cable
TV)(a) 24,400 795,440
======================================================================
NETHERLANDS-6.49%
Aalberts Industries N.V. (Industrial
Conglomerates) 17,100 441,602
- ----------------------------------------------------------------------
Beter Bed Holding N.V. (Specialty Stores)(a) 40,050 445,853
- ----------------------------------------------------------------------
Exact Holding N.V. (IT Consulting & Other
Services)(a) 18,600 514,733
- ----------------------------------------------------------------------
</Table>
F-1
<Table>
<Caption>
MARKET
SHARES VALUE
- ----------------------------------------------------------------------
NETHERLANDS-(CONTINUED)
Nutreco Holding N.V. (Agricultural
Products)(a) 14,100 $ 386,299
- ----------------------------------------------------------------------
Randstad Holding N.V. (Employment
Services)(a) 24,150 584,174
- ----------------------------------------------------------------------
Sligro Food Group N.V. (Food Distributors) 10,900 335,237
- ----------------------------------------------------------------------
Stork N.V. (Industrial Machinery) 27,600 545,073
- ----------------------------------------------------------------------
Versatel Telecom International N.V.
(Integrated Telecommunication Services)(a) 229,500 499,430
======================================================================
3,752,401
======================================================================
NORWAY-3.79%
Aktiv Kapital A.S.A. (Specialized Finance) 77,075 771,120
- ----------------------------------------------------------------------
Ekornes A.S.A. (Home Furnishings) 24,800 457,208
- ----------------------------------------------------------------------
Norman A.S.A. (Application Software) 50,900 473,006
- ----------------------------------------------------------------------
Smedvig A.S.A.-Class A (Oil & Gas Drilling) 65,200 493,510
======================================================================
2,194,844
======================================================================
SPAIN-2.46%
Baron de Ley, S.A. (Distillers & Vintners)(a) 9,200 439,762
- ----------------------------------------------------------------------
Corporacion Mapfre S.A. (Multi-Line
Insurance) 27,100 382,820
- ----------------------------------------------------------------------
Miquel y Costas & Miquel, S.A. (Paper
Products) 14,300 602,597
======================================================================
1,425,179
======================================================================
SWEDEN-3.31%
Alfa Laval A.B. (Industrial Machinery) 27,100 411,546
- ----------------------------------------------------------------------
Boss Media A.B.(Internet Software & Services) 182,900 611,316
- ----------------------------------------------------------------------
Elanders A.B.-Class B (Publishing)(a) 46,900 588,649
- ----------------------------------------------------------------------
Elekta A.B. (Health Care Equipment)(a) 791 17,936
- ----------------------------------------------------------------------
Elekta A.B.-Class B (Health Care
Equipment)(a) 9 169
- ----------------------------------------------------------------------
Telelogic A.B. (Application Software)(a) 177,800 283,573
======================================================================
1,913,189
======================================================================
SWITZERLAND-3.72%
Actelion Ltd. (Biotechnology)(a) 4,120 443,421
- ----------------------------------------------------------------------
Amazys Holding A.G. (Diversified Commercial
Services) 9,000 288,052
- ----------------------------------------------------------------------
Geberit A.G. (Building Products) 939 460,264
- ----------------------------------------------------------------------
Lindt & Spruengli A.G. (Packaged Foods &
Meats) 453 376,161
- ----------------------------------------------------------------------
Micronas Semiconductor Holding A.G.
(Semiconductors)(a) 5,800 247,589
- ----------------------------------------------------------------------
Temenos Group A.G. (Systems Software)(a) 47,200 338,665
======================================================================
2,154,152
======================================================================
UNITED KINGDOM-29.09%
Alba PLC (Consumer Electronics) 53,950 611,681
- ----------------------------------------------------------------------
Albemarle & Bond Holdings PLC (Consumer
Finance) 203,200 364,628
- ----------------------------------------------------------------------
Alexon Group PLC (Apparel, Accessories &
Luxury Goods) 73,400 382,683
- ----------------------------------------------------------------------
Balfour Beatty PLC (Construction &
Engineering) 142,700 556,718
- ----------------------------------------------------------------------
Belhaven Group (The) PLC (The) (Brewers) 67,200 503,940
- ----------------------------------------------------------------------
Cardpoint PLC (Electronic Equipment
Manufacturers)(a) 232,900 423,120
- ----------------------------------------------------------------------
</Table>
<Table>
MARKET
SHARES VALUE
<Caption>
- ----------------------------------------------------------------------
UNITED KINGDOM-(CONTINUED)
Cattles PLC (Consumer Finance) 115,300 $ 688,114
- ----------------------------------------------------------------------
CD Bramall PLC (Specialty Stores) 38,900 305,606
- ----------------------------------------------------------------------
Dawson Holdings PLC (Distributors) 99,000 277,344
- ----------------------------------------------------------------------
Domino Printing Sciences PLC (Industrial
Machinery) 113,000 339,968
- ----------------------------------------------------------------------
Domino's Pizza UK & IRL PLC (Restaurants) 150,500 518,625
- ----------------------------------------------------------------------
Enterprise Inns PLC (Restaurants) 42,300 765,840
- ----------------------------------------------------------------------
Galen Holdings PLC (Pharmaceuticals) 49,200 628,103
- ----------------------------------------------------------------------
Gresham Computing PLC (Application
Software)(a) 31,600 189,013
- ----------------------------------------------------------------------
Haynes Publishing Group PLC (Publishing) 25,000 143,956
- ----------------------------------------------------------------------
Hornby PLC (Leisure Products) 25,000 514,447
- ----------------------------------------------------------------------
ICAP PLC (Investment Banking & Brokerage) 22,900 635,808
- ----------------------------------------------------------------------
Inchcape PLC (Distributors) 14,100 327,786
- ----------------------------------------------------------------------
Johnston Press PLC (Publishing) 72,800 605,402
- ----------------------------------------------------------------------
Kensington Group PLC (Thrifts & Mortgage
Finance) 89,500 525,158
- ----------------------------------------------------------------------
Kier Group PLC (Construction & Engineering) 35,681 417,290
- ----------------------------------------------------------------------
Lambert Howarth Group PLC (Footwear) 79,400 375,687
- ----------------------------------------------------------------------
Majestic Wine PLC (Specialty Stores) 17,900 285,039
- ----------------------------------------------------------------------
Marconi Corp. PLC (Communications
Equipment)(a) 35,000 369,956
- ----------------------------------------------------------------------
McBride PLC (Household Products) 295,400 706,765
- ----------------------------------------------------------------------
Morgan Crucible Co. PLC (Industrial
Machinery)(a) 116,000 281,680
- ----------------------------------------------------------------------
Photo-Me International PLC (Photographic
Products) 218,000 451,517
- ----------------------------------------------------------------------
PHS Group PLC (Diversified Commercial
Services) 326,800 488,682
- ----------------------------------------------------------------------
Punch Taverns PLC (Restaurants) 54,300 421,744
- ----------------------------------------------------------------------
Robert Wiseman Dairies PLC (Packaged Foods &
Meats) 90,900 426,043
- ----------------------------------------------------------------------
RPS Group PLC (Environmental Services) 162,100 426,185
- ----------------------------------------------------------------------
Savills PLC (Other Diversified Financial
Services) 103,300 610,042
- ----------------------------------------------------------------------
SCi Entertainment Group PLC (Home
Entertainment Software)(a) 128,600 290,463
- ----------------------------------------------------------------------
Taylor & Francis Group PLC (Publishing) 68,700 624,359
- ----------------------------------------------------------------------
Telecom plus PLC (Integrated
Telecommunication Services) 90,800 647,602
- ----------------------------------------------------------------------
Topps Tiles PLC (Home Improvement Retail) 35,900 364,854
- ----------------------------------------------------------------------
Ultra Electronics Holdings PLC (Aerospace &
Defense) 35,800 338,142
======================================================================
16,833,990
======================================================================
Total Foreign Stocks & Other Equity
Interests (Cost $36,851,326) 54,334,064
======================================================================
MONEY MARKET FUNDS-5.18%
Liquid Assets Portfolio(d) 1,498,588 1,498,588
- ----------------------------------------------------------------------
STIC Prime Portfolio(d) 1,498,588 1,498,588
======================================================================
Total Money Market Funds (Cost
$2,997,176) 2,997,176
======================================================================
TOTAL INVESTMENTS-99.08% (excluding
investments purchased with cash collateral
from securities loaned) (Cost $39,848,502) 57,331,240
======================================================================
</Table>
F-2
<Table>
<Caption>
MARKET
SHARES VALUE
- ----------------------------------------------------------------------
INVESTMENTS PURCHASED WITH CASH COLLATERAL
FROM SECURITIES LOANED
MONEY MARKET FUNDS-0.20%
Liquid Assets Portfolio(d)(e) 117,600 $ 117,600
======================================================================
Total Money Market Funds (purchased with
cash collateral from securities loaned)
(Cost $117,600) 117,600
======================================================================
TOTAL INVESTMENTS-99.28% (Cost $39,966,102) 57,448,840
======================================================================
OTHER ASSETS LESS LIABILITIES-0.72% 415,486
======================================================================
NET ASSETS-100.00% $57,864,326
______________________________________________________________________
======================================================================
</Table>
Investment Abbreviations:
<Table>
ADR - American Depositary Receipt
Pfd. - Preferred
</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 Fund has no rights to demand registration of this security. The
market value of this security at 12/31/03 represented 2.45% of the Fund's
net assets. This security is not considered to be illiquid.
(c) Consists of more than one class of securities traded together as a unit.
(d) The money market fund and the Fund are affiliated by having the same
investment advisor. See Note 3.
(e) The security has been segregated to satisfy the forward commitment to return
the cash collateral received in securities lending transactions upon the
borrower's return of the securities loaned. See Note 3.
See accompanying notes which are an integral part of the financial statements.
F-3
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2003
<Table>
ASSETS:
Investments, at market value (cost
$36,851,326)* $54,334,064
- -----------------------------------------------------------
Investments in affiliated money market funds
(cost $3,114,776) 3,114,776
- -----------------------------------------------------------
Foreign currencies, at value (cost $709,191) 641,188
- -----------------------------------------------------------
Receivables for:
Fund shares sold 386,597
- -----------------------------------------------------------
Dividends 80,217
- -----------------------------------------------------------
Investment for deferred compensation and
retirement plans 15,887
- -----------------------------------------------------------
Other assets 18,357
===========================================================
Total assets 58,591,086
___________________________________________________________
===========================================================
LIABILITIES:
Payables for:
Investments purchased 390,516
- -----------------------------------------------------------
Fund shares reacquired 89,301
- -----------------------------------------------------------
Deferred compensation and retirement plans 15,887
- -----------------------------------------------------------
Collateral upon return of securities loaned 117,600
- -----------------------------------------------------------
Accrued distribution fees 24,636
- -----------------------------------------------------------
Accrued transfer agent fees 19,053
- -----------------------------------------------------------
Accrued operating expenses 69,767
===========================================================
Total liabilities 726,760
===========================================================
Net assets applicable to shares outstanding $57,864,326
___________________________________________________________
===========================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $44,433,708
- -----------------------------------------------------------
Undistributed net investment income (loss) (15,872)
- -----------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities, foreign currencies
and futures contracts (4,038,941)
- -----------------------------------------------------------
Unrealized appreciation of investment
securities and foreign currencies 17,485,431
===========================================================
$57,864,326
___________________________________________________________
===========================================================
NET ASSETS:
Class A $42,102,564
___________________________________________________________
===========================================================
Class B $ 9,415,327
___________________________________________________________
===========================================================
Class C $ 6,346,435
___________________________________________________________
===========================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER SHARE,
UNLIMITED NUMBER OF SHARES AUTHORIZED:
Class A 3,494,403
___________________________________________________________
===========================================================
Class B 795,175
___________________________________________________________
===========================================================
Class C 536,101
___________________________________________________________
===========================================================
Class A:
Net asset value per share $ 12.05
- -----------------------------------------------------------
Offering price per share:
(Net asset value of $12.05 divided
by 94.50%) $ 12.75
___________________________________________________________
===========================================================
Class B:
Net asset value and offering price per share $ 11.84
___________________________________________________________
===========================================================
Class C:
Net asset value and offering price per share $ 11.84
___________________________________________________________
===========================================================
</Table>
* At December 31, 2003, securities with an aggregate market value of $112,374
were on loan to brokers.
See accompanying notes which are an integral part of the financial statements.
F-4
STATEMENT OF OPERATIONS
For the year ended December 31, 2003
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $60,116) $ 572,311
- -------------------------------------------------------------------------
Dividends from affiliated money market funds* 24,314
=========================================================================
Total investment income 596,625
=========================================================================
EXPENSES:
Advisory fees 329,310
- -------------------------------------------------------------------------
Administrative services fees 50,000
- -------------------------------------------------------------------------
Custodian fees 199,143
- -------------------------------------------------------------------------
Distribution fees
Class A 88,867
- -------------------------------------------------------------------------
Class B 60,131
- -------------------------------------------------------------------------
Class C 32,606
- -------------------------------------------------------------------------
Transfer agent fees 101,613
- -------------------------------------------------------------------------
Trustees' fees 9,273
- -------------------------------------------------------------------------
Professional fees 58,239
- -------------------------------------------------------------------------
Other 61,320
=========================================================================
Total expenses 990,502
=========================================================================
Less: Fees waived, expenses reimbursed and expense offset
arrangements (236,435)
- -------------------------------------------------------------------------
Net expenses 754,067
=========================================================================
Net investment income (loss) (157,442)
=========================================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES, FOREIGN CURRENCIES AND FUTURES CONTRACTS:
Net realized gain (loss) from:
Investment securities 4,218,131
- -------------------------------------------------------------------------
Foreign currencies (2,366)
- -------------------------------------------------------------------------
Futures contracts 116,717
=========================================================================
4,332,482
=========================================================================
Change in net unrealized appreciation of:
Investment securities 14,542,972
- -------------------------------------------------------------------------
Foreign currencies 1,604
=========================================================================
14,544,576
=========================================================================
Net gain from investment securities, foreign currencies and
futures contracts 18,877,058
=========================================================================
Net increase in net assets resulting from operations $18,719,616
_________________________________________________________________________
=========================================================================
</Table>
* Dividends from affiliated money market funds are net of fees paid to security
lending counterparties.
See accompanying notes which are an integral part of the financial statements.
F-5
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 2003 and 2002
<Table>
<Caption>
2003 2002
- ----------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (157,442) $ (159,922)
- ----------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities,
foreign currencies and futures contracts 4,332,482 (3,641,173)
- ----------------------------------------------------------------------------------------
Change in net unrealized appreciation of investment
securities, and foreign currencies 14,544,576 2,004,221
========================================================================================
Net increase (decrease) in net assets resulting from
operations 18,719,616 (1,796,874)
========================================================================================
Distributions to shareholders from net investment income:
Class A (110,677) --
- ----------------------------------------------------------------------------------------
Share transactions-net:
Class A 14,779,957 7,577,888
- ----------------------------------------------------------------------------------------
Class B 653,971 4,168,394
- ----------------------------------------------------------------------------------------
Class C 2,479,060 1,002,947
========================================================================================
Net increase in net assets resulting from share
transactions 17,912,988 12,749,229
========================================================================================
Net increase in net assets 36,521,927 10,952,355
========================================================================================
NET ASSETS:
Beginning of year 21,342,399 10,390,044
========================================================================================
End of year (including undistributed net investment income
(loss) of $(15,872) and $(12,828) for 2003 and 2002,
respectively) $57,864,326 $21,342,399
________________________________________________________________________________________
========================================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
F-6
NOTES TO FINANCIAL STATEMENTS
December 31, 2003
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM European Small Company Fund (the "Fund") is a series portfolio of AIM Funds
Group (the "Trust"). The Trust is a Delaware statutory trust registered under
the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
series management investment company consisting of nine separate portfolios,
each authorized to issue an unlimited number of shares of beneficial interest.
The Fund currently offers multiple classes of shares. Matters affecting each
portfolio or class will be voted on exclusively by the shareholders of such
portfolio or class. The assets, liabilities and operations of each portfolio are
accounted for separately. Information presented in these financial statements
pertains only to the Fund.
The Fund's investment objective is to achieve long-term growth of capital.
Companies are listed in the Schedule of Investments based on the country in
which they are organized.
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 on the basis of prices furnished
by independent pricing services or market makers. Each security reported on
the NASDAQ National Market System is valued at the NASDAQ Official Closing
Price ("NOCP") as of the close of the customary trading session on the
valuation date or absent a NOCP, at the closing bid price. 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. Issuer specific events, market trends, bid/ask quotes of brokers
and information providers and other market data may be reviewed in the
course of making a good faith determination of a security's fair value.
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
ordinarily be reflected in the computation of the Fund's net asset value.
If a development/event is so significant such 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. Adjustments to closing prices to reflect fair value on affected
foreign securities may be provided by an independent pricing service.
Multiple factors may be considered by the independent pricing service in
determining adjustments to reflect fair value and may include information
relating to sector indices, ADRs, domestic and foreign index futures and
exchange-traded funds.
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.
The Fund allocates income and realized and unrealized capital gains and
losses to a class based on the relative net assets of each class.
C. 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. REDEMPTION FEES -- Effective November 24, 2003, the Fund instituted a 2%
redemption fee on certain share classes that is to be retained by the Fund
to offset transaction costs and other expenses associated with short-term
redemptions and exchanges. The fee, subject to certain exceptions, is
imposed on certain redemptions,
F-7
including exchanges of shares held less than 30 days. The redemption fee is
accounted for as an addition to paid-in-capital by the Fund and is
allocated among the share classes based on the relative net assets of each
class.
E. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of
Subchapter M of the Internal Revenue Code necessary to qualify as a
regulated investment company and, as such, will not be subject to federal
income taxes on otherwise taxable income (including net realized capital
gain) which is distributed to shareholders. Therefore, no provision for
federal income taxes is recorded in the financial statements. Any capital
loss carryforwards listed are reduced for limitations, if any, to the
extent required by the Internal Revenue Code.
F. 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. The combined results of changes in foreign exchange rates
and the fluctuation of market prices on investments are included with the
net realized and unrealized gain or loss from investments in the Statement
of Operations. Reported net realized foreign currency gains or losses arise
from, (i) sales of foreign currencies, (ii) currency gains or losses
realized between the trade and settlement dates on securities transactions,
and (iii) the difference between the amounts of dividends, interest, and
foreign withholding taxes recorded on the Fund's books and the U.S. dollar
equivalent of the amounts actually received or paid. Net unrealized foreign
currency gains and losses arise from changes in the fair values of assets
and liabilities, other than investments in securities at fiscal period end,
resulting from changes in exchange rates.
G. 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.
H. FUTURES CONTRACTS -- The Fund may purchase or sell futures contracts as a
hedge against changes in market conditions. Initial margin deposits
required upon entering into futures contracts are satisfied by the
segregation of specific securities as collateral for the account of the
broker (the Fund's agent in acquiring the futures position). During the
period the futures contracts are open, changes in the value of the
contracts are recognized as unrealized gains or losses by "marking to
market" on a daily basis to reflect the market value of the contracts at
the end of each day's trading. Variation margin payments are made or
received depending upon whether unrealized gains or losses are incurred.
When the contracts are closed, the Fund recognizes a realized gain or loss
equal to the difference between the proceeds from, or cost of, the closing
transaction and the Fund's basis in the contract. If the Fund were unable
to liquidate a futures contract and/or enter into an offsetting closing
transaction, the Fund would continue to be subject to market risk with
respect to the value of the contracts and continue to be required to
maintain the margin deposits on the futures contracts.
I. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund and which are directly attributable to that class are
charged to the operations of such class. All other expenses are allocated
among the classes based on relative net assets.
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement,
the Fund pays an advisory fee to AIM at the annual rate of 0.95% of the Fund's
average daily net assets. AIM has contractually agreed to waive fees and/or
reimburse expenses (excluding interest, taxes, 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 shares to 2.00% through December 31, 2004. Further, AIM has
voluntarily agreed to waive advisory fees of the Fund in the amount of 25% of
the advisory fee AIM receives from the affiliated money market funds on
investments by the Fund in such affiliated money market funds (excluding
investments made in affiliated money market funds with cash collateral from
securities loaned by the Fund). For the year ended December 31, 2003, AIM waived
fees of $189,892 and reimbursed expenses of $46,042.
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, 2003, AIM was
paid $50,000 for such services.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay AIM Investment Services, Inc. ("AISI"), formerly known as A I M Fund
Services, Inc., a fee for providing transfer agency and shareholder services to
the Fund. During the year ended December 31, 2003, AISI retained $51,441 for
such services.
The Trust has entered into a master distribution agreement 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,
Class B 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 Class C shares. Of these amounts, up to 0.25% of the
average daily net assets of the Class A, Class B or Class C shares may be paid
to furnish continuing personal shareholder services to customers who purchase
and own shares of such classes. Any amounts not paid as a service fee under the
Plans would constitute an asset-based sales charge. NASD Rules also impose a cap
on the total sales charges, including asset-based sales
F-8
charges that may be paid by any class of shares of the Fund. Pursuant to the
Plans, for the year ended December 31, 2003, the Class A, Class B and Class C
shares paid $88,867, $60,131 and $32,606, respectively.
Front-end sales commissions and contingent deferred sales charges
("CDSC")(collectively the "sales charges") are not recorded as expenses of the
Fund. Front-end sales commissions are deducted from proceeds from the sales of
Fund shares prior to investment in Class A shares of the Fund. CDSC are deducted
from redemption proceeds prior to remittance to the shareholder. During the year
ended December 31, 2003, AIM Distributors retained $11,964 in front-end sales
commissions from the sale of Class A shares and $4,579, $0 and $7,294 from Class
A, Class B and Class C shares, respectively, for CDSC imposed upon redemptions
by shareholders.
Certain officers and trustees of the Trust are officers and directors of
AIM, AISI and/or AIM Distributors.
NOTE 3--INVESTMENTS IN AFFILIATES
Pursuant to an exemptive order from the Securities and Exchange Commission
("SEC") the advisor established an interfund lending facility that the Fund may
participate in for temporary borrowings by the AIM and INVESCO funds. An
interfund loan will be made only if the loan rate is favorable to both parties.
Advances were made to the following affiliated investment companies during the
period:
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
12/31/2002 AT COST FROM SALES (DEPRECIATION) 12/31/2003 INCOME GAIN (LOSS)
- ------------------------------------------------------------------------------------------------------------------------------------
Liquid Assets Portfolio $431,126 $26,508,831 $(25,441,369) $ -- $1,498,588 $10,378 $ --
- ------------------------------------------------------------------------------------------------------------------------------------
STIC Prime Portfolio 431,126 26,508,831 (25,441,369) -- $1,498,588 10,126 --
====================================================================================================================================
Subtotal $862,252 $53,017,662 $(50,882,738) $ -- $2,997,176 $20,504 $ --
____________________________________________________________________________________________________________________________________
====================================================================================================================================
</Table>
INVESTMENTS OF CASH COLLATERAL FROM SECURITIES LENDING TRANSACTIONS:
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
12/31/2002 AT COST FROM SALES (DEPRECIATION) 12/31/2003 INCOME* GAIN (LOSS)
- ------------------------------------------------------------------------------------------------------------------------------------
Liquid Assets Portfolio $ -- $3,164,978 $(3,047,378) $ -- $ 117,600 $ 3,810 $ --
====================================================================================================================================
Total $862,252 $56,182,640 $(53,930,116) $ -- $3,114,776 $24,314 $ --
____________________________________________________________________________________________________________________________________
====================================================================================================================================
</Table>
* Dividend income is net of fees paid to security lending counterparties.
NOTE 4--EXPENSE OFFSET ARRANGEMENTS
Indirect expenses under expense offset arrangements are comprised of transfer
agency credits resulting from Demand Deposit Account (DDA) balances in transfer
agency clearing accounts and custodian credits resulting from periodic overnight
cash balances at the custodian. For the year ended December 31, 2003, the Fund
received reductions in transfer agency fees from AISI (an affiliate of AIM) of
$494 and reductions in custodian fees of $7 under expense offset arrangements
which resulted in a reduction of the Fund's total expenses of $501.
NOTE 5--TRUSTEES' FEES
Trustees' fees represent remuneration paid to each Trustee of the Trust who is
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 and INVESCO Funds in which their deferral accounts
shall be deemed to be invested.
Current Trustees are eligible to participate in a retirement plan that
provides for benefits to be paid upon retirement to Trustees over a period of
time based on the number of years of service. The Fund may have certain former
Trustees that also participate in a retirement plan and receive benefits under
such plan.
During the year ended December 31, 2003, the Fund paid legal fees of $3,634
for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the
Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 6--BORROWINGS
The Fund may participate in an interfund lending facility that AIM has
established for temporary borrowings by the AIM Funds and the INVESCO Funds. An
interfund loan will be made under this facility only if the loan rate (an
average of the rate available on bank loans and the rate available on
investments in overnight repurchase agreements) is favorable to both the lending
fund and the borrowing fund. Under certain circumstances, a loan will be secured
by collateral. To the extent that the loan is required to be secured by
collateral, the collateral is marked to market daily to ensure that the market
value is at least 102% of the outstanding principal value of the loan.
Effective June 26, 2003, the Fund became a participant in an uncommitted
unsecured revolving credit facility with State Street Bank and Trust Company
("SSB"). The Fund may borrow up to the lesser of (i) $125,000,000 or (ii) the
limits set by its prospectus for borrowings. The Fund and other funds advised by
AIM which are parties to the credit facility can borrow on a first come, first
served basis. Principal on each loan outstanding shall bear interest at the bid
rate quoted by SSB at the time of the request for the loan.
During the reporting period, the Fund was a participant in a committed
credit facility with a syndicate administered by Citibank, N.A. The Fund could
borrow up to the lesser of (i) $500,000,000 or (ii) the
F-9
limits set by its prospectus for borrowings. The Fund and other funds advised by
AIM which were parties to the credit facility could borrow on a first come,
first served basis. The funds which were party to the credit facility were
charged a commitment fee of 0.09% on the unused balance of the committed line.
The commitment fee was allocated among the funds based on their respective
average net assets for the period. The committed credit facility expired May 20,
2003.
During the year ended December 31, 2003, the Fund did not borrow or lend
under the interfund lending facility or borrow under either the uncommitted
unsecured revolving credit facility or the committed credit facility.
Additionally the Fund is permitted to temporarily carry a negative or
overdrawn balance in its account with the custodian bank. To compensate the
custodian bank for such overdrafts, the overdrawn Fund may either (i) leave
funds in the account so the custodian can be compensated by earning the
additional interest; or (ii) compensate by paying the custodian bank. In either
case, the custodian bank will be compensated an amount equal to the Federal
Funds rate plus 100 basis points.
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 of the loaned securities determined daily. Such collateral will be
cash or debt securities issued or guaranteed by the U.S. Government or any of
its agencies. Cash collateral received in connection with to these loans is
invested in short-term money market instruments or affiliated money market
funds. It is the Fund's policy to obtain additional collateral from or return
excess collateral to the borrower by the end of the next business day, following
the valuation date of the securities loaned. Therefore, the value of the
collateral held may be temporarily less than the value of the securities on
loan. Lending securities entails a risk of loss to the Fund if and to the extent
that the market value of the securities loaned were to increase and the borrower
did not increase the collateral accordingly, and the borrower fails to return
the securities. The Fund could also experience delays and costs in gaining
access to the collateral. The Fund bears the risk of any deficiency in the
amount of the collateral available for return to the borrower due to a loss on
the collateral invested.
At December 31, 2003, securities with an aggregate value of $112,374 were on
loan to brokers. The loans were secured by cash collateral of $117,600 received
by the Fund and subsequently invested in an affiliated money market fund. For
the year ended December 31, 2003, the Fund received dividends on cash collateral
net of fees paid to counterparties of $3,810 for securities lending
transactions.
NOTE 8--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
Distributions to Shareholders:
The tax character of distributions paid during the years ended December 31, 2003
and 2002 was as follows:
<Table>
<Caption>
2003 2002
- -----------------------------------------------------------
Distributions paid from ordinary income $110,677 $ --
___________________________________________________________
===========================================================
</Table>
Tax Components of Net Assets:
As of December 31, 2003, the components of net assets on a tax basis were as
follows:
<Table>
Unrealized appreciation -- investments $17,413,779
- -----------------------------------------------------------
Temporary book/tax differences (15,872)
- -----------------------------------------------------------
Capital loss carryforward (3,967,289)
- -----------------------------------------------------------
Shares of beneficial interest 44,433,708
===========================================================
Total net assets $57,864,326
___________________________________________________________
===========================================================
</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. The tax basis unrealized appreciation on investments amount
includes appreciation on foreign currencies written of $2,693.
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 utilized $3,698,753 of capital loss carryforward in the current
period to offset net realized capital gain for Federal Income Tax purposes. The
Fund has a remaining capital loss carryforward for tax purposes which expires as
follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD
- ----------------------------------------------------------
December 31, 2009 449,177
- ----------------------------------------------------------
December 31, 2010 3,518,112
==========================================================
Total capital loss carryforward $3,967,289
__________________________________________________________
==========================================================
</Table>
NOTE 9--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities
and money market funds) purchased and sold by the Fund during the year ended
December 31, 2003 was $57,251,952 and $42,251,530, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF
INVESTMENT SECURITIES ON A TAX BASIS
- -----------------------------------------------------------
Aggregate unrealized appreciation of
investment securities $17,479,921
- -----------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (68,835)
===========================================================
Net unrealized appreciation of investment
securities $17,411,086
___________________________________________________________
===========================================================
Cost of investments for tax purposes is $40,037,754.
</Table>
F-10
NOTE 10--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of foreign currency
transactions, excise tax paid, passive foreign investment company and
distribution adjustment, on December 31, 2003, undistributed net investment
income was increased by $265,075, undistributed net realized gains decreased by
$241,060 and shares of beneficial interest decreased by $24,015. This
reclassification had no effect on the net assets of the Fund.
NOTE 11--SHARE INFORMATION
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 CDSC. Under some
circumstances, Class A shares are subject to CDSC. Generally, Class B shares
will automatically convert to Class A shares eight years after the end of the
calendar month of purchase.
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING
- ----------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
2003 2002
-------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------------------------------------------------------------
Sold:
Class A 7,437,349 $ 64,909,222 3,539,416 $ 27,415,985
- ----------------------------------------------------------------------------------------------------------------------
Class B 355,346 3,473,696 1,525,491 11,870,378
- ----------------------------------------------------------------------------------------------------------------------
Class C 2,260,834 19,474,776 742,433 5,614,529
======================================================================================================================
Issued as reinvestment of dividends:
Class A 6,582 76,679 -- --
======================================================================================================================
Automatic conversion of Class B shares to Class A shares:
Class A 24,199 222,934 27,392 208,822
- ----------------------------------------------------------------------------------------------------------------------
Class B (24,613) (222,934) (27,627) (208,822)
======================================================================================================================
Reacquired:
Class A (5,818,558) (50,428,878) (2,690,785) (20,046,919)
- ----------------------------------------------------------------------------------------------------------------------
Class B (317,658) (2,596,791) (1,041,846) (7,493,162)
- ----------------------------------------------------------------------------------------------------------------------
Class C (2,007,635) (16,995,716) (612,283) (4,611,582)
======================================================================================================================
1,915,846 $ 17,912,988 1,462,191 $ 12,749,229
______________________________________________________________________________________________________________________
======================================================================================================================
</Table>
F-11
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
-----------------------------------------------------------------
AUGUST 31,
2000
(DATE OPERATIONS
YEAR ENDED DECEMBER 31, COMMENCED) TO
---------------------------------------- DECEMBER 31,
2003 2002 2001 2000
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 7.37 $ 7.19 $ 9.17 $10.00
- -------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.03)(a) (0.04)(a) (0.05)(a) (0.04)(a)
- -------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 4.74 0.22 (1.93) (0.74)
===============================================================================================================================
Total from investment operations 4.71 0.18 (1.98) (0.78)
===============================================================================================================================
Less distributions from net investment income (0.03) -- -- (0.05)
===============================================================================================================================
Net asset value, end of period $ 12.05 $ 7.37 $ 7.19 $ 9.17
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Total return(b) 63.96% 2.50% (21.59)% (7.84)%
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $42,103 $13,597 $ 6,969 $8,606
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 2.00%(c) 2.01% 2.01% 2.07%(d)
- -------------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 2.68%(c) 3.05% 4.65% 6.28%(d)
===============================================================================================================================
Ratio of net investment income (loss) to average net assets (0.28)%(c) (0.51)% (0.61)% (1.28)%(d)
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Portfolio turnover rate(e) 130% 119% 152% 25%
_______________________________________________________________________________________________________________________________
===============================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include sales charges
and is not annualized for periods less than one year.
(c) Ratios are based on average daily net assets of $25,390,593.
(d) Annualized.
(e) Not annualized for periods less than one year.
F-12
NOTE 12--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS B
-----------------------------------------------------
AUGUST 31,
2000
(DATE OPERATIONS
YEAR ENDED DECEMBER 31, COMMENCED) TO
------------------------------- DECEMBER 31,
2003 2002 2001 2000
- -------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 7.27 $ 7.15 $ 9.17 $10.00
- -------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.08)(a) (0.09)(a) (0.10)(a) (0.06)(a)
- -------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 4.65 0.21 (1.92) (0.74)
===================================================================================================================
Total from investment operations 4.57 0.12 (2.02) (0.80)
===================================================================================================================
Less distributions from net investment income -- -- -- (0.03)
===================================================================================================================
Net asset value, end of period $11.84 $ 7.27 $ 7.15 $ 9.17
___________________________________________________________________________________________________________________
===================================================================================================================
Total return(b) 62.86% 1.68% (22.03)% (7.99)%
___________________________________________________________________________________________________________________
===================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $9,415 $5,689 $ 2,330 $2,851
___________________________________________________________________________________________________________________
===================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 2.65%(c) 2.66% 2.71% 2.77%(d)
- -------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 3.33%(c) 3.70% 5.36% 6.98%(d)
===================================================================================================================
Ratio of net investment income (loss) to average net assets (0.93)%(c) (1.16)% (1.31)% (1.98)%(d)
___________________________________________________________________________________________________________________
===================================================================================================================
Portfolio turnover rate(e) 130% 119% 152% 25%
___________________________________________________________________________________________________________________
===================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include sales charges
and is not annualized for periods less than one year.
(c) Ratios are based on average daily net assets of $6,013,048.
(d) Annualized.
(e) Not annualized for periods less than one year.
F-13
NOTE 12--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS C
-----------------------------------------------------
AUGUST 31,
2000
(DATE OPERATIONS
YEAR ENDED DECEMBER 31, COMMENCED) TO
------------------------------- DECEMBER 31,
2003 2002 2001 2000
- -------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 7.27 $ 7.14 $ 9.17 $10.00
- -------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.09)(a) (0.09)(a) (0.10)(a) (0.06)(a)
- -------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 4.66 0.22 (1.93) (0.74)
===================================================================================================================
Total from investment operations 4.57 0.13 (2.03) (0.80)
===================================================================================================================
Less distributions from net investment income -- -- -- (0.03)
===================================================================================================================
Net asset value, end of period $11.84 $ 7.27 $ 7.14 $ 9.17
___________________________________________________________________________________________________________________
===================================================================================================================
Total return(b) 62.86% 1.82% (22.14)% (7.99)%
___________________________________________________________________________________________________________________
===================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $6,346 $2,057 $ 1,091 $1,073
___________________________________________________________________________________________________________________
===================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 2.65%(c) 2.66% 2.71% 2.77%(d)
- -------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 3.33%(c) 3.70% 5.36% 6.98%(d)
===================================================================================================================
Ratio of net investment income (loss) to average net assets (0.93)%(c) (1.16)% (1.31)% (1.98)%(d)
___________________________________________________________________________________________________________________
===================================================================================================================
Portfolio turnover rate(e) 130% 119% 152% 25%
___________________________________________________________________________________________________________________
===================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include sales charges
and is not annualized for periods less than one year.
(c) Ratios are based on average daily net assets of $3,260,594.
(d) Annualized.
(e) Not annualized for periods less than one year.
NOTE 13--LEGAL PROCEEDINGS
Your Fund's investment advisor, A I M Advisors, Inc. ("AIM"), is an indirect
wholly owned subsidiary of AMVESCAP PLC ("AMVESCAP"). Another indirect wholly
owned subsidiary of AMVESCAP, INVESCO Funds Group, Inc. ("IFG"), was formerly
the investment advisor to the INVESCO Funds. IFG continues to serve as the
investment advisor to INVESCO Variable Investment Funds, Inc. ("IVIF"). On
November 25, 2003, AIM succeeded IFG as the investment advisor to the INVESCO
Funds other than IVIF.
The mutual fund industry as a whole is currently subject to a wide range of
inquiries and litigation related to issues of "market timing" and "late
trading." Both AIM and IFG are the subject of a number of such inquiries, as
described below.
A. Regulatory Inquiries and Actions
1. IFG
On December 2, 2003 each of the Securities and Exchange Commission ("SEC") and
the Office of the Attorney General of the State of New York ("NYAG") filed civil
proceedings against IFG and Raymond R. Cunningham, in his capacity as the Chief
Executive Officer of IFG. Mr. Cunningham currently holds the positions of Chief
Operating Officer and Senior Vice President of A I M Management Group Inc., the
parent of AIM, and the position of Senior Vice President of AIM. In addition, on
December 2, 2003, the State of Colorado filed civil proceedings against IFG.
Neither the Fund nor any of the other AIM or INVESCO Funds has been named as a
defendant in any of these proceedings.
The SEC complaint alleges that IFG failed to disclose in the INVESCO Funds'
prospectuses and to the INVESCO Funds' independent directors that IFG had
entered into certain arrangements permitting market timing of the INVESCO Funds.
The SEC is seeking injunctions, including permanent injunctions from serving as
an investment advisor, officer or director of an investment company; an
accounting of all market timing as well as certain fees and compensation
received; disgorgement; civil monetary penalties; and other relief.
The NYAG and Colorado complaints make substantially similar allegations. The
NYAG is seeking injunctions, including permanent injunctions from directly or
indirectly selling or distributing shares of mutual funds; disgorgement of all
profits obtained, including fees collected, and payment of all restitution and
damages caused, directly or indirectly from the alleged illegal activities;
civil monetary penalties; and other relief. The State of Colorado is seeking
injunctions; restitution, disgorgement and other equitable relief, civil
monetary penalties; and other relief.
F-14
NOTE 13--LEGAL PROCEEDINGS (CONTINUED)
In addition, IFG has received inquiries in the form of subpoenas or other oral
or written requests for information from various regulators concerning market
timing activity, late trading, fair value pricing and related issues concerning
the INVESCO Funds. These regulators include the Florida Department of Financial
Services, the Commissioner of Securities for the State of Georgia, the Office of
the State Auditor for the State of West Virginia, and the Office of the
Secretary of State for West Virginia. IFG has also received more limited
inquiries concerning related matters from the United States Department of Labor,
NASD, Inc., and the SEC. IFG is providing full cooperation with respect to these
inquiries.
2. AIM
AIM has also received inquiries in the form of subpoenas or other oral or
written requests for information from various regulators concerning market
timing activity, late trading, fair value pricing, and related issues concerning
the AIM Funds. AIM has received requests for information and documents
concerning these and related matters from the SEC and the Massachusetts
Secretary of the Commonwealth. In addition, AIM has received subpoenas
concerning these and related matters from the NYAG, the United States Attorney's
Office for the District of Massachusetts, the Commissioner of Securities for the
State of Georgia, the Office of the State Auditor for the State of West
Virginia, and the Office of the Secretary of State for West Virginia. AIM has
also received more limited inquiries from the SEC and NASD, Inc. concerning
specific funds, entities and/or individuals, none of which directly bears upon
the Fund. AIM is providing full cooperation with respect to these inquiries.
3. AMVESCAP Response
AMVESCAP is seeking to resolve both the pending regulatory complaints against
IFG alleging market timing and the ongoing market timing investigations with
respect to IFG and AIM. AMVESCAP recently found, in its ongoing review of these
matters, that shareholders were not always effectively protected from the
potential adverse impact of market timing and illegal late trading through
intermediaries. These findings were based, in part, on an extensive economic
analysis by outside experts who have been retained by AMVESCAP to examine the
impact of these activities. In light of these findings, AMVESCAP has publicly
stated that any AIM or INVESCO Fund, or any shareholders thereof, harmed by
these activities will receive full restitution. AMVESCAP has informed regulators
of these findings. In addition, AMVESCAP has retained outside counsel to
undertake a comprehensive review of AIM's and IFG's policies, procedures and
practices, with the objective that they rank among the most effective in the
fund industry.
There can be no assurance that AMVESCAP will be able to reach a satisfactory
settlement with the regulators, or that any such settlement will not include
terms which would have the effect of barring either or both of IFG and AIM, or
any other investment advisor directly or indirectly owned by AMVESCAP, from
serving as an investment advisor to any registered investment company including
the Fund. The Fund has been informed by AIM that, if either of these results
occurs, AIM will seek exemptive relief from the SEC to permit it to continue to
serve as the Fund's investment advisor. There can be no assurance that such
exemptive relief will be granted. Any settlement with the regulators could also
include terms which would bar Mr. Cunningham from serving as an officer or
director of any registered investment company.
B. Private Actions
In addition to the complaints described above, multiple lawsuits, including
purported class action and shareholder derivative suits, have been filed against
various parties (including, depending on the lawsuit, certain INVESCO Funds,
certain AIM Funds, IFG, AIM, A I M Management Group Inc., the parent of AIM,
AMVESCAP, certain related entities and certain of their officers, including Mr.
Cunningham). The allegations in the majority of the lawsuits are substantially
similar to the allegations in the regulatory complaints against IFG described
above. Certain other lawsuits allege that certain AIM and INVESCO Funds
inadequately employed fair value pricing. Such lawsuits allege a variety of
theories of recovery, including but not limited to: (i) violation of various
provisions of the Federal and state securities laws; (ii) violation of various
provisions of the Employee Retirement Income Security Act ("ERISA"); (iii)
breach of fiduciary duty; and (iv) breach of contract. The lawsuits have been
filed in both Federal and state courts and seek such remedies as compensatory
damages; restitution; rescission; accounting for wrongfully gotten gains,
profits and compensation; injunctive relief; disgorgement; equitable relief;
various corrective measures under ERISA; rescission of certain Funds' advisory
agreements with AIM; declaration that the advisory agreement is unenforceable or
void; refund of advisory fees; interest; and attorneys' and experts' fees.
IFG has removed certain of the state court proceedings to Federal District
Court. At a hearing before the Judicial Panel on Multidistrict Litigation
concerning the most efficient way to manage the numerous lawsuits alleging
market timing in mutual funds throughout the industry, IFG and AIM supported
transfer of all cases pending against them to one district for consolidated
proceedings. The Panel has not issued a ruling.
Additional lawsuits or regulatory actions arising out of these circumstances
and presenting similar allegations and requests for relief may be filed against
the Fund, IFG, AIM, AMVESCAP and related entities and individuals in the future.
As a result of these developments, investors in the AIM and INVESCO Funds
might react by redeeming their investments. This might require the Funds to sell
investments to provide for sufficient liquidity and could also have an adverse
effect on the investment performance of the Funds.
At the present time, management of AIM and the Fund is unable to estimate the
impact, if any, that the outcome of the matters described above may have on the
Fund or AIM.
F-15
REPORT OF INDEPENDENT AUDITORS
To the Board of Trustees and Shareholders
of AIM European Small Company Fund
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the AIM European Small Company Fund
(one of the funds constituting AIM Funds Group; hereafter referred to as the
"Fund") at December 31, 2003, the results of its operations for the year then
ended, the changes in its net assets for each of the two years in the period
then ended and the financial highlights for each of the periods indicated, in
conformity with accounting principles generally accepted in the United States of
America. These financial statements and financial highlights (hereafter referred
to as "financial statements") are the responsibility of the Fund's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these financial statements in
accordance with 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, 2003 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
PRICEWATERHOUSECOOPERS LLP
February 20, 2004
Houston, Texas
F-16
PROXY RESULTS (UNAUDITED)
A Special Meeting of Shareholders of AIM European Small Company Fund, a
portfolio of AIM Funds Group, a Delaware statutory trust, was held on October
21, 2003. The meeting was held for the following purpose:
(1)* To elect sixteen individuals to the Board, each of whom will serve until
his or her successor is elected and qualified: Bob R. Baker, Frank S.
Bayley, James T. Bunch, Bruce L. Crockett, Albert R. Dowden, Edward K.
Dunn, Jr., Jack M. Fields, Carl Frischling, Robert H. Graham, Gerald J.
Lewis, Prema Mathai-Davis, Lewis F. Pennock, Ruth H. Quigley, Louis S.
Sklar, Larry Soll, Ph D. and Mark H. Williamson.
The results of the voting on the above matter were as follows:
<Table>
<Caption>
WITHHOLDING
TRUSTEES/MATTER VOTES FOR AUTHORITY
- ---------------------------------------------------------------------------------
(1)* Bob R. Baker................................. 822,704,205 11,194,804
Frank S. Bayley.............................. 822,781,451 11,117,558
James T. Bunch............................... 822,886,061 11,012,948
Bruce L. Crockett............................ 822,942,379 10,956,630
Albert R. Dowden............................. 822,923,043 10,975,966
Edward K. Dunn, Jr........................... 822,752,667 11,146,342
Jack M. Fields............................... 823,013,560 10,885,449
Carl Frischling.............................. 822,602,646 11,296,363
Robert H. Graham............................. 822,881,635 11,017,374
Gerald J. Lewis.............................. 822,460,720 11,438,289
Prema Mathai-Davis........................... 822,715,053 11,183,956
Lewis F. Pennock............................. 822,839,481 11,059,528
Ruth H. Quigley.............................. 822,446,309 11,452,700
Louis S. Sklar............................... 822,882,710 11,016,299
Larry Soll, Ph.D............................. 822,748,856 11,150,153
Mark H. Williamson........................... 822,801,778 11,097,231
</Table>
* Proposal required approval by a combined vote of all the portfolios of AIM
Funds Group.
OTHER INFORMATION
TRUSTEES AND OFFICERS
As of January 1, 2004
The address of each trustee and officer of AIM Funds Group (the "Trust"), is 11
Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee oversees 104
portfolios in the AIM and INVESCO Funds complex, except for Messrs. Baker,
Bunch, Lewis and Soll who oversee 96 portfolios and Mr. Williamson who oversees
117 portfolios in the AIM and INVESCO Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
<Table>
<Caption>
NAME, YEAR OF BIRTH AND TRUSTEE AND/
POSITION(S) HELD WITH THE OR OFFICER PRINCIPAL OCCUPATION(S)
TRUST SINCE DURING PAST 5 YEARS
- ----------------------------------------------------------------------------------------------------------------
INTERESTED PERSONS
- ----------------------------------------------------------------------------------------------------------------
Robert H. Graham(1) -- 1946 1992 Director and Chairman, A I M Management Group Inc.
Trustee, Chairman and (financial services holding company); and Director and Vice
President Chairman, AMVESCAP PLC and Chairman of AMVESCAP PLC -- AIM
Division (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), AIM Investment Services, Inc.,
(registered transfer agent), and Fund Management Company
(registered broker dealer); and Chief Executive Officer,
AMVESCAP PLC -- Managed Products
- ----------------------------------------------------------------------------------------------------------------
Mark H. Williamson(2) -- 1951 2003 Director, President and Chief Executive Officer, A I M
Trustee and Executive Vice Management Group Inc. (financial services holding company);
President Director, Chairman and President, A I M Advisors, Inc.
(registered investment advisor); Director, A I M Capital
Management, Inc. (registered investment advisor) and A I M
Distributors, Inc. (registered broker dealer); Director and
Chairman, AIM Investment Services, Inc. (registered transfer
agent), and Fund Management Company (registered broker
dealer); and Chief Executive Officer, AMVESCAP PLC -- AIM
Division (parent of AIM and a global investment management
firm)
Formerly: Director, Chairman, President and Chief Executive
Officer, INVESCO Funds Group, Inc. and INVESCO Distributors,
Inc.; Chief Executive Officer, AMVESCAP PLC -- Managed
Products; Chairman and Chief Executive Officer of
NationsBanc Advisors, Inc.; and Chairman of NationsBanc
Investments, Inc.
- ----------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- ----------------------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 2003 Consultant
Trustee
Formerly: President and Chief Executive Officer, AMC Cancer
Research Center; and Chairman and Chief Executive Officer,
First Columbia Financial Corporation
- ----------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2001 Of Counsel, law firm of Baker & McKenzie
Trustee
- ----------------------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 2003 Co-President and Founder, Green, Manning & Bunch Ltd.,
Trustee (investment banking firm); and Director, Policy Studies,
Inc. and Van Gilder Insurance Corporation
Formerly: General Counsel and Director, Boettcher & Co.; and
Chairman and Managing Partner, law firm of Davis, Graham &
Stubbs
- ----------------------------------------------------------------------------------------------------------------
Bruce L. Crockett -- 1944 1987 Chairman, Crockett Technology Associates (technology
Trustee consulting company)
- ----------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2000 Director of a number of public and private business
Trustee corporations, including the Boss Group Ltd. (private
investment and management) and Magellan Insurance Company
Formerly: Director, President and Chief Executive Officer,
Volvo Group North America, Inc.; Senior Vice President, AB
Volvo; and director of various affiliated Volvo companies
- ----------------------------------------------------------------------------------------------------------------
Edward K. Dunn, Jr. -- 1935 1998 Formerly: Chairman, Mercantile Mortgage Corp.; President and
Trustee Chief Operating Officer, Mercantile-Safe Deposit & Trust
Co.; and President, Mercantile Bankshares Corp.
- ----------------------------------------------------------------------------------------------------------------
Jack M. Fields -- 1952 1997 Chief Executive Officer, Twenty First Century Group, Inc.
Trustee (government affairs company) and Texana Timber LP
- ----------------------------------------------------------------------------------------------------------------
<Caption>
NAME, YEAR OF BIRTH AND
POSITION(S) HELD WITH THE OTHER DIRECTORSHIP(S)
TRUST HELD BY TRUSTEE
- -------------------------------- ----------------------
INTERESTED PERSONS
- -------------------------------------------------------------------------------
Robert H. Graham(1) -- 1946 None
Trustee, Chairman and
President
- ------------------------------------------------------------------------------------------------------
Mark H. Williamson(2) -- 1951 None
Trustee and Executive Vice
President
- ----------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- ----------------------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 None
Trustee
- ----------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 Badgley Funds, Inc.
Trustee (registered investment
company)
- ----------------------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 None
Trustee
- ----------------------------------------------------------------------------------------------------------------
Bruce L. Crockett -- 1944 ACE Limited (insurance
Trustee company); and
Captaris, Inc.
(unified messaging
provider)
- ----------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 Cortland Trust, Inc.
Trustee (Chairman) (registered
investment company);
Annuity and Life Re
(Holdings), Ltd.
(insurance company)
- ----------------------------------------------------------------------------------------------------------------
Edward K. Dunn, Jr. -- 1935 None
Trustee
- ----------------------------------------------------------------------------------------------------------------
Jack M. Fields -- 1952 Administaff
Trustee
- ----------------------------------------------------------------------------------------------------------------
</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.
Trustees and Officers (continued)
As of January 1, 2004
The address of each trustee and officer of AIM Funds Group (the "Trust"), is 11
Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee oversees 104
portfolios in the AIM and INVESCO Funds complex, except for Messrs. Baker,
Bunch, Lewis and Soll who oversee 96 portfolios and Mr. Williamson who oversees
117 portfolios in the AIM and INVESCO Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
<Table>
<Caption>
NAME, YEAR OF BIRTH AND TRUSTEE AND/ PRINCIPAL OCCUPATION(S)
POSITION(S) HELD WITH THE TRUST OR OFFICER SINCE DURING PAST 5 YEARS
- -------------------------------------------------------------------------------------------------------------------
Carl Frischling -- 1937 1993 Partner, law firm of Kramer Levin Naftalis and Frankel LLP
Trustee
- -------------------------------------------------------------------------------------------------------------------
Gerald J. Lewis -- 1933 2003 Chairman, Lawsuit Resolution Services (San Diego,
Trustee California)
Formerly: Associate Justice of the California Court of
Appeals
- -------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA of the USA
Trustee
- -------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 1992 Partner, law firm of Pennock & Cooper
Trustee
- -------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2001 Retired
Trustee
- -------------------------------------------------------------------------------------------------------------------
Louis S. Sklar -- 1939 1993 Executive Vice President, Development and Operations Hines
Trustee Interests Limited Partnership (real estate development
company)
- -------------------------------------------------------------------------------------------------------------------
Larry Soll, Ph.D. -- 1942 2003 Retired
Trustee
- -------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- -------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 2003 Director, Senior Vice President, Secretary and General
Senior Vice President and Chief Counsel, A I M Management Group Inc. (financial services
Legal Officer holding company) and A I M Advisors, Inc.; Vice President,
A I M Capital Management, Inc., A I M Distributors, Inc. and
AIM Investment Services, Inc.; and Director, Vice President
and General Counsel, Fund Management Company
Formerly: Senior Vice President and General Counsel, Liberty
Financial Companies, Inc.; and Senior Vice President and
General Counsel, Liberty Funds Group, LLC
- -------------------------------------------------------------------------------------------------------------------
Robert G. Alley -- 1948 1992 Managing Director, Chief Fixed Income Officer and Senior
Vice President Investment Officer, A I M Capital Management, Inc.; and Vice
President, A I M Advisors, Inc.
- -------------------------------------------------------------------------------------------------------------------
Stuart W. Coco -- 1955 1992 Managing Director and Chief Research Officer -- Fixed
Vice President Income, 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 Advisors,
Vice President Inc. and A I M Capital Management, Inc.; and Vice President,
AIM Investment Services, Inc.
- -------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, A I M Advisors, Inc.;
Vice President and Treasurer Senior Vice President, AIM Investment Services, Inc.; and
Vice President, A I M Distributors, Inc.
- -------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 1992 Managing Director and Chief Management Officer, A I M
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 President, Chief
Vice President Executive Officer and Chief Investment Officer, A I M
Capital Management, Inc.
- -------------------------------------------------------------------------------------------------------------------
<Caption>
NAME, YEAR OF BIRTH AND OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST HELD BY TRUSTEE
- --------------------------------- ----------------------
Carl Frischling -- 1937 Cortland Trust, Inc.
Trustee (registered investment
company)
- -------------------------------------------------------------------------------------------------------------------
Gerald J. Lewis -- 1933 General Chemical
Trustee Group, Inc.,
Wheelabrator
Technologies, Inc.
(waste management
company), Fisher
Scientific, Inc.,
Henley Manufacturing,
Inc. (laboratory
supplies), and
California Coastal
Properties, Inc.
- -------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 None
Trustee
- -------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 None
Trustee
- -------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 None
Trustee
- -------------------------------------------------------------------------------------------------------------------
Louis S. Sklar -- 1939 None
Trustee
- -------------------------------------------------------------------------------------------------------------------
Larry Soll, Ph.D. -- 1942 None
Trustee
- -------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- -------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 N/A
Senior Vice President and Chief
Legal Officer
- -------------------------------------------------------------------------------------------------------------------
Robert G. Alley -- 1948 N/A
Vice President
- -------------------------------------------------------------------------------------------------------------------
Stuart W. Coco -- 1955 N/A
Vice President
- -------------------------------------------------------------------------------------------------------------------
Melville B. Cox -- 1943 N/A
Vice President
- -------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 N/A
Vice President and Treasurer
- -------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 N/A
Vice President
- -------------------------------------------------------------------------------------------------------------------
Edgar M. Larsen -- 1940 N/A
Vice President
- -------------------------------------------------------------------------------------------------------------------
</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 LLP
Suite 100 11 Greenway Plaza 11 Greenway Plaza 1201 Louisiana, Suite 2900
Houston, TX 77046-1173 Suite 100 Suite 100 Houston, TX 77002-5678
Houston, TX 77046-1173 Houston, TX 77046-1173
COUNSEL TO THE FUND COUNSEL TO THE TRUSTEES TRANSFER AGENT CUSTODIAN
Ballard Spahr Kramer, Levin, Naftalis & AIM Investment 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 19103-7599 New York, NY 10022-3852 Boston, MA 02110
</Table>
REQUIRED FEDERAL INCOME TAX INFORMATION (UNAUDITED)
Of ordinary dividends paid to shareholders during the Fund's tax year ended
December 31, 2003, 0.00% is eligible for the dividends received deduction for
corporations.
For its tax year ended December 31, 2003 the Fund designated 100%, or the
maximum amount allowable, of its dividend distributions as qualified dividend
income. The actual percentages for the calendar year will be designated in the
Fund's year-end tax statement.
<Table>
DOMESTIC EQUITY INTERNATIONAL/GLOBAL EQUITY FIXED INCOME
AIM Aggressive Growth Fund AIM Asia Pacific Growth Fund TAXABLE
AIM Balanced Fund* AIM Developing Markets Fund
AIM Basic Balanced Fund* AIM European Growth Fund AIM Floating Rate Fund
AIM Basic Value Fund AIM European Small Company Fund AIM High Yield Fund
AIM Blue Chip Fund AIM Global Aggressive Growth Fund AIM Income Fund
AIM Capital Development Fund AIM Global Growth Fund AIM Intermediate Government Fund
AIM Charter Fund AIM Global Trends Fund AIM Limited Maturity Treasury Fund
AIM Constellation Fund AIM Global Value Fund(5) AIM Money Market Fund
AIM Dent Demographic Trends Fund AIM International Emerging Growth Fund AIM Short Term Bond Fund
AIM Diversified Dividend Fund(1) AIM International Growth Fund AIM Total Return Bond Fund
AIM Emerging Growth Fund AIM Trimark Fund INVESCO U.S. Government Money Fund
AIM Large Cap Basic Value Fund INVESCO International Core Equity Fund(6)
AIM Large Cap Growth Fund TAX-FREE
AIM Libra Fund SECTOR EQUITY
AIM Mid Cap Basic Value Fund AIM High Income Municipal Fund
AIM Mid Cap Core Equity Fund(2) AIM Global Health Care Fund AIM Municipal Bond Fund
AIM Mid Cap Growth Fund AIM Real Estate Fund AIM Tax-Exempt Cash Fund
AIM Opportunities I Fund INVESCO Advantage Health Sciences Fund AIM Tax-Free Intermediate Fund
AIM Opportunities II Fund INVESCO Energy Fund
AIM Opportunities III Fund INVESCO Financial Services Fund
AIM Premier Equity Fund INVESCO Gold & Precious Metals Fund
AIM Select Equity Fund INVESCO Health Sciences Fund
AIM Small Cap Equity Fund(3) INVESCO Leisure Fund
AIM Small Cap Growth Fund(4) INVESCO Multi-Sector Fund
AIM Trimark Endeavor Fund INVESCO Technology Fund
AM Trimark Small Companies Fund INVESCO Utilities Fund
AIM Weingarten Fund
INVESCO Core Equity Fund
INVESCO Dynamics Fund
INVESCO Mid-Cap Growth Fund
INVESCO Small Company Growth Fund
INVESCO S&P 500 Index Fund
INVESCO Total Return Fund*
</Table>
* Domestic equity and income fund
(1) Effective May 2, 2003, AIM Large Cap Core Equity Fund was renamed AIM
Diversified Dividend Fund. (2) As of the close of business on February 27, 2004,
AIM Mid Cap Core Equity Fund is available to new investors on a limited basis.
For information on who may continue to invest in AIM Mid Cap Core Equity Fund,
please contact your financial advisor. (3) AIM Small Cap Equity Fund was closed
to most investors on December 19, 2003. For information on who may continue to
invest in AIM Small Cap Equity Fund, please contact your financial advisor. (4)
AIM Small Cap Growth Fund was closed to most investors on March 18, 2002. For
information on who may continue to invest in AIM Small Cap Growth Fund, please
contact your financial advisor. (5) Effective April 30, 2003, AIM Worldwide
Spectrum Fund was renamed AIM Global Value Fund. (6) Effective November 24,
2003, INVESCO International Blue Chip Value Fund was renamed INVESCO
International Core Equity Fund.
For more complete information about any AIM or INVESCO fund, including sales
charges and expenses, ask your financial advisor for a prospectus. Please read
the prospectus carefully and consider the investment objectives, risks, and
charges and expenses of the investment carefully before investing. If used after
April, 2004, this brochure must be accompanied by a fund Performance &
Commentary or by an AIM Quarterly Performance Review for the most recent
quarter-end. Mutual funds distributed by A I M Distributors, Inc.
A I M Management Group Inc. has provided leadership in the investment management
industry since 1976 and manages $149 billion in assets for approximately 11
million shareholders, including individual investors, corporate clients and
financial institutions. AIM is a subsidiary of AMVESCAP PLC, one of the world's
largest independent financial services companies with $371 billion in assets
under management. Data as of December 31, 2003.
AIMinvestments.com ESC-AR-1
<Table>
YOUR GOALS. OUR SOLUTIONS.--Servicemark--
- -------------------------------------------------------------------------------------
Mutual Retirement Annuities College Separately Offshore Alternative Cash [AIM INVESTMENTS LOGO APPEARS HERE]
Funds Products Savings Managed Products Investments Management
Plans Accounts
</Table>
AIM Global Value Fund
Annual Report to Shareholders o December 31, 2003
[COVER IMAGE]
YOUR GOALS. OUR SOLUTIONS. [AIM INVESTMENTS LOGO APPEARS HERE]
--Servicemark-- --Servicemark--
===================================================================
AIM GLOBAL VALUE FUND SEEKS TO PROVIDE LONG-TERM GROWTH OF CAPITAL.
===================================================================
o Effective 4/30/03, AIM Worldwide Spectrum Fund was renamed AIM Global Value
Fund and some of the fund's investment policies were changed. For more
information, please consult the fund's prospectus dated 5/1/03 that was
mailed to you, or read it on line at AIMinvestments.com.
o Unless otherwise stated, information presented is as of 12/31/03 and is based
on total net assets.
ABOUT SHARE CLASSES
<Table>
o Effective 9/30/03, Class B shares are o Investing in small and mid-sized o A direct investment cannot be made in
not available as an investment for companies involves risks not associated an index. Unless otherwise indicated,
retirement plans maintained pursuant to with investing in more established index results include reinvested
Section 401 of the Internal Revenue companies. Also, small companies may dividends, and they do not reflect sales
Code, including 401(k) plans, money have business risk, significant stock charges. Performance of an index of
purchase pension plans and profit price fluctuations, and illiquidity. funds reflects fund expenses;
sharing plans. Plans that have existing performance of a market index does not.
accounts invested in Class B shares will o The fund may participate in the initial
continue to be allowed to make public offering (IPO) market in some Industry classifications used in this
additional purchases. market cycles. Because of the fund's report are generally according to the
small asset base, any investment the Global Industry Classification Standard,
PRINCIPAL RISKS OF INVESTING IN THE FUND fund may make in IPOs may significantly which was developed by and is the
affect the fund's total return. As the exclusive property and a service mark of
o Investing in emerging markets involves fund's assets grow, the impact of IPO Morgan Stanley Capital International
greater risk and potential reward than investments will decline, which may Inc. and Standard & Poor's.
investing in more established markets. reduce the effect of IPO investments on
the fund's total return. A description of the policies and
o International investing presents procedures that the Fund uses to
certain risks not associated with ABOUT INDEXES USED IN THIS REPORT determine how to vote proxies relating
investing solely in the United States. to portfolio securities is available
These include risks relating to o The unmanaged MSCI World Index is a without charge, upon request, by calling
fluctuations in the value of the U.S. group of global securities tracked by 800-959-4246, or on the AIM Web site,
dollar relative to the value of other Morgan Stanley Capital International. AIMinvestments.com.
currencies, the custody arrangements
made for the fund's foreign holdings, o The unmanaged MSCI World Value Free
differences in accounting, political Index is a subset of the MSCI World
risks and the lesser degree of public Index, a group of global securities
information required to be provided by tracked by Morgan Stanley Capital
non-U.S. companies. International; the Value subset measures
performance of companies with lower
price-to-earnings ratios and lower
forecasted growth values.
o The unmanaged Lipper Global Fund Index
represents an average of the performance
of global funds tracked by Lipper, Inc.,
an independent mutual fund performance
monitor.
o The unmanaged Standard & Poor's Index
of 500 Stocks (the S&P 500--Registered
Trademark-- Index) is an index of common
stocks frequently used as a general
measure of U.S. stock market performance.
</Table>
<Table>
=====================================================
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE THIS REPORT MAY BE DISTRIBUTED ONLY TO SHAREHOLDERS OR TO PERSONS
===================================================== WHO HAVE RECEIVED A CURRENT PROSPECTUS OF THE FUND. PLEASE READ
THE PROSPECTUS CAREFULLY AND CONSIDER THE INVESTMENT OBJECTIVES,
RISKS, AND CHARGES AND EXPENSES OF THE INVESTMENT CAREFULLY
BEFORE INVESTING.
</Table>
AIMinvestments.com
TO OUR SHARE HOLDERS
DEAR FELLOW SHAREHOLDER IN THE AIM FAMILY OF
FUNDS--Registered Trademark--:
[PHOTO OF The fiscal year ended December 31, 2003, was a welcome
ROBERT H. change from the bear market of the previous three years.
GRAHAM] Major stock market indexes here and abroad delivered
positive performance, with double-digit returns more the
ROBERT H. GRAHAM rule than the exception. As is historically the case, bond
market returns were more modest, but nonetheless positive
as well. The U.S. economy appears to have turned a corner,
with solid growth in gross domestic product. Overseas,
particularly in Europe, economic performance was not so
robust but appeared to pick up during the second half of
the year.
U.S. investors seem to have regained their confidence,
putting $152.77 billion in new money into stock mutual
funds during 2003 and $31.40 billion into bond funds. By
contrast, money market funds, considered a safe haven because of their emphasis
on stability of net asset value, suffered large net outflows during 2003.
The durability of these trends is, of course, unpredictable, but the economy
does appear to have the wind at its back in terms of fiscal, monetary and tax
stimulus, and corporate earnings have been strong. Nevertheless, we caution all
our shareholders against thinking that 2004 will be a repeat of 2003. We simply
do not know.
What should investors do? They should do what we have always urged: Keep
their eyes on their long-term goals, keep their portfolios diversified, and work
with their financial advisors to tailor their investments to their risk
tolerance and investment objectives. We cannot overemphasize the importance of
professional guidance when it comes to selecting investments.
For information on your fund's performance and management during the fiscal
year, please see the management discussion that begins on the following page.
VISIT OUR WEB SITE
As you are aware, the mutual fund industry, including AIM Investments, has been
the subject of allegations and investigations of late surrounding the issues of
market timing and late trading in funds. We understand how unsettling this may
be for many of our shareholders. We encourage you to visit AIMinvestments.com
often to monitor developments. We will continue to post updates on these issues
as information becomes available.
The Securities and Exchange Commission, which regulates our industry, has
already proposed new rules and regulations, and is planning to propose several
more, that address the issues of market timing and late trading, among others.
We welcome these efforts, as does the industry trade group, the Investment
Company Institute. We believe comprehensive rule making is necessary and is the
best way to establish new industry responsibilities designed to protect
shareholders. We support practical rule changes and structural modifications
that are fair, enforceable and, most importantly, beneficial for investors.
Should you visit our Web site, we invite you to explore the other material
available there, including general investing information, performance updates on
our funds, and market and economic commentary from our financial experts.
As always, AIM is committed to building solutions for your investment goals,
and we thank you for your continued participation in AIM Investments. If you
have any questions, you can contact one of our Client Service representatives at
800-959-4246.
Sincerely,
/s/ ROBERT H. GRAHAM
Robert H. Graham
Chairman and President
February 9, 2004
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
<Table>
FISCAL YEAR PROVES PROFITABLE the European Central Bank reduced
BOTH DOMESTICALLY AND GLOBALLY short-term interest rates in 2003,
leaving their benchmark rates at 1.00%
For the fiscal year ended December 31, 2003, domestic product expanded at an annualized and 2.00%, respectively, as of
AIM Global Value Fund's Class A shares rate of 1.4% in the first quarter, 3.1% in December 31, 2003.
returned 32.15% at net asset value. (If the second quarter, 8.2% in the third
sales charges were included, performance quarter, and 4.0% in the fourth quarter of On the currency front, although the
would be lower.) Performance of the other 2003. U.S. dollar showed a few pockets of
share classes is shown in the table on page strength during the fiscal year, for the
3. For the same period, the fund's In Europe, markets generally rallied, most part, foreign currencies proved
broad-based index, the MSCI World Index, despite weak economic conditions cited by stronger. During the reporting period,
returned 33.11%, and the MSCI World Value the Bank of England. In its October policy the British pound, Canadian dollar,
Free Index returned 38.13%. The fund's peer meeting, the bank reported that there euro, Swiss franc, and Japanese yen all
group index, the Lipper Global Fund Index, continued to be a contrast between weak euro appreciated significantly against the
returned 31.96%. We believe the fund area economic data and more promising U.S. dollar.
slightly lagged its broad-based index business survey indicators. Indeed,
because it did not own many of the annualized euro zone gross domestic product YOUR FUND
speculative stocks which contributed to (GDP) fell by 0.1% in the second quarter.
index performance. Riskier, lower-quality Economic activity rebounded in the second Throughout the fiscal year, we have
stocks provided higher returns in 2003--an half of the year with euro zone annualized maintained our strategy of providing
observation noted often by market observers. GDP rising 0.4% for the third quarter. diversification within the fund's
Late-year business surveys also offered portfolio--diversification according to
promise. geography, market capitalization,
MARKET CONDITIONS sectors and industries.
In Asia, Japan's economy finally
As global economic recovery appeared to gain appeared to be showing signs of a cyclical As the fiscal year began, the fund's
momentum in 2003, equity markets in the U.S. upswing. Amid this backdrop, Japanese portfolio was invested in 10 countries,
and abroad generally posted positive returns markets rose sharply through the summer but including the U.S. The list of top 10
for the fiscal year, with emerging market sold off late in October. Many emerging countries below shows the 10 countries
stocks generally outperforming those in Asian markets produced positive returns for in which the fund was most invested as
developed countries. the reporting period after struggling of the end of the fiscal year. The
earlier in the year with the SARS (severe countries listed represent approximately
In the U.S., stock markets were generally acute respiratory syndrome) epidemic. 88% of the fund's investments. Of the
higher with the S&P 500 Index returning 12% remaining, the fund was also
28.67% for the fiscal year. The nation's Fiscal policy settings for many major invested in Sweden, Finland, Denmark,
gross economies became more expansionary during Netherlands, Germany, Switzerland, and
the reporting period. The Federal Reserve South Korea. As a result of improving
and economic conditions, we were able to
increase our global diversification with
the addition of seven countries over the
period.
</Table>
<Table>
====================================================================================================================================
TOP 10 EQUITY HOLDINGS* TOP 10 INDUSTRIES* TOP 10 COUNTRIES*
1. Microsoft Corp. 2.8% 1. Diversified Metals & Mining 15.1% 1. Canada 32.5%
2. Pan-Ocean Energy Corp. Ltd. 2.7 2. Oil & Gas Exploration & Production 6.1 2. U.S.A. 22.5
3. Barrick Gold Corp. 2.4 3. Pharmaceuticals 6.0 3. Australia 6.8
4. MAAX Inc. 2.3 4. Gold 5.9 4. United Kingdom 6.7
5. Schering-Plough Corp. 2.2 5. Diversified Banks 5.7 5. Japan 4.2
6. Cisco Systems, Inc. 2.2 6. Communications Equipment 3.5 6. Bermuda 3.7
7. Inco Ltd. 2.1 7. Aluminum 3.1 7. Hong Kong 3.2
8. Canadian Natural Resources Ltd. 2.1 8. Packaged Foods 2.9 8. France 2.9
9. Alcan Inc. 1.9 9. Systems Software 2.8 9. Taiwan 2.8
10. Rogers Wireless 10. Building Products 2.3 10. Brazil 2.3
Communications Inc.-Class B 1.9
* Excludes money market fund holdings.
The fund's holdings are subject to change, and there is no assurance that the fund will continue to hold any particular security.
====================================================================================================================================
</Table>
2
<Table>
The fund's prospectus states that the Individual stocks that provided the invested at the beginning of the fiscal
fund invests "without regard to market strongest contribution to fund year. For its fiscal quarter ending
capitalization." As of December 31, performance included Pan-Ocean Energy February 2003, the company announced a
2003, the fund's portfolio was and Grupo Aeroportuario del Sureste. net loss of $7.9 million after having a
characterized by Lipper, Inc., an Pan-Ocean is a Canadian company that net income of $16.5 million the previous
independent mutual fund performance produces oil and natural gas in quarter. We sold the fund's shares in
monitor, as containing 38.5% large-cap sub-Saharan Africa. In November 2003, this company early in the year.
stocks, 25.8% mid-cap stocks, and 35.7% the company announced its third-quarter
small-cap stocks. This represented results. Its after-tax operating cash IN CLOSING
little change from the portfolio's flow from operations increased 13% over
capitalization make-up at mid-year. the second quarter of 2003, and its net Throughout the fiscal year, we
profit for the quarter was $5.2 million maintained our focus on companies that
At the end of the fiscal year, the compared to $2.3 million the previous "trade below their intrinsic value," as
fund was invested in all 10 sectors in quarter. stated in the fund's prospectus. Also
the Global Industry Classification throughout the period, the fund's
Standard (GICS). Within those sectors, Grupo Aeroportuario operates nine portfolio was diversified in terms of
the fund had holdings in 47 industries, airports in southeastern Mexico, geography, market capitalization,
more than one-third of the industries including Cancun, Cozumel, Merida, and sectors and industries. We were pleased
identified in the GICS. Veracruz. The company holds a concession with the improving economy and the
to operate and maintain all nine fund's performance for the reporting
The materials sector was one of the facilities until 2048. In December 2003, period.
sectors that made a positive Grupo Aeroportuario announced that its
contribution to fund performance. The nine airports experienced a 16% increase See important fund and index
fund was overweight in this sector for in traffic during the period between disclosures inside front cover.
most of 2003. The sector provided strong October 29 and November 25, 2003, over
performance because of the improving the equivalent 28-day period a year
economic backdrop, surging Chinese earlier.
demand, and the decline of the U.S.
dollar, which tends to make gold and Individual stocks that detracted from
gold stocks more attractive. The fund performance included Championship
materials sector was the second best- Auto Racing and the Shaw Group. We
performing sector for the year in both believed that Championship Auto Racing
the S&P 500 Index and the MSCI World had an acceptable risk-return profile,
Index. but the upside potential we anticipated
was not realized. The fund no longer
The health care sector was a owns this stock.
detractor to fund performance. The
health care sector was the second The Shaw Group is a construction and ARROW For More Information Visit
weakest-performing sector in both of the engineering firm in Baton Rouge, BUTTON AIMINVESTMENTS.COM
aforementioned indexes. Louisiana, in which the fund was IMAGE
====================================================================================================================================
FUND VS. INDEXES TOTAL NUMBER OF HOLDINGS* 87 ROGER J. MORTIMER
- ------------------------------------- ---------------------------------------- Mr. Mortimer is lead portfolio
Total returns, 12/31/02-12/31/03, TOTAL NET ASSETS $19.2 million [PHOTO OF manager of AIM Global Value
excluding sales charges. If sales ---------------------------------------- ROGER J. Fund. He began his investment
charges were included, performance MORTIMER] career in 1986. In 1997, he
would be lower. * Excludes money market fund holdings. joined GT Global as a
portfolio manager overseeing
Class A Shares 32.15% the management of GT Global
- ------------------------------------- Canadian Value Class. In 1998, the GT Global
Class B Shares 31.26 Funds were acquired by AIM. Mr. Mortimer
- ------------------------------------- holds a B.A. in economics and an M.B.A. from
Class C Shares 31.37 the University of Western Ontario.
- -------------------------------------
MSCI World Index GLEN HILTON
(Broad Market Index) 33.11 [PHOTO OF Mr. Hilton joined AIM in 2002.
- ------------------------------------- GLEN He began his career in 1995
MSCI World Value Free Index HILTON] at Montgomery Asset Management
(Style-Specific Index) 38.13 where he held a variety of
- ------------------------------------- positions, including senior
Lipper Global Fund Index 31.96 analyst and portfolio manager.
- ------------------------------------- Mr. Hilton holds a BA in
Source: Lipper, Inc. economics from Loyola University.
</Table>
3
FUND PERFORMANCE
RESULTS OF A $10,000 INVESTMENT
12/29/00-12/31/03
Index data from 12/31/00
<Table>
<Caption>
AIM GLOBAL AIM GLOBAL AIM GLOBAL MSCI MSCI WORLD
DATE VALUE FUND VALUE FUND VALUE FUND WORLD VALUE LIPPER GLOBAL
CLASS A SHARES CLASS B SHARES CLASS C SHARES INDEX FREE INDEX FUND INDEX
12/29/00 9450 10000 10000 10000 10000 10000
1/31/01 10026 10600 10610 10193 10100 10166
2/28/01 8873 9380 9390 9330 9604 9421
3/31/01 8184 8640 8650 8716 9112 8766
4/30/01 9204 9720 9730 9358 9726 9367
5/31/01 9223 9740 9751 9236 9664 9310
6/30/01 8930 9420 9431 8946 9392 9048
7/31/01 8740 9220 9231 8826 9279 8824
8/31/01 8466 8930 8931 8401 8949 8474
9/30/01 8116 8560 8561 7660 8117 7682
10/31/01 8655 9120 9121 7806 8098 7873
11/30/01 9241 9730 9731 8266 8445 8303
12/31/01 9308 9791 9793 8318 8507 8424
1/31/02 9062 9531 9532 8065 8267 8168
2/28/02 8987 9451 9452 7994 8104 8120
3/31/02 9478 9961 9963 8362 8629 8505
[MOUNTAIN CHART] 4/30/02 9383 9851 9863 8062 8393 8298
5/31/02 9355 9822 9822 8076 8462 8317
6/30/02 9034 9472 9473 7584 7922 7834
7/31/02 8316 8722 8723 6944 7147 7141
8/31/02 8279 8682 8682 6956 7174 7174
9/30/02 7891 8262 8262 6190 6306 6461
10/31/02 8619 9022 9022 6647 6745 6830
11/30/02 8884 9292 9302 7004 7228 7165
12/31/02 8557 8941 8942 6664 6810 6852
1/31/03 8472 8851 8852 6460 6639 6633
2/28/03 8377 8741 8752 6347 6481 6469
3/31/03 8330 8691 8691 6326 6386 6398
4/30/03 8689 9062 9071 6887 7059 6947
5/31/03 9218 9602 9611 7279 7567 7375
6/30/03 9351 9752 9751 7404 7720 7517
7/31/03 9294 9681 9681 7554 7882 7676
8/31/03 9672 10062 10071 7716 8063 7879
9/30/03 9823 10222 10221 7762 8115 7922
10/31/03 10504 10922 10921 8222 8593 8372
11/30/03 10608 11022 11022 8347 8732 8528
12/31/03 11309 11436 11746 8870 9406 9042
Source: Lipper, Inc.
</Table>
Past performance cannot guarantee comparable future results.
Your fund's total return includes sales charges, expenses and management fees.
Results for B shares are calculated as if a hypothetical shareholder had
liquidated his entire investment in the fund at the close of the reporting
period and paid the applicable contingent deferred sales charges. The
performance of the fund's share classes will differ due to different sales
charge structures and class expenses. For fund performance calculations and
indexes used in this report, please see the inside front cover. Performance
shown in the chart and table does not reflect deduction of taxes a shareholder
would pay on fund distributions or sale of fund shares. Performance of the
indexes does not reflect the effects of taxes.
<Table>
AVERAGE ANNUAL TOTAL RETURNS and the investment return and principal
Including sales charges value of an investment will fluctuate so
that an investor's shares, when
CLASS A SHARES redeemed, may be worth more or less than
Inception (12/29/00) 4.18% their original cost.
1 Year 24.84
Class A share performance reflects
CLASS B SHARES the maximum 5.50% sales charge, and
Inception (12/29/00) 4.56% Class B and Class C share performance
1 Year 26.26 reflects the applicable contingent
deferred sales charge (CDSC) for the
CLASS C SHARES period involved. The CDSC on Class B
Inception (12/29/00) 5.50% shares declines from 5% beginning at
1 Year 30.37 the time of purchase to 0% at the
beginning of the seventh year. The CDSC
Current performance may be lower or on Class C shares is 1% for the first
higher than the performance data quoted. year after purchase. The performance of
Past performance cannot guarantee com- the fund's share classes will differ due
parable future results. Due to to different sales charge structures and
significant market volatility, results class expenses.
of an investment made today may differ
substantially from the historical A redemption fee of 2% will be
performance shown. Please visit imposed on certain redemptions or
AIMinvestments.com for the most current exchanges out of the fund within 30 days
month-end performance. of purchase. Exceptions to the
redemption fee are listed in the fund's
The fund's performance figures are prospectus.
historical, and they reflect fund
expenses, the reinvestment of Had the advisor not waived fees
distributions, and changes in net asset and/or reimbursed expenses in the past,
value. Performance data quoted returns would have been lower.
represents past performance,
</Table>
4
FINANCIALS
SCHEDULE OF INVESTMENTS
December 31, 2003
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------
FOREIGN STOCKS & OTHER EQUITY
INTERESTS-72.26%
AUSTRALIA-6.83%
Alumina Ltd. (Aluminum)(a) 46,500 $ 229,694
- --------------------------------------------------------------------
BHP Billiton Ltd. (Diversified Metals &
Mining) 21,900 200,715
- --------------------------------------------------------------------
Consolidated Broken Hill Ltd. (Diversified
Metal & Mining)(a) 689,600 82,956
- --------------------------------------------------------------------
Iluka Resources Ltd. (Diversified Metals &
Mining)(a) 29,500 100,473
- --------------------------------------------------------------------
National Australia Bank Ltd. (Diversified
Banks) 13,000 292,733
- --------------------------------------------------------------------
Perseverance Corp. Ltd. (Gold)(a) 412,200 108,469
- --------------------------------------------------------------------
WMC Resources Ltd. (Diversified Metals &
Mining)(a) 70,000 296,304
====================================================================
1,311,344
====================================================================
BERMUDA-3.72%
Pan-Ocean Energy Corp. Ltd. (Oil & Gas
Exploration & Production)(a) 75,000 526,620
- --------------------------------------------------------------------
Weatherford International Ltd. (Oil & Gas
Equipment & Services)(a) 5,200 187,200
====================================================================
713,820
====================================================================
BRAZIL-2.32%
Caemi Mineracao e Metalurgica S.A.-Pfd.
(Steel) 640 281,100
- --------------------------------------------------------------------
Companhia Vale do Rio Doce-ADR (Diversified
Metals & Mining) 2,800 163,800
====================================================================
444,900
====================================================================
CANADA-32.54%
Alcan Inc. (Aluminum) 7,900 369,215
- --------------------------------------------------------------------
Barrick Gold Corp. (Gold) 20,800 470,407
- --------------------------------------------------------------------
Cameco Corp. (Diversified Metals & Mining) 2,900 167,265
- --------------------------------------------------------------------
Canadian Natural Resources Ltd. (Oil & Gas
Exploration & Production) 7,900 398,475
- --------------------------------------------------------------------
E-L Financial Corp. Ltd. (Multi-Line
Insurance) 1,500 341,435
- --------------------------------------------------------------------
Energy Savings Income Fund (Gas Utilities) 11,900 258,476
- --------------------------------------------------------------------
Ensign Resource Service Group, Inc. (Oil &
Gas Drilling) 2,600 41,327
- --------------------------------------------------------------------
Falconbridge Ltd. (Diversified Metals &
Mining) 8,500 205,679
- --------------------------------------------------------------------
Fording Canadian Coal Trust (Diversified
Metals & Mining) 8,100 287,500
- --------------------------------------------------------------------
Inco Ltd. (Diversified Metals & Mining)(a) 10,100 402,519
- --------------------------------------------------------------------
MAAX Inc. (Building Products) 24,200 440,492
- --------------------------------------------------------------------
Manitoba Telecom Services Inc. (Integrated
Telecommunication Services) 5,700 193,606
- --------------------------------------------------------------------
Mullen Transportation Inc. (Trucking) 10,000 304,784
- --------------------------------------------------------------------
Noranda, Inc. (Diversified Metals & Mining) 13,600 215,648
- --------------------------------------------------------------------
Nortel Networks Corp. (Communications
Equipment) 59,600 252,472
- --------------------------------------------------------------------
</Table>
<Table>
- --------------------------------------------------------------------
<Caption>
MARKET
SHARES VALUE
CANADA-(CONTINUED)
Northbridge Financial Corp. (Property &
Casualty Insurance) 12,400 $ 199,969
- --------------------------------------------------------------------
Northern Orion Resources Inc. (Diversified
Metals & Mining)(a) 65,000 154,475
- --------------------------------------------------------------------
Novicourt Inc. (Diversified Metals & Mining) 93,700 117,848
- --------------------------------------------------------------------
Placer Dome Inc. (Gold) 5,200 92,966
- --------------------------------------------------------------------
Progress Energy Ltd. (Oil & Gas Exploration &
Production)(a) 25,000 239,198
- --------------------------------------------------------------------
Rogers Wireless Coummunications Inc.-Class B
(Wireless Telecommunication Services)(a) 17,200 368,951
- --------------------------------------------------------------------
Saskatchewan Wheat Pool-Class B (Agricultural
Products) 185,100 58,558
- --------------------------------------------------------------------
Stornoway Diamond Corp. (Precious Metal &
Minerals)(a) 80,000 114,198
- --------------------------------------------------------------------
Teck Cominco Ltd.-Class B (Diversified Metals
& Mining) 16,600 280,894
- --------------------------------------------------------------------
Westaim Corp. (The) (Industrial
Conglomerates)(a) 97,400 270,556
====================================================================
6,246,913
====================================================================
DENMARK-1.40%
Kobenhavns Lufthavne A.S. (Airport
Services)(a) 2,300 269,013
====================================================================
FINLAND-0.83%
UPM-Kymmene Oyj (Paper Products) 8,400 159,763
====================================================================
FRANCE-2.86%
Aventis S.A. (Pharmaceuticals) 5,000 329,570
- --------------------------------------------------------------------
Thomson S.A. (Consumer Electronics)(a) 10,300 218,574
====================================================================
548,144
====================================================================
GERMANY-0.52%
Bayerische Hypo-und Vereinsbank A.G.
(Diversified Banks)(a) 4,300 99,200
====================================================================
HONG KONG-3.17%
Henderson Land Development Co. Ltd. (Real
Estate Management & Development) 35,000 154,632
- --------------------------------------------------------------------
Sino Land Co. Ltd. (Real Estate Management &
Development) 146,000 83,215
- --------------------------------------------------------------------
Sun Hung Kai Properties Ltd. (Real Estate
Management & Development) 22,000 182,068
- --------------------------------------------------------------------
Swire Pacific Ltd. (Multi-Sector Holdings) 30,500 188,179
====================================================================
608,094
====================================================================
JAPAN-4.24%
Dai Nippon Printing Co., Ltd. (Commercial
Printing) 11,000 154,201
- --------------------------------------------------------------------
</Table>
F-1
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------
JAPAN-(CONTINUED)
Honda Motor Co., Ltd. (Automobile
Manufacturers) 4,100 $ 181,781
- --------------------------------------------------------------------
Keio Electric Railway Co., Ltd.
(Railroads)(a) 15,000 77,822
- --------------------------------------------------------------------
Kyocera Corp. (Electronic Equipment
Manufacturers) 1,200 79,806
- --------------------------------------------------------------------
Lion Corp. (Household Products) 29,000 154,508
- --------------------------------------------------------------------
Nippon Unipac Holding (Paper Products)(a) 15 77,263
- --------------------------------------------------------------------
Shinkawa Ltd. (Semiconductor Equipment)(a) 4,200 88,217
====================================================================
813,598
====================================================================
MEXICO-0.80%
Grupo Aeroportuario del Sureste S.A. de
C.V.-ADR (Airport Services) 8,700 153,120
====================================================================
NETHERLANDS-1.18%
Akzo Nobel N.V. (Diversified Chemicals) 5,900 227,101
====================================================================
PERU-0.63%
Compania de Minas Buenaventura S.A.-ADR
(Precious Metals & Minerals) 4,300 121,604
====================================================================
SOUTH KOREA-0.52%
Ssangyong Motor Co. (Automobile
Manufacturers)(a) 11,600 100,193
====================================================================
SWEDEN-0.38%
Skandia Forsakrings A.B. (Life & Health
Insurance)(a) 20,000 72,672
====================================================================
SWITZERLAND-0.84%
Nestle S.A. (Packaged Foods & Meats) 650 161,924
====================================================================
TAIWAN-2.76%
Delta Electronics, Inc. (Electronic Equipment
Manufacturers) (Acquired
8/20/2003-10/08/2003; Cost $211,818)(a)(b) 153,000 195,981
- --------------------------------------------------------------------
EVA Airways Corp. (Airlines) 389,156 158,711
- --------------------------------------------------------------------
President Chain Store Corp. (Food Retail) 115,000 176,090
====================================================================
530,782
====================================================================
UNITED KINGDOM-6.72%
Diageo PLC (Distillers & Vintners) 14,600 191,602
- --------------------------------------------------------------------
HSBC Holdings PLC (Diversified Banks) 8,800 138,853
- --------------------------------------------------------------------
Man Group PLC (Asset Management & Custody
Banks) 7,260 189,385
- --------------------------------------------------------------------
Randgold Resources Ltd.-ADR (Gold)(a) 3,400 92,820
- --------------------------------------------------------------------
Rio Tinto PLC (Diversified Metals & Mining) 3,700 101,936
- --------------------------------------------------------------------
Severn Trent PLC (Water Utilities) 7,110 95,085
- --------------------------------------------------------------------
Standard Chartered PLC (Diversified Banks)(a) 13,000 214,126
- --------------------------------------------------------------------
Unilever PLC (Packaged Foods & Meats) 15,000 139,470
- --------------------------------------------------------------------
Vedanta Resources PLC (Diversified Metals &
Mining)(a) 10,800 70,963
- --------------------------------------------------------------------
</Table>
<Table>
- --------------------------------------------------------------------
<Caption>
MARKET
SHARES VALUE
UNITED KINGDOM-(CONTINUED)
Xstrata PLC (Diversified Metals & Mining)(a) 5,000 $ 56,243
====================================================================
1,290,483
====================================================================
Total Foreign Stocks & Other Equity
Interests (Cost $11,921,178) 13,872,668
====================================================================
DOMESTIC COMMON STOCKS-22.55%
ADVERTISING-0.46%
Omnicom Group Inc. 1,000 87,330
====================================================================
APPAREL, ACCESSORIES & LUXURY GOODS-1.19%
Jones Apparel Group, Inc. 6,500 228,995
====================================================================
COMMUNICATIONS EQUIPMENT-2.21%
Cisco Systems, Inc.(a) 17,500 425,075
====================================================================
CONSTRUCTION MATERIALS-0.97%
Lafarge North America Inc. 4,600 186,392
====================================================================
DIVERSIFIED BANKS-1.80%
Bank of America Corp. 4,300 345,849
====================================================================
DIVERSIFIED COMMERCIAL SERVICES-0.53%
Coinstar, Inc.(a) 5,600 101,136
====================================================================
FOREST PRODUCTS-0.60%
Rayonier, Inc. 2,760 114,568
====================================================================
GOLD-1.90%
Newmont Mining Corp. 7,500 364,575
====================================================================
INTEGRATED OIL & GAS-1.62%
ChevronTexaco Corp. 3,600 311,004
====================================================================
INVESTMENT BANKING & BROKERAGE-1.16%
Merrill Lynch & Co., Inc. 3,800 222,870
====================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES-1.72%
Citigroup Inc. 6,800 330,072
====================================================================
PACKAGED FOODS & MEATS-1.32%
Lancaster Colony Corp. 5,600 252,896
====================================================================
PHARMACEUTICALS-4.24%
Bristol-Myers Squibb Co. 10,400 297,440
- --------------------------------------------------------------------
Merck & Co. Inc. 1,900 87,780
- --------------------------------------------------------------------
Schering-Plough Corp. 24,700 429,533
====================================================================
814,753
====================================================================
</Table>
F-2
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------
SYSTEMS SOFTWARE-2.83%
Microsoft Corp. 19,700 $ 542,538
====================================================================
Total Domestic Common Stocks (Cost
$3,829,969) 4,328,053
====================================================================
MONEY MARKET FUNDS-1.86%
Liquid Assets Portfolio(c) 178,736 178,736
- --------------------------------------------------------------------
STIC Prime Portfolio(c) 178,736 178,736
====================================================================
Total Money Market Funds (Cost $357,472) 357,472
====================================================================
TOTAL INVESTMENTS-96.67% (Cost $16,108,619) 18,558,193
====================================================================
OTHER ASSETS LESS LIABILITIES-3.33% 640,430
====================================================================
NET ASSETS-100.00% $19,198,623
____________________________________________________________________
====================================================================
</Table>
Investment Abbreviations:
<Table>
ADR - American Depositary Receipt
Pfd. - Preferred
</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 Fund has no rights to demand registration of these securities.
The market value of this security at 12/31/03 represent 1.02% of the Fund's
net assets. Unless otherwise indicated, this security is not considered to
be illiquid.
(c) The money market fund and the Fund are affiliated by having the same
investment advisor. See Note 3.
See accompanying notes which are an integral part of the financial statements.
F-3
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2003
<Table>
ASSETS:
Investments, at market value (cost
$15,751,147) $18,200,721
- -----------------------------------------------------------
Investments in affiliated money market funds
(cost $357,472) 357,472
- -----------------------------------------------------------
Foreign currencies, at value (cost $188,505) 188,858
- -----------------------------------------------------------
Receivables for:
Investments sold 582,035
- -----------------------------------------------------------
Fund shares sold 78,382
- -----------------------------------------------------------
Dividends and interest 50,559
- -----------------------------------------------------------
Amount due from advisor 13,168
- -----------------------------------------------------------
Investment for deferred compensation and
retirement plans 12,297
- -----------------------------------------------------------
Other assets 19,485
===========================================================
Total assets 19,502,977
___________________________________________________________
===========================================================
LIABILITIES:
Payables for:
Investments purchased 189,622
- -----------------------------------------------------------
Fund shares reacquired 33,083
- -----------------------------------------------------------
Deferred compensation and retirement plans 12,297
- -----------------------------------------------------------
Accrued distribution fees 11,112
- -----------------------------------------------------------
Accrued transfer agent fees 9,168
- -----------------------------------------------------------
Accrued operating expenses 49,072
===========================================================
Total liabilities 304,354
===========================================================
Net assets applicable to shares outstanding $19,198,623
___________________________________________________________
===========================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $16,425,483
- -----------------------------------------------------------
Undistributed net investment income (loss) (102,604)
- -----------------------------------------------------------
Undistributed net realized gain from
investment securities, foreign currencies,
foreign currency contracts and option
contracts 424,102
- -----------------------------------------------------------
Unrealized appreciation of investment
securities, foreign currencies and foreign
currency contracts 2,451,642
===========================================================
$19,198,623
___________________________________________________________
===========================================================
NET ASSETS:
Class A $ 9,270,246
___________________________________________________________
===========================================================
Class B $ 7,075,003
___________________________________________________________
===========================================================
Class C $ 2,853,374
___________________________________________________________
===========================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER SHARE,
UNLIMITED NUMBER OF SHARES AUTHORIZED:
Class A 789,927
___________________________________________________________
===========================================================
Class B 611,446
___________________________________________________________
===========================================================
Class C 246,487
___________________________________________________________
===========================================================
Class A:
Net asset value per share $ 11.74
- -----------------------------------------------------------
Offering price per share:
(Net asset value of $11.74 divided by
94.50%) $ 12.42
___________________________________________________________
===========================================================
Class B:
Net asset value and offering price per share $ 11.57
___________________________________________________________
===========================================================
Class C:
Net asset value and offering price per share $ 11.58
___________________________________________________________
===========================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
F-4
STATEMENT OF OPERATIONS
For the year ended December 31, 2003
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $20,972) $ 286,375
- ------------------------------------------------------------------------
Dividends from affiliated money market funds 13,527
- ------------------------------------------------------------------------
Interest 1,590
========================================================================
Total investment income 301,492
========================================================================
EXPENSES:
Advisory fees 119,494
- ------------------------------------------------------------------------
Administrative services fees 50,000
- ------------------------------------------------------------------------
Custodian fees 36,318
- ------------------------------------------------------------------------
Distribution fees --
Class A 24,070
- ------------------------------------------------------------------------
Class B 52,422
- ------------------------------------------------------------------------
Class C 19,388
- ------------------------------------------------------------------------
Transfer agent fees 54,565
- ------------------------------------------------------------------------
Trustees' fees 9,141
- ------------------------------------------------------------------------
Registration and filing fees 36,036
- ------------------------------------------------------------------------
Printing and postage 25,733
- ------------------------------------------------------------------------
Professional fees 51,505
- ------------------------------------------------------------------------
Other 6,318
========================================================================
Total expenses 484,990
========================================================================
Less: Fees waived, expense reimbursements and expense offset
arrangements (157,052)
========================================================================
Net expenses 327,938
========================================================================
Net investment income (loss) (26,446)
========================================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES, FOREIGN CURRENCIES, FOREIGN CURRENCY CONTRACTS
AND OPTION CONTRACTS:
Net realized gain (loss) from:
Investment securities 3,613,180
- ------------------------------------------------------------------------
Foreign currencies (38,597)
- ------------------------------------------------------------------------
Foreign currency contracts (238,687)
- ------------------------------------------------------------------------
Option contracts written 4,196
========================================================================
3,340,092
========================================================================
Change in net unrealized appreciation of:
Investment securities 633,517
- ------------------------------------------------------------------------
Foreign currencies 1,712
- ------------------------------------------------------------------------
Foreign currency contracts 125,355
========================================================================
760,584
========================================================================
Net gain from investment securities, foreign currencies,
foreign currency contracts and option contracts 4,100,677
========================================================================
Net increase in net assets resulting from operations $4,074,230
________________________________________________________________________
========================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
F-5
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 2003 and 2002
<Table>
<Caption>
2003 2002
- ----------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (26,446) $ (190,623)
- ----------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities,
foreign currencies, foreign currency contracts, futures
contracts and option contracts 3,340,092 (1,519,961)
- ----------------------------------------------------------------------------------------
Change in net unrealized appreciation of investment
securities, foreign currencies, foreign currency
contracts and option contracts 760,584 482,952
========================================================================================
Net increase (decrease) in net assets resulting from
operations 4,074,230 (1,227,632)
========================================================================================
Distributions to shareholders from net investment income:
Class A (66,253) (2,912)
- ----------------------------------------------------------------------------------------
Class B (20,575) --
- ----------------------------------------------------------------------------------------
Class C (8,358) --
========================================================================================
Total distributions from net investment income (95,186) (2,912)
========================================================================================
Distributions to shareholders from net realized gains:
Class A (96,651) --
- ----------------------------------------------------------------------------------------
Class B (77,081) --
- ----------------------------------------------------------------------------------------
Class C (31,309) --
========================================================================================
Total distributions from net realized gains (205,041) --
========================================================================================
Decrease in net assets resulting from distributions (300,227) (2,912)
========================================================================================
Share transactions-net:
Class A 1,096,605 (1,707,264)
- ----------------------------------------------------------------------------------------
Class B 1,052,199 1,387,954
- ----------------------------------------------------------------------------------------
Class C 481,030 693,806
========================================================================================
Net increase in net assets resulting from share
transactions 2,629,834 374,496
========================================================================================
Net increase (decrease) in net assets 6,403,837 (856,048)
========================================================================================
NET ASSETS:
Beginning of year 12,794,786 13,650,834
========================================================================================
End of year (including undistributed net investment income
(loss) of $(102,604) and $(9,664) for 2003 and 2002,
respectively) $19,198,623 $12,794,786
________________________________________________________________________________________
========================================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
F-6
NOTES TO FINANCIAL STATEMENTS
December 31, 2003
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Global Value Fund, is a series portfolio of AIM Funds Group (the "Trust").
The Trust is a Delaware statutory trust registered under the Investment Company
Act of 1940, as amended (the "1940 Act"), as an open-end series management
investment company consisting of nine separate portfolios, each authorized to
issue an unlimited number of shares of beneficial interest. The Fund currently
offers multiple classes of shares. Matters affecting each portfolio or class
will be voted on exclusively by the shareholders of such portfolio or class. The
assets, liabilities and operations of each portfolio are accounted for
separately. Information presented in these financial statements pertains only to
the Fund.
The Fund's investment objective is to achieve long-term growth of capital.
Each company listed in the Schedule of Investments is organized in the United
States of America unless otherwise noted.
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 on the basis of prices furnished
by independent pricing services or market makers. Each security reported on
the NASDAQ National Market System is valued at the NASDAQ Official Closing
Price ("NOCP") as of the close of the customary trading session on the
valuation date or absent a NOCP, at the closing bid price. 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. Issuer specific events, market trends, bid/ask quotes of brokers
and information providers and other market data may be reviewed in the
course of making a good faith determination of a security's fair value.
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
ordinarily be reflected in the computation of the Fund's net asset value.
If a development/event is so significant such 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. Adjustments to closing prices to reflect fair value on affected
foreign securities may be provided by an independent pricing service.
Multiple factors may be considered by the independent pricing service in
determining adjustments to reflect fair value and may include information
relating to sector indices, ADRs, domestic and foreign index futures and
exchange-traded funds.
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.
The Fund allocates income and realized and unrealized capital gains and
losses to a class based on the relative net assets of each class.
C. 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. REDEMPTION FEES -- Effective November 24, 2003, the Fund instituted a 2%
redemption fee on certain share classes that is to be retained by the Fund
to offset transaction costs and other expenses associated with short-term
redemptions and exchanges. The fee, subject to certain exceptions, is
imposed on certain redemptions,
F-7
including exchanges of shares held less than 30 days. The redemption fee is
accounted for as an addition to paid-in-capital by the Fund and is
allocated among the share classes based on the relative net assets of each
class.
E. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of
Subchapter M of the Internal Revenue Code necessary to qualify as a
regulated investment company and, as such, will not be subject to federal
income taxes on otherwise taxable income (including net realized capital
gain) which is distributed to shareholders. Therefore, no provision for
federal income taxes is recorded in the financial statements. Any capital
loss carryforwards listed are reduced for limitations, if any, to the
extent required by the Internal Revenue Code.
F. 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. The combined results of changes in foreign exchange rates
and the fluctuation of market prices on investments are included with the
net realized and unrealized gain or loss from investments in the Statement
of Operations. Reported net realized foreign currency gains or losses arise
from, (i) sales of foreign currencies, (ii) currency gains or losses
realized between the trade and settlement dates on securities transactions,
and (iii) the difference between the amounts of dividends, interest, and
foreign withholding taxes recorded on the Fund's books and the U.S. dollar
equivalent of the amounts actually received or paid. Net unrealized foreign
currency gains and losses arise from changes in the fair values of assets
and liabilities, other than investments in securities at fiscal period end,
resulting from changes in exchange rates.
G. 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.
H. COVERED CALL OPTIONS -- The Fund may write call options, on a covered
basis; that is, the Fund will own the underlying security. When the Fund
writes a covered call option, an amount equal to the premium received by
the Fund is recorded as an asset and an equivalent liability. The amount of
the liability is subsequently "marked-to-market" to reflect the current
market value of the option written. The current market value of a written
option is the mean between the last bid and asked prices on that day. If a
written call option expires on the stipulated expiration date, or if the
Fund enters into a closing purchase transaction, the Fund realizes a gain
(or a loss if the closing purchase transaction exceeds the premium received
when the option was written) without regard to any unrealized gain or loss
on the underlying security, and the liability related to such option is
extinguished. If a written option is exercised, the Fund realizes a gain or
a loss from the sale of the underlying security and the proceeds of the
sale are increased by the premium originally received. A risk in writing a
call option is that the Fund gives up the opportunity for profit if the
market price of the security increases and the option is exercised.
I. FUTURES CONTRACTS -- The Fund may purchase or sell futures contracts as a
hedge against changes in market conditions. Initial margin deposits
required upon entering into futures contracts are satisfied by the
segregation of specific securities as collateral for the account of the
broker (the Fund's agent in acquiring the futures position). During the
period the futures contracts are open, changes in the value of the
contracts are recognized as unrealized gains or losses by "marking to
market" on a daily basis to reflect the market value of the contracts at
the end of each day's trading. Variation margin payments are made or
received depending upon whether unrealized gains or losses are incurred.
When the contracts are closed, the Fund recognizes a realized gain or loss
equal to the difference between the proceeds from, or cost of, the closing
transaction and the Fund's basis in the contract. If the Fund were unable
to liquidate a futures contract and/or enter into an offsetting closing
transaction, the Fund would continue to be subject to market risk with
respect to the value of the contracts and continue to be required to
maintain the margin deposits on the futures contracts.
J. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund and which are directly attributable to that class are
charged to the operations of such class. All other expenses are allocated
among the classes based on relative net assets.
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement,
the Fund pays an advisory fee to AIM at the annual rate of 0.85% of the first $1
billion of the Fund's average daily net assets, plus 0.80% of the Fund's average
daily net assets in excess of $1 billion. AIM has contractually agreed to waive
fees and/or reimburse expenses (excluding interest, taxes, fund merger and
reorganization expenses, extraordinary items, including other items designated
as such by the Board of Trustees 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 shares to
2.00% through December 31, 2004. Further, AIM has voluntarily agreed to waive
advisory fees of the Fund in the amount of 25% of the advisory fee AIM receives
from the affiliated money market funds on investments by the Fund in such
affiliated money market funds. For the year ended December 31, 2003, AIM waived
fees of $119,494 and reimbursed expenses of $37,312.
The Fund, pursuant to a master administrative services agreement with AIM,
has agreed to pay AIM for certain administrative costs incurred
F-8
in providing accounting services to the Fund. For the year ended December 31,
2003, AIM was paid $50,000 for such services.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay AIM Investment Services, Inc. ("AISI"), formerly known as A I M Fund
Services, Inc., a fee for providing transfer agency and shareholder services to
the Fund. During the year ended December 31, 2003, AISI retained $28,772 for
such services.
The Trust has entered into a master distribution agreement 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,
Class B 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 Class C shares. Of these amounts, up to 0.25% of the
average daily net assets of the Class A, Class B or Class C shares may be paid
to furnish continuing personal shareholder services to customers who purchase
and own shares of such classes. Any amounts not paid as a service fee under the
Plans would constitute an asset-based sales charge. NASD Rules also impose a cap
on the total sales charges, including asset-based sales charges that may be paid
by any class of shares of the Fund. Pursuant to the Plans, for the year ended
December 31, 2003, the Class A, Class B and Class C shares paid $24,070, $52,422
and $19,388, respectively.
Front-end sales commissions and contingent deferred sales charges ("CDSC")
(collectively the "sales charges") are not recorded as expenses of the Fund.
Front-end sales commissions are deducted from proceeds from the sales of Fund
shares prior to investment in Class A shares of the Fund CDSC are deducted from
redemption proceeds prior to remittance to the shareholder. During year ended
December 31, 2003, AIM Distributors retained $8,617 in front-end sales
commissions from the sale of Class A shares and $0, $0 and $402 from Class A,
Class B and Class C shares, respectively, for CDSC imposed upon redemptions by
shareholders.
Certain officers and trustees of the Trust are officers and directors of
AIM, AISI and/or AIM Distributors.
NOTE 3--INVESTMENTS IN AFFILIATES
The Fund is permitted pursuant to an exemptive order from the Securities and
Exchange Commission ("SEC") and approved procedures by the Board of Trustees to
invest daily available cash balances in affiliated money market funds. Each day
the prior day's balance invested in the affiliated money market fund is redeemed
in full and a new purchase amount is submitted to invest the current day's
available cash. The table below shows the transactions in and earnings from
investments in affiliated money market funds for the period ended December 31,
2003.
<Table>
<Caption>
UNREALIZED REALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND GAIN
FUND 12/31/2002 AT COST FROM SALES (DEPRECIATION) 12/31/2003 INCOME (LOSS)
- ---------------------------------------------------------------------------------------------------------------------------------
Liquid Assets Portfolio $454,569 $13,235,008 $(13,510,841) $ -- $178,736 $ 6,891 $ --
STIC Prime Portfolio 454,569 13,235,008 (13,510,841) -- 178,736 6,636 --
=================================================================================================================================
$909,138 $26,470,016 $(27,021,682) $ -- $357,472 $13,527 $ --
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
NOTE 4--EXPENSE OFFSET ARRANGEMENTS
Indirect expenses under expense offset arrangements are comprised of transfer
agency credits resulting from Demand Deposit Account (DDA) balances in transfer
agency clearing accounts and custodian credits resulting from periodic overnight
cash balances at the custodian.
For the year ended December 31, 2003, the Fund received reductions in transfer
agency fees from AISI (an affiliate of AIM) of $245 and reductions in custodian
fees of $1 under expense offset arrangements which resulted in a reduction of
the Fund's total expenses of $246.
NOTE 5--TRUSTEES' FEES
Trustees' fees represent remuneration paid to each Trustee of the Trust who is
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 and INVESCO Funds in which their deferral accounts
shall be deemed to be invested.
Current Trustees are eligible to participate in a retirement plan that
provides for benefits to be paid upon retirement to Trustees over a period of
time based on the number of years of service. The Fund may have certain former
Trustees that also participate in a retirement plan and receive benefits under
such plan.
During the year ended December 31, 2003, the Fund paid legal fees of $3,593
for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the
Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 6--BORROWINGS
The Fund may participate in an interfund lending facility that AIM has
established for temporary borrowings by the AIM Funds and the INVESCO Funds. An
interfund loan will be made under this facility only if the loan rate (an
average of the rate available on bank loans and the rate available on
investments in overnight repurchase agreements) is favorable to both the lending
fund and the borrowing fund. Under certain circumstances, a loan will be secured
by collateral. To the extent that the loan is required to be secured by
collateral, the collateral is marked to market daily to ensure that the market
value is at least 102% of the outstanding principal value of the loan. The Fund
did not borrow or lend under the facility during the year ended December 31,
2003.
Effective June 26, 2003, the Fund became a participant in an uncommitted
unsecured revolving credit facility with State Street Bank and Trust Company
("SSB"). The Fund may borrow up to the lesser of (i) $125,000,000 or (ii) the
limits set by its prospectus for borrowings. The Fund and other funds advised by
AIM which are parties to the credit facility can borrow on a first come, first
served basis. Principal on each loan outstanding shall bear interest at the bid
rate quoted by SSB at the time of the request for the loan.
F-9
During the reporting period, the Fund was a participant in a committed
credit facility with a syndicate administered by Citibank, N.A. The Fund could
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 were
parties to the credit facility could borrow on a first come, first served basis.
The funds which were party to the credit facility were charged a commitment fee
of 0.09% on the unused balance of the committed line. The commitment fee was
allocated among the funds based on their respective average net assets for the
period. The committed credit facility expired May 20, 2003.
During the year ended December 31, 2003, the Fund did not borrow or lend
under the interfund lending facility or borrow under either the uncommitted
unsecured revolving credit facility or the committed credit facility.
Additionally the Fund is permitted to temporarily carry a negative or
overdrawn balance in its account with the custodian bank. To compensate the
custodian bank for such overdrafts, the overdrawn Fund may either (i) leave
funds in the account so the custodian can be compensated by earning the
additional interest; or (ii) compensate by paying the custodian bank. In either
case, the custodian bank will be compensated an amount equal to the Federal
Funds rate plus 100 basis points.
NOTE 7--OPTION CONTRACTS WRITTEN
<Table>
<Caption>
TRANSACTIONS DURING THE PERIOD
- ---------------------------------------------------------
CALL OPTION CONTRACTS
---------------------
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
- ---------------------------------------------------------
Beginning of year -- $ --
- ---------------------------------------------------------
Written 200 18,049
- ---------------------------------------------------------
Closed (200) $(18,049)
=========================================================
End of year -- $ --
_________________________________________________________
=========================================================
</Table>
NOTE 8--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
Distributions to Shareholders:
The tax character of distributions paid during the years ended December 31, 2003
and 2002 was as follows:
<Table>
<Caption>
2003 2002
- ------------------------------------------------------------
Distributions paid from ordinary income $ 95,332 $2,912
- ------------------------------------------------------------
Long-term capital gain 204,895 --
============================================================
Total distributions $300,227 $2,912
____________________________________________________________
============================================================
</Table>
Tax Components of Net Assets:
As of December 31, 2003, the components of net assets on a tax basis were as
follows:
<Table>
Undistributed ordinary income $ 473,588
- -----------------------------------------------------------
Unrealized appreciation -- investments 2,312,200
- -----------------------------------------------------------
Temporary book/tax differences (12,648)
- -----------------------------------------------------------
Capital (par value and additional paid-in) 16,425,483
===========================================================
Total net assets $19,198,623
___________________________________________________________
===========================================================
</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 mark to market of certain passive foreign
investment companies. The tax-basis unrealized appreciation on investments
amount includes appreciation on foreign currencies of $2,068.
The temporary book/tax differences are a result of timing differences
between book and tax recognition of income and/or expenses. The Fund's temporary
book/tax differences are the result of director deferral of trustee compensation
and trustee retirement plan expenses.
NOTE 9--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities
and money market funds) purchased and sold by the Fund during the year ended
December 31, 2003 was $48,339,256 and $46,279,233, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF
INVESTMENT SECURITIES ON A TAX BASIS
- -----------------------------------------------------------
Aggregate unrealized appreciation of
investment securities $2,381,176
- -----------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (71,044)
===========================================================
Net unrealized appreciation of investment
securities $2,310,132
___________________________________________________________
===========================================================
Cost of investments for tax purposes is $16,248,061.
</Table>
NOTE 10--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of foreign currency
transactions and passive foreign investment company reclassifications, on
December 31, 2003, undistributed net investment income (loss) was increased by
$28,692, undistributed net realized gains decreased by $28,692. This
reclassification had no effect on the net assets of the Fund.
F-10
NOTE 11--SHARE INFORMATION
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 CDSC. Under some
circumstances, Class A shares are subject to CDSC. Generally, Class B shares
will automatically convert to Class A shares eight years after the end of the
calendar month of purchase.
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING
- ------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
----------------------------------------------------
2003 2002
----------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT
- ------------------------------------------------------------------------------------------------------------------
Sold:
Class A 496,139 $ 5,108,376 838,881 $ 7,844,956
- ------------------------------------------------------------------------------------------------------------------
Class B 345,035 3,466,255 410,973 3,812,711
- ------------------------------------------------------------------------------------------------------------------
Class C 139,530 1,450,866 122,164 1,145,729
==================================================================================================================
Issued as reinvestment of dividends:
Class A 14,310 160,136 310 2,861
- ------------------------------------------------------------------------------------------------------------------
Class B 8,515 94,004 -- --
- ------------------------------------------------------------------------------------------------------------------
Class C 3,440 37,992 -- --
==================================================================================================================
Automatic conversion of Class B shares to Class A shares:
Class A 14,898 155,309 11,498 102,735
- ------------------------------------------------------------------------------------------------------------------
Class B (15,126) (155,309) (11,486) (102,735)
==================================================================================================================
Reacquired:
Class A (434,061) (4,327,216) (1,038,150) (9,657,816)
- ------------------------------------------------------------------------------------------------------------------
Class B (244,204) (2,352,751) (251,272) (2,322,022)
- ------------------------------------------------------------------------------------------------------------------
Class C (103,345) (1,007,828) (49,330) (451,923)
==================================================================================================================
225,131 $ 2,629,834 33,588 $ 374,496
__________________________________________________________________________________________________________________
==================================================================================================================
</Table>
F-11
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
--------------------------------------------------------------
DECEMBER 29, 2000
(DATE OPERATIONS
YEAR ENDED DECEMBER 31, COMMENCED) TO
------------------------------------ DECEMBER 31,
2003 2002 2001 2000
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 9.05 $ 9.85 $10.00 $10.00
- ----------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.01(a) (0.11)(a) (0.05)(a) --
- ----------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 2.89 (0.69) (0.10) --
============================================================================================================================
Total from investment operations 2.90 (0.80) (0.15) --
============================================================================================================================
Less distributions:
Dividends from net investment income (0.09) (0.00) (0.00) --
- ----------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains (0.12) -- -- --
============================================================================================================================
Total distributions (0.21) -- -- --
============================================================================================================================
Net asset value, end of period $11.74 $ 9.05 $ 9.85 $10.00
____________________________________________________________________________________________________________________________
============================================================================================================================
Total return(b) 32.15% (8.08)% (1.49)% --
____________________________________________________________________________________________________________________________
============================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $9,270 $6,321 $8,725 $1,110
____________________________________________________________________________________________________________________________
============================================================================================================================
Ratio of expenses to average net assets:
With fee waivers 2.00%(c) 2.00% 1.91% 1.80%(d)
- ----------------------------------------------------------------------------------------------------------------------------
Without fee waivers 3.12%(c) 2.75% 4.44% 76.90%(d)
============================================================================================================================
Ratio of net investment income (loss) to average net assets 0.14%(c) (1.16)% (0.52)% 3.91%(d)
____________________________________________________________________________________________________________________________
============================================================================================================================
Portfolio turnover rate(e) 372% 101% 168% --
____________________________________________________________________________________________________________________________
============================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include sales charges
and is not annualized for periods less than one year.
(c) Ratios are based on average daily net assets of $6,877,159.
(d) Annualized.
(e) Not annualized for periods less than one year.
F-12
NOTE 12--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS B
------------------------------------------------
JANUARY 2, 2001
YEAR ENDED (DATE SALES
DECEMBER 31, COMMENCED TO
------------------------ DECEMBER 31,
2003 2002 2001
- --------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $8.94 $9.79 $10.00
- --------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.05)(a) (0.17)(a) (0.11)(a)
- --------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 2.83 (0.68) (0.10)
==============================================================================================================
Total from investment operations 2.78 (0.85) (0.21)
==============================================================================================================
Less distributions:
Dividends from net investment income (0.03) -- (0.00)
- --------------------------------------------------------------------------------------------------------------
Distributions from net realized gains (0.12) -- --
==============================================================================================================
Total distributions (0.15) -- --
==============================================================================================================
Net asset value, end of period $11.57 $8.94 $ 9.79
______________________________________________________________________________________________________________
==============================================================================================================
Total return(b) 31.26% (8.68)% (2.09)%
______________________________________________________________________________________________________________
==============================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $7,075 $4,624 $3,613
______________________________________________________________________________________________________________
==============================================================================================================
Ratio of expenses to average net assets:
With fee waivers 2.65%(c) 2.65% 2.57%(d)
- --------------------------------------------------------------------------------------------------------------
Without fee waivers 3.77%(c) 3.40% 5.10%(d)
==============================================================================================================
Ratio of net investment income (loss) to average net assets (0.51)%(c) (1.81)% (1.18)%(d)
______________________________________________________________________________________________________________
==============================================================================================================
Portfolio turnover rate(e) 372% 101% 168%
______________________________________________________________________________________________________________
==============================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include sales charges
and is not annualized for periods less than one year.
(c) Ratios are based on average daily net assets of $5,242,214.
(d) Annualized.
(e) Not annualized for periods less than one year.
<Table>
<Caption>
CLASS C
------------------------------------------------
JANUARY 11, 2001
YEAR ENDED (DATE SALES
DECEMBER 31, COMMENCED TO
----------------------- DECEMBER 31,
2003 2002 2001
- --------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $8.94 $9.79 $10.00
- --------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.05)(a) (0.17)(a) (0.11)(a)
- --------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 2.84 (0.68) (0.10)
==============================================================================================================
Total from investment operations 2.79 (0.85) (0.21)
==============================================================================================================
Less distributions:
Dividends from net investment income (0.03) -- (0.00)
- --------------------------------------------------------------------------------------------------------------
Distributions from net realized gains (0.12) -- --
==============================================================================================================
Total distributions (0.15) -- --
==============================================================================================================
Net asset value, end of period $11.58 $8.94 $ 9.79
______________________________________________________________________________________________________________
==============================================================================================================
Total return(b) 31.37% (8.68)% (2.09)%
______________________________________________________________________________________________________________
==============================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $2,853 $1,850 $1,312
______________________________________________________________________________________________________________
==============================================================================================================
Ratio of expenses to average net assets:
With fee waivers 2.65%(c) 2.65% 2.57%(d)
- --------------------------------------------------------------------------------------------------------------
Without fee waivers 3.77%(c) 3.40% 5.10%(d)
==============================================================================================================
Ratio of net investment income (loss) to average net assets (0.51)%(c) (1.81)% (1.18)%(d)
______________________________________________________________________________________________________________
==============================================================================================================
Portfolio turnover rate(e) 372% 101% 168%
______________________________________________________________________________________________________________
==============================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include sales charges
and is not annualized for periods less than one year.
(c) Ratios are based on average daily net assets of $1,938,794.
(d) Annualized.
(e) Not annualized for periods less than one year.
F-13
NOTE 13--LEGAL PROCEEDINGS
Your Fund's investment advisor, A I M Advisors, Inc. ("AIM"), is an indirect
wholly owned subsidiary of AMVESCAP PLC ("AMVESCAP"). Another indirect wholly
owned subsidiary of AMVESCAP, INVESCO Funds Group, Inc. ("IFG"), was formerly
the investment advisor to the INVESCO Funds. IFG continues to serve as the
investment advisor to INVESCO Variable Investment Funds, Inc. ("IVIF"). On
November 25, 2003, AIM succeeded IFG as the investment advisor to the INVESCO
Funds other than IVIF.
The mutual fund industry as a whole is currently subject to a wide range of
inquiries and litigation related to issues of "market timing" and "late
trading." Both AIM and IFG are the subject of a number of such inquiries, as
described below.
A. Regulatory Inquiries and Actions
1. IFG
On December 2, 2003 each of the Securities and Exchange Commission ("SEC") and
the Office of the Attorney General of the State of New York ("NYAG") filed civil
proceedings against IFG and Raymond R. Cunningham, in his capacity as the Chief
Executive Officer of IFG. Mr. Cunningham currently holds the positions of Chief
Operating Officer and Senior Vice President of A I M Management Group Inc., the
parent of AIM, and the position of Senior Vice President of AIM. In addition, on
December 2, 2003, the State of Colorado filed civil proceedings against IFG.
Neither the Fund nor any of the other AIM or INVESCO Funds has been named as a
defendant in any of these proceedings.
The SEC complaint alleges that IFG failed to disclose in the INVESCO Funds'
prospectuses and to the INVESCO Funds' independent directors that IFG had
entered into certain arrangements permitting market timing of the INVESCO Funds.
The SEC is seeking injunctions, including permanent injunctions from serving as
an investment advisor, officer or director of an investment company; an
accounting of all market timing as well as certain fees and compensation
received; disgorgement; civil monetary penalties; and other relief.
The NYAG and Colorado complaints make substantially similar allegations. The
NYAG is seeking injunctions, including permanent injunctions from directly or
indirectly selling or distributing shares of mutual funds; disgorgement of all
profits obtained, including fees collected, and payment of all restitution and
damages caused, directly or indirectly from the alleged illegal activities;
civil monetary penalties; and other relief. The State of Colorado is seeking
injunctions; restitution, disgorgement and other equitable relief, civil
monetary penalties; and other relief.
In addition, IFG has received inquiries in the form of subpoenas or other oral
or written requests for information from various regulators concerning market
timing activity, late trading, fair value pricing and related issues concerning
the INVESCO Funds. These regulators include the Florida Department of Financial
Services, the Commissioner of Securities for the State of Georgia, the Office of
the State Auditor for the State of West Virginia, and the Office of the
Secretary of State for West Virginia. IFG has also received more limited
inquiries concerning related matters from the United States Department of Labor,
NASD, Inc., and the SEC. IFG is providing full cooperation with respect to these
inquiries.
2. AIM
AIM has also received inquiries in the form of subpoenas or other oral or
written requests for information from various regulators concerning market
timing activity, late trading, fair value pricing, and related issues concerning
the AIM Funds. AIM has received requests for information and documents
concerning these and related matters from the SEC and the Massachusetts
Secretary of the Commonwealth. In addition, AIM has received subpoenas
concerning these and related matters from the NYAG, the United States Attorney's
Office for the District of Massachusetts, the Commissioner of Securities for the
State of Georgia, the Office of the State Auditor for the State of West
Virginia, and the Office of the Secretary of State for West Virginia. AIM has
also received more limited inquiries from the SEC and NASD, Inc. concerning
specific funds, entities and/or individuals, none of which directly bears upon
the Fund. AIM is providing full cooperation with respect to these inquiries.
3. AMVESCAP Response
AMVESCAP is seeking to resolve both the pending regulatory complaints against
IFG alleging market timing and the ongoing market timing investigations with
respect to IFG and AIM. AMVESCAP recently found, in its ongoing review of these
matters, that shareholders were not always effectively protected from the
potential adverse impact of market timing and illegal late trading through
intermediaries. These findings were based, in part, on an extensive economic
analysis by outside experts who have been retained by AMVESCAP to examine the
impact of these activities. In light of these findings, AMVESCAP has publicly
stated that any AIM or INVESCO Fund, or any shareholders thereof, harmed by
these activities will receive full restitution. AMVESCAP has informed regulators
of these findings. In addition, AMVESCAP has retained outside counsel to
undertake a comprehensive review of AIM's and IFG's policies, procedures and
practices, with the objective that they rank among the most effective in the
fund industry.
There can be no assurance that AMVESCAP will be able to reach a satisfactory
settlement with the regulators, or that any such settlement will not include
terms which would have the effect of barring either or both of IFG and AIM, or
any other investment advisor directly or indirectly owned by AMVESCAP, from
serving as an investment advisor to any registered investment company including
the Fund. The Fund has been informed by AIM that, if either of these results
occurs, AIM will seek exemptive relief from the SEC to permit it to continue to
serve as the Fund's investment advisor. There can be no assurance that such
exemptive relief will be granted. Any settlement with the regulators could also
include terms which would bar Mr. Cunningham from serving as an officer or
director of any registered investment company.
B. Private Actions
In addition to the complaints described above, multiple lawsuits, including
purported class action and shareholder derivative suits, have been filed against
various parties (including, depending on the lawsuit, certain INVESCO Funds,
certain AIM Funds, IFG, AIM, A I M Management Group Inc., the parent of AIM,
AMVESCAP, certain related entities and certain of their officers, including Mr.
Cunningham). The allegations in the majority of the lawsuits are substantially
similar to the allegations in the regulatory complaints against IFG described
above. Certain other lawsuits allege that certain AIM and INVESCO Funds
inadequately employed fair value pricing. Such lawsuits allege a variety of
theories of recovery, including but not limited to: (i) violation of various
provisions of the Federal and state securities laws; (ii) violation of various
provisions of the Employee Retirement Income Security Act
F-14
NOTE 13--LEGAL PROCEEDINGS (CONTINUED)
("ERISA"); (iii) breach of fiduciary duty; and (iv) breach of contract. The
lawsuits have been filed in both Federal and state courts and seek such remedies
as compensatory damages; restitution; rescission; accounting for wrongfully
gotten gains, profits and compensation; injunctive relief; disgorgement;
equitable relief; various corrective measures under ERISA; rescission of certain
Funds' advisory agreements with AIM; declaration that the advisory agreement is
unenforceable or void; refund of advisory fees; interest; and attorneys' and
experts' fees.
IFG has removed certain of the state court proceedings to Federal District
Court. At a hearing before the Judicial Panel on Multidistrict Litigation
concerning the most efficient way to manage the numerous lawsuits alleging
market timing in mutual funds throughout the industry, IFG and AIM supported
transfer of all cases pending against them to one district for consolidated
proceedings. The Panel has not issued a ruling.
Additional lawsuits or regulatory actions arising out of these circumstances
and presenting similar allegations and requests for relief may be filed against
the Fund, IFG, AIM, AMVESCAP and related entities and individuals in the future.
As a result of these developments, investors in the AIM and INVESCO Funds
might react by redeeming their investments. This might require the Funds to sell
investments to provide for sufficient liquidity and could also have an adverse
effect on the investment performance of the Funds.
At the present time, management of AIM and the Fund is unable to estimate the
impact, if any, that the outcome of the matters described above may have on the
Fund or AIM.
F-15
REPORT OF INDEPENDENT AUDITORS
To the Board of Trustees and Shareholders
of AIM Global Value Fund
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the AIM Global Value Fund, formerly
known as AIM Worldwide Spectrum Fund, (one of the funds constituting AIM Funds
Group; hereafter referred to as the "Fund") at December 31, 2003, the results of
its operations for the year then ended, the changes in its net assets for each
of the two years in the period then ended and the financial highlights for each
of the periods indicated, in conformity with accounting principles generally
accepted in the United States of America. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with 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, 2003 by correspondence with the custodian and brokers, provide a
reasonable basis for our opinion.
PRICEWATERHOUSECOOPERS LLP
February 20, 2004
Houston, Texas
F-16
PROXY RESULTS (UNAUDITED)
A Special Meeting of Shareholders of AIM Global Value Fund, a portfolio of AIM
Funds Group, a Delaware statutory trust, was held on October 21, 2003. The
meeting was held for the following purpose:
(1)* To elect sixteen individuals to the Board, each of whom will serve until
his or her successor is elected and qualified: Bob R. Baker, Frank S.
Bayley, James T. Bunch, Bruce L. Crockett, Albert R. Dowden, Edward K.
Dunn, Jr., Jack M. Fields, Carl Frischling, Robert H. Graham, Gerald J.
Lewis, Prema Mathai-Davis, Lewis F. Pennock, Ruth H. Quigley, Louis S.
Sklar, Larry Soll, Ph D. and Mark H. Williamson.
The results of the voting on the above matter were as follows:
<Table>
<Caption>
WITHHOLDING
TRUSTEES/MATTER VOTES FOR AUTHORITY
- ---------------------------------------------------------------------------------
(1)* Bob R. Baker................................. 822,704,205 11,194,804
Frank S. Bayley.............................. 822,781,451 11,117,558
James T. Bunch............................... 822,886,061 11,012,948
Bruce L. Crockett............................ 822,942,379 10,956,630
Albert R. Dowden............................. 822,923,043 10,975,966
Edward K. Dunn, Jr. ......................... 822,752,667 11,146,342
Jack M. Fields............................... 823,013,560 10,885,449
Carl Frischling.............................. 822,602,646 11,296,363
Robert H. Graham............................. 822,881,635 11,017,374
Gerald J. Lewis.............................. 822,460,720 11,438,289
Prema Mathai-Davis........................... 822,715,053 11,183,956
Lewis F. Pennock............................. 822,839,481 11,059,528
Ruth H. Quigley.............................. 822,446,309 11,452,700
Louis S. Sklar............................... 822,882,710 11,016,299
Larry Soll, Ph.D. ........................... 822,748,856 11,150,153
Mark H. Williamson........................... 822,801,778 11,097,231
</Table>
* Proposal required approval by a combined vote of all the portfolios of AIM
Funds Group.
F-17
OTHER INFORMATION
TRUSTEES AND OFFICERS
As of January 1, 2004
The address of each trustee and officer of AIM Funds Group (the "Trust"), is 11
Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee oversees 104
portfolios in the AIM and INVESCO Funds complex, except for Messrs. Baker,
Bunch, Lewis and Soll who oversee 96 portfolios and Mr. Williamson who oversees
117 portfolios in the AIM and INVESCO Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
<Table>
<Caption>
NAME, YEAR OF BIRTH AND TRUSTEE AND/
POSITION(S) HELD WITH THE OR OFFICER PRINCIPAL OCCUPATION(S)
TRUST SINCE DURING PAST 5 YEARS
- ----------------------------------------------------------------------------------------------------------------
INTERESTED PERSONS
- ----------------------------------------------------------------------------------------------------------------
Robert H. Graham(1) -- 1946 1992 Director and Chairman, A I M Management Group Inc.
Trustee, Chairman and (financial services holding company); and Director and Vice
President Chairman, AMVESCAP PLC and Chairman of AMVESCAP PLC -- AIM
Division (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), AIM Investment Services, Inc.,
(registered transfer agent), and Fund Management Company
(registered broker dealer); and Chief Executive Officer,
AMVESCAP PLC -- Managed Products
- ----------------------------------------------------------------------------------------------------------------
Mark H. Williamson(2) -- 1951 2003 Director, President and Chief Executive Officer, A I M
Trustee and Executive Vice Management Group Inc. (financial services holding company);
President Director, Chairman and President, A I M Advisors, Inc.
(registered investment advisor); Director, A I M Capital
Management, Inc. (registered investment advisor) and A I M
Distributors, Inc. (registered broker dealer); Director and
Chairman, AIM Investment Services, Inc. (registered transfer
agent), and Fund Management Company (registered broker
dealer); and Chief Executive Officer, AMVESCAP PLC -- AIM
Division (parent of AIM and a global investment management
firm)
Formerly: Director, Chairman, President and Chief Executive
Officer, INVESCO Funds Group, Inc. and INVESCO Distributors,
Inc.; Chief Executive Officer, AMVESCAP PLC -- Managed
Products; Chairman and Chief Executive Officer of
NationsBanc Advisors, Inc.; and Chairman of NationsBanc
Investments, Inc.
- ----------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- ----------------------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 2003 Consultant
Trustee
Formerly: President and Chief Executive Officer, AMC Cancer
Research Center; and Chairman and Chief Executive Officer,
First Columbia Financial Corporation
- ----------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2001 Of Counsel, law firm of Baker & McKenzie
Trustee
- ----------------------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 2003 Co-President and Founder, Green, Manning & Bunch Ltd.,
Trustee (investment banking firm); and Director, Policy Studies,
Inc. and Van Gilder Insurance Corporation
Formerly: General Counsel and Director, Boettcher & Co.; and
Chairman and Managing Partner, law firm of Davis, Graham &
Stubbs
- ----------------------------------------------------------------------------------------------------------------
Bruce L. Crockett -- 1944 1987 Chairman, Crockett Technology Associates (technology
Trustee consulting company)
- ----------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2000 Director of a number of public and private business
Trustee corporations, including the Boss Group Ltd. (private
investment and management) and Magellan Insurance Company
Formerly: Director, President and Chief Executive Officer,
Volvo Group North America, Inc.; Senior Vice President, AB
Volvo; and director of various affiliated Volvo companies
- ----------------------------------------------------------------------------------------------------------------
Edward K. Dunn, Jr. -- 1935 1998 Formerly: Chairman, Mercantile Mortgage Corp.; President and
Trustee Chief Operating Officer, Mercantile-Safe Deposit & Trust
Co.; and President, Mercantile Bankshares Corp.
- ----------------------------------------------------------------------------------------------------------------
Jack M. Fields -- 1952 1997 Chief Executive Officer, Twenty First Century Group, Inc.
Trustee (government affairs company) and Texana Timber LP
- ----------------------------------------------------------------------------------------------------------------
<Caption>
NAME, YEAR OF BIRTH AND
POSITION(S) HELD WITH THE OTHER DIRECTORSHIP(S)
TRUST HELD BY TRUSTEE
- -------------------------------- ----------------------
INTERESTED PERSONS
- -------------------------------------------------------------------------------
Robert H. Graham(1) -- 1946 None
Trustee, Chairman and
President
- ------------------------------------------------------------------------------------------------------
Mark H. Williamson(2) -- 1951 None
Trustee and Executive Vice
President
- ----------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- ----------------------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 None
Trustee
- ----------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 Badgley Funds, Inc.
Trustee (registered investment
company)
- ----------------------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 None
Trustee
- ----------------------------------------------------------------------------------------------------------------
Bruce L. Crockett -- 1944 ACE Limited (insurance
Trustee company); and
Captaris, Inc.
(unified messaging
provider)
- ----------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 Cortland Trust, Inc.
Trustee (Chairman) (registered
investment company);
Annuity and Life Re
(Holdings), Ltd.
(insurance company)
- ----------------------------------------------------------------------------------------------------------------
Edward K. Dunn, Jr. -- 1935 None
Trustee
- ----------------------------------------------------------------------------------------------------------------
Jack M. Fields -- 1952 Administaff
Trustee
- ----------------------------------------------------------------------------------------------------------------
</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.
Trustees and Officers (continued)
As of January 1, 2004
The address of each trustee and officer of AIM Funds Group (the "Trust"), is 11
Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee oversees 104
portfolios in the AIM and INVESCO Funds complex, except for Messrs. Baker,
Bunch, Lewis and Soll who oversee 96 portfolios and Mr. Williamson who oversees
117 portfolios in the AIM and INVESCO Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
<Table>
<Caption>
NAME, YEAR OF BIRTH AND TRUSTEE AND/ PRINCIPAL OCCUPATION(S)
POSITION(S) HELD WITH THE TRUST OR OFFICER SINCE DURING PAST 5 YEARS
- -------------------------------------------------------------------------------------------------------------------
Carl Frischling -- 1937 1993 Partner, law firm of Kramer Levin Naftalis and Frankel LLP
Trustee
- -------------------------------------------------------------------------------------------------------------------
Gerald J. Lewis -- 1933 2003 Chairman, Lawsuit Resolution Services (San Diego,
Trustee California)
Formerly: Associate Justice of the California Court of
Appeals
- -------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA of the USA
Trustee
- -------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 1992 Partner, law firm of Pennock & Cooper
Trustee
- -------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2001 Retired
Trustee
- -------------------------------------------------------------------------------------------------------------------
Louis S. Sklar -- 1939 1993 Executive Vice President, Development and Operations Hines
Trustee Interests Limited Partnership (real estate development
company)
- -------------------------------------------------------------------------------------------------------------------
Larry Soll, Ph.D. -- 1942 2003 Retired
Trustee
- -------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- -------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 2003 Director, Senior Vice President, Secretary and General
Senior Vice President and Chief Counsel, A I M Management Group Inc. (financial services
Legal Officer holding company) and A I M Advisors, Inc.; Vice President,
A I M Capital Management, Inc., A I M Distributors, Inc. and
AIM Investment Services, Inc.; and Director, Vice President
and General Counsel, Fund Management Company
Formerly: Senior Vice President and General Counsel, Liberty
Financial Companies, Inc.; and Senior Vice President and
General Counsel, Liberty Funds Group, LLC
- -------------------------------------------------------------------------------------------------------------------
Robert G. Alley -- 1948 1992 Managing Director, Chief Fixed Income Officer and Senior
Vice President Investment Officer, A I M Capital Management, Inc.; and Vice
President, A I M Advisors, Inc.
- -------------------------------------------------------------------------------------------------------------------
Stuart W. Coco -- 1955 1992 Managing Director and Chief Research Officer -- Fixed
Vice President Income, 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 Advisors,
Vice President Inc. and A I M Capital Management, Inc.; and Vice President,
AIM Investment Services, Inc.
- -------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, A I M Advisors, Inc.;
Vice President and Treasurer Senior Vice President, AIM Investment Services, Inc.; and
Vice President, A I M Distributors, Inc.
- -------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 1992 Managing Director and Chief Management Officer, A I M
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 President, Chief
Vice President Executive Officer and Chief Investment Officer, A I M
Capital Management, Inc.
- -------------------------------------------------------------------------------------------------------------------
<Caption>
NAME, YEAR OF BIRTH AND OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST HELD BY TRUSTEE
- --------------------------------- ----------------------
Carl Frischling -- 1937 Cortland Trust, Inc.
Trustee (registered investment
company)
- -------------------------------------------------------------------------------------------------------------------
Gerald J. Lewis -- 1933 General Chemical
Trustee Group, Inc.,
Wheelabrator
Technologies, Inc.
(waste management
company), Fisher
Scientific, Inc.,
Henley Manufacturing,
Inc. (laboratory
supplies), and
California Coastal
Properties, Inc.
- -------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 None
Trustee
- -------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 None
Trustee
- -------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 None
Trustee
- -------------------------------------------------------------------------------------------------------------------
Louis S. Sklar -- 1939 None
Trustee
- -------------------------------------------------------------------------------------------------------------------
Larry Soll, Ph.D. -- 1942 None
Trustee
- -------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- -------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 N/A
Senior Vice President and Chief
Legal Officer
- -------------------------------------------------------------------------------------------------------------------
Robert G. Alley -- 1948 N/A
Vice President
- -------------------------------------------------------------------------------------------------------------------
Stuart W. Coco -- 1955 N/A
Vice President
- -------------------------------------------------------------------------------------------------------------------
Melville B. Cox -- 1943 N/A
Vice President
- -------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 N/A
Vice President and Treasurer
- -------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 N/A
Vice President
- -------------------------------------------------------------------------------------------------------------------
Edgar M. Larsen -- 1940 N/A
Vice President
- -------------------------------------------------------------------------------------------------------------------
</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 LLP
Suite 100 11 Greenway Plaza 11 Greenway Plaza 1201 Louisiana, Suite 2900
Houston, TX 77046-1173 Suite 100 Suite 100 Houston, TX 77002-5678
Houston, TX 77046-1173 Houston, TX 77046-1173
COUNSEL TO THE FUND COUNSEL TO THE TRUSTEES TRANSFER AGENT CUSTODIAN
Ballard Spahr Kramer, Levin, Naftalis & AIM Investment 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 19103-7599 New York, NY 10022-3852 Boston, MA 02110
</Table>
REQUIRED FEDERAL INCOME TAX INFORMATION (UNAUDITED)
Of ordinary dividends paid to shareholders during the Fund's tax year ended
December 31, 2003, 13.36% is eligible for the dividends received deduction for
corporations. The Fund distributed long-term capital gains of $204,895 for the
Fund's tax year ended December 31, 2003. Of long-term capital gains distributed,
100% is 20% rate gain.
For its tax year ended December 31, 2003, the Fund designated 100%, or the
maximum amount allowable, of its dividend distributions as qualified dividend
income. The actual percentages for the calendar year will be designated in the
Fund's year end tax statement.
<Table>
DOMESTIC EQUITY INTERNATIONAL/GLOBAL EQUITY FIXED INCOME
AIM Aggressive Growth Fund AIM Asia Pacific Growth Fund TAXABLE
AIM Balanced Fund* AIM Developing Markets Fund
AIM Basic Balanced Fund* AIM European Growth Fund AIM Floating Rate Fund
AIM Basic Value Fund AIM European Small Company Fund AIM High Yield Fund
AIM Blue Chip Fund AIM Global Aggressive Growth Fund AIM Income Fund
AIM Capital Development Fund AIM Global Growth Fund AIM Intermediate Government Fund
AIM Charter Fund AIM Global Trends Fund AIM Limited Maturity Treasury Fund
AIM Constellation Fund AIM Global Value Fund5 AIM Money Market Fund
AIM Dent Demographic Trends Fund AIM International Emerging Growth Fund AIM Short Term Bond Fund
AIM Diversified Dividend Fund(1) AIM International Growth Fund AIM Total Return Bond Fund
AIM Emerging Growth Fund AIM Trimark Fund INVESCO U.S. Government Money Fund
AIM Large Cap Basic Value Fund INVESCO International Core Equity Fund(6)
AIM Large Cap Growth Fund TAX-FREE
AIM Libra Fund SECTOR EQUITY
AIM Mid Cap Basic Value Fund AIM High Income Municipal Fund
AIM Mid Cap Core Equity Fund(2) AIM Global Health Care Fund AIM Municipal Bond Fund
AIM Mid Cap Growth Fund AIM Real Estate Fund AIM Tax-Exempt Cash Fund
AIM Opportunities I Fund INVESCO Advantage Health Sciences Fund AIM Tax-Free Intermediate Fund
AIM Opportunities II Fund INVESCO Energy Fund
AIM Opportunities III Fund INVESCO Financial Services Fund
AIM Premier Equity Fund INVESCO Gold & Precious Metals Fund
AIM Select Equity Fund INVESCO Health Sciences Fund
AIM Small Cap Equity Fund(3) INVESCO Leisure Fund
AIM Small Cap Growth Fund(4) INVESCO Multi-Sector Fund
AIM Trimark Endeavor Fund INVESCO Technology Fund
AM Trimark Small Companies Fund INVESCO Utilities Fund
AIM Weingarten Fund
INVESCO Core Equity Fund
INVESCO Dynamics Fund
INVESCO Mid-Cap Growth Fund
INVESCO Small Company Growth Fund
INVESCO S&P 500 Index Fund
INVESCO Total Return Fund*
</Table>
* Domestic equity and income fund
(1) Effective May 2, 2003, AIM Large Cap Core Equity Fund was renamed AIM
Diversified Dividend Fund. 2As of the close of business on February 27, 2004,
AIM Mid Cap Core Equity Fund is available to new investors on a limited basis.
For information on who may continue to invest in AIM Mid Cap Core Equity Fund,
please contact your financial advisor. 3AIM Small Cap Equity Fund was closed to
most investors on December 19, 2003. For information on who may continue to
invest in AIM Small Cap Equity Fund, please contact your financial advisor. 4AIM
Small Cap Growth Fund was closed to most investors on March 18, 2002. For
information on who may continue to invest in AIM Small Cap Growth Fund, please
contact your financial advisor. 5Effective April 30, 2003, AIM Worldwide
Spectrum Fund was renamed AIM Global Value Fund. 6Effective November 24, 2003,
INVESCO International Blue Chip Value Fund was renamed INVESCO International
Core Equity Fund.
For more complete information about any AIM or INVESCO fund, including sales
charges and expenses, ask your financial advisor for a prospectus. Please read
the prospectus carefully and consider the investment objectives, risks, and
charges and expenses of the investment carefully before investing. If used after
April, 2004, this brochure must be accompanied by a fund Performance &
Commentary or by an AIM Quarterly Performance Review for the most recent
quarter-end. Mutual funds distributed by A I M Distributors, Inc.
A I M Management Group Inc. has provided leadership in the investment management
industry since 1976 and manages $149 billion in assets for approximately 11
million shareholders, including individual investors, corporate clients and
financial institutions. AIM is a subsidiary of AMVESCAP PLC, one of the world's
largest independent financial services companies with $371 billion in assets
under management. Data as of December 31, 2003.
AIMinvestments.com GLV-AR-1
<Table>
YOUR GOALS. OUR SOLUTIONS.--Servicemark-
- ----------------------------------------------------------------------------------------
Mutual Retirement Annuities College Separately Offshore Alternative Cash [AIM INVESTMENTS LOGO APPEARS HERE]
Funds Products Savings Managed Products Investments Management
Plans Accounts
</Table>
AIM International Emerging Growth Fund
Annual Report to Shareholders o December 31, 2003
(COVER IMAGE)
YOUR GOALS. OUR SOLUTIONS. [AIM INVESTMENTS LOGO APPEARS HERE]
--Servicemark-- --Servicemark--
================================================================================
AIM INTERNATIONAL EMERGING GROWTH FUND SEEKS LONG-TERM GROWTH OF CAPITAL.
================================================================================
o Unless otherwise stated, information presented is as of 12/31/03
and is based on total net assets.
ABOUT SHARE CLASSES
<Table>
o Effective 9/30/03, Class B shares are o The fund may participate in the initial o The unmanaged MSCI Japan Index is a
not available as an investment for public offering (IPO) market in some market-value-weighted average of the
retirement plans maintained pursuant to market cycles. Because of the fund's performance of more than 300 securities
Section 401 of the Internal Revenue Code, small asset base, any investments the on the Japanese stock exchanges tracked
including 401(k) plans, money purchase fund may make in IPOs may significantly by Morgan Stanley Capital International.
pension plans and profit sharing plans. affect the fund's total return. As the
Plans that have existing accounts fund's assets grow, the impact of IPO o A direct investment cannot be made in
invested in Class B shares will continue investments will decline, which may an index. Unless otherwise indicated,
to be allowed to make additional reduce the effect of IPO investments on index results include reinvested
purchases. the fund's total return. dividends, and they do not reflect sales
charges. Performance of an index of funds
PRINCIPAL RISKS OF INVESTING IN THE FUND ABOUT INDEXES USED IN THIS REPORT reflects fund expenses; performance of a
market index does not.
o International investing presents o The unmanaged MSCI Europe, Australasia
certain risks not associated with and the Far East Index (the Industry classifications used in this
investing solely in the United States. EAFE--Registered Trademark--) is a group report are generally according to the
These include risks relating to of foreign securities tracked by Morgan Global Industry Classification Standard,
fluctuations in the value of the U.S. Stanley Capital International. which was developed by and is the
dollar relative to the values of other exclusive property and a service mark of
currencies, the custody arrangements made o The unmanaged Lipper International Morgan Stanley Capital International Inc.
for the fund's foreign holdings, Small Cap Fund Index represents an and Standard & Poor's.
differences in accounting, political average of the performance of 10
risks and the lesser degree of public international small-cap mutual funds A description of the policies and
information required to be provided by tracked by Lipper, Inc., an independent procedures that the Fund uses to
non-U.S. companies. mutual fund performance monitor. determine how to vote proxies relating to
portfolio securities is available without
o The fund is nondiversified, which o The unmanaged MSCI All Country (AC) charge, upon request, by calling
increases risks as well as potential World Free ex-USA Index represents the 800-959-4246, or on the AIM Web site,
rewards. performance of securities in AIMinvestments.com.
approximately 50 developed and emerging
o Investing in small and mid-size countries, excluding the United States,
companies involves risks not associated covered by Morgan Stanley Capital
with investing in more established International. A "free" index represents
companies. Also, small companies may have investable opportunities for global
business risk, significant stock price investors, taking into account the local
fluctuations and illiquidity. market restrictions on share ownership by
foreign investors.
</Table>
<Table>
===================================================
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE THIS REPORT MAY BE DISTRIBUTED ONLY TO SHAREHOLDERS OR TO PERSONS
=================================================== WHO HAVE RECEIVED A CURRENT PROSPECTUS OF THE FUND. PLEASE READ
THE PROSPECTUS CAREFULLY AND CONSIDER THE INVESTMENT OBJECTIVES,
RISKS, AND CHARGES AND EXPENSES OF THE INVESTMENT CAREFULLY
BEFORE INVESTING.
</Table>
AIMinvestments.com
TO OUR SHAREHOLDERS
DEAR FELLOW SHAREHOLDER IN THE AIM FAMILY OF
FUNDS--Registered Trademark--:
[PHOTO OF The fiscal year ended December 31, 2003, was a welcome
ROBERT H. change from the bear market of the previous three years.
GRAHAM Major stock market indexes here and abroad delivered
positive performance, with double-digit returns more the
ROBERT H. GRAHAM rule than the exception. As is historically the case, bond
market returns were more modest, but nonetheless positive as
well. The U.S. economy appears to have turned a corner, with
solid growth in gross domestic product. Overseas,
particularly in Europe, economic performance was not so
robust but appeared to pick up during the second half of the
year.
U.S. investors seem to have regained their confidence,
putting $152.77 billion in new money into stock mutual funds
during 2003 and $31.40 billion into bond funds. By contrast,
money market funds, considered a safe haven because of their emphasis on
stability of net asset value, suffered large net outflows during 2003.
The durability of these trends is, of course, unpredictable, but the economy
does appear to have the wind at its back in terms of fiscal, monetary and tax
stimulus, and corporate earnings have been strong. Nevertheless, we caution all
our shareholders against thinking that 2004 will be a repeat of 2003. We simply
do not know.
What should investors do? They should do what we have always urged: Keep
their eyes on their long-term goals, keep their portfolios diversified, and work
with their financial advisors to tailor their investments to their risk
tolerance and investment objectives. We cannot overemphasize the importance of
professional guidance when it comes to selecting investments.
For information on your fund's performance and management during the fiscal
year, please see the management discussion that begins on the following page.
VISIT OUR WEB SITE
As you are aware, the mutual fund industry, including AIM Investments, has been
the subject of allegations and investigations of late surrounding the issues of
market timing and late trading in funds. We understand how unsettling this may
be for many of our shareholders. We encourage you to visit AIMinvestments.com
often to monitor developments. We will continue to post updates on these issues
as information becomes available.
The Securities and Exchange Commission, which regulates our industry, has
already proposed new rules and regulations, and is planning to propose several
more, that address the issues of market timing and late trading, among others.
We welcome these efforts, as does the industry trade group, the Investment
Company Institute. We believe comprehensive rule making is necessary and is the
best way to establish new industry responsibilities designed to protect
shareholders. We support practical rule changes and structural modifications
that are fair, enforceable and, most importantly, beneficial for investors.
Should you visit our Web site, we invite you to explore the other material
available there, including general investing information, performance updates on
our funds, and market and economic commentary from our financial experts.
As always, AIM is committed to building solutions for your investment goals,
and we thank you for your continued participation in AIM Investments. If you
have any questions, you can contact one of our Client Service representatives at
800-959-4246.
Sincerely,
/s/ ROBERT H. GRAHAM
Robert H. Graham
Chairman and President
February 9, 2004
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
<Table>
FUND DELIVERS DOUBLE-DIGIT RETURNS Business Survey data suggested that
AMID INTERNATIONAL SMALL-CAP RALLY confidence in the manufacturing sector
continued to strengthen from September
For the fiscal year ended December 31, this backdrop, Japanese markets rose through November.
2003, AIM International Emerging Growth sharply through the summer but sold off
Fund Class A shares at net asset value late in October. Still, the MSCI Japan On the currency front, foreign
returned 75.10% (If sales charges were Index returned 35.91% for the fiscal currencies generally proved stronger than
included, performance would be lower.) year. Many emerging Asian markets also the U.S. dollar. During the reporting
compared to 38.59% for the MSCI EAFE produced positive returns for the period, the Australian dollar, Canadian
Index, the fund's broad market index. For reporting period after struggling earlier dollar, euro, Swiss franc and Japanese
the same period, the fund's in the year with the SARS (severe acute yen all appreciated significantly against
style-specific index, the MSCI All respiratory syndrome) epidemic. the U.S. dollar.
Country (AC) World Free ex-USA Growth
Index, returned 34.91% and the fund's European stock markets generally YOUR FUND
peer-group index, the Lipper rallied during the fiscal year. However,
International Small Cap Fund Index, in its October policy meeting, the Bank Currency appreciation, the strong
returned 55.10%. The fund outperformed of England reported that there continued performance of international small-cap
its indexes because of the fund's to be a contrast between weak euro area stocks, and stock selection were the
small-cap focus. International small-cap economic data and more promising business primary drivers of absolute and relative
stocks significantly outperformed their survey indicators. Indeed, the annualized fund performance during the fiscal year.
large-cap peers during the fiscal year. euro zone gross domestic product (GDP) As noted, foreign currencies generally
declined by 0.1% in the second quarter. outperformed the U.S. dollar during the
MARKET CONDITIONS German retail sales (excluding fiscal year.
car-related sales) and French consumer
Amid an improving global economic spending on manufactured goods both This trend had a positive impact on
environment, most international markets declined in August. fund performance as we do not hedge
posted positive returns for the fiscal currencies. We buy securities in local
year. Market and economic conditions, Economic activity picked up in the currency and then translate that value
however, varied by region. second half of the year, with the euro back into U.S. dollars for the fund.
zone annualized GDP rising 0.4% for the Currency appreciation contributed
In Asia, Japan's economy finally third quarter. And late-year business approximately 16% to fund returns during
appeared to be showing signs of a surveys also offered promise. In a the fiscal year. The Canadian dollar
cyclical upswing. While deflationary separate report, the European Central provided the largest gain at 6%.
pressures persisted, exports have shown Bank reported that European Commission
healthy gains for nearly a year. Amid During the fiscal year, the MSCI EAFE
Small-Cap Index significantly
outperformed its large-cap counterpart,
the MSCI EAFE
</Table>
<Table>
===================================================================================================================================
TOTAL RETURNS TOP 10 Equity Holdings* TOP 10 INDUSTRIES*
12/31/02-12/31/03
1. Anglo Irish Bank Corp. PLC (Ireland) 2.0% 1. Diversified Banks 6.4%
BAR CHART
2. Puma A.G. Rudolf Dassler Sport (Germany) 1.6 2. Pharmaceuticals 4.4
AIM International Emerging
Growth Fund Class A Shares 3. Gedeon Richter Rt. (Hungary) 1.4 3. Publishing & Printing 2.8
at NAV 75.10%
MSCI EAFE Index 38.59% 4. Topdanmark A.S. (Denmark) 1.3 4. Semiconductors 2.7
5. Tundra Semiconductor Corp. (Canada) 1.3 5. Oil & Gas Equipment & Services 2.5
6. SBS Broadcasting S.A. (Luxembourg) 1.2 6. Industrial Machinery 2.2
7. Depfa Bank PLC (Ireland) 1.2 7. Apparel Retail 2.1
8. Merloni Elettrodomestici S.p.A. (Italy) 1.2 8. Wireless Telecommunication
Services 2.0
9. Enterprise Inns PLC (United Kingdom) 1.2 9. Consumer Finance 2.0
10. Reitmans Ltd.-Class A (Canada) 1.1 10. Packaged Foods 2.0
Source: Lipper, Inc.
*Excludes money market fund holdings.
Performance comparisons for other share classes can be found in the Fund vs. Index table on the opposite page.
The fund's holdings are subject to change, and there is no assurance that the fund will continue to hold any particular security.
===================================================================================================================================
</Table>
2
<Table>
Index. This strong international processor, and Sectra AB, a U.K. digital SHUXIN CAO
small-cap environment certainly played a X-ray equipment manufacturer, both proved Mr. Cao, Chartered Financial
role in the fund's absolute returns. We to be a drag on performance amid [PHOTO OF Analyst, is manager of AIM
believe that the fund's earnings momentum disappointing earnings. We sold both Shuxin Cao International Emerging Growth
approach works well in this environment, stocks during the fiscal year. Fund. He joined AIM in 1997.
as we found so many companies with Mr. Cao graduated from
earnings upgrades, we could afford to On a sector basis, all sectors Tianjin Foreign Language
select the highest-conviction stocks for contributed positively to fund returns. Institute with a B.A. in
the fund. Information technology and financial English. He also received an M.B.A. from
stocks contributed the most to fund Texas A&M University and is a Certified
Stock selection continued to be an performance. We believe financial stocks Public Accountant.
important driver of fund performance. Our were undervalued and provided strong
portfolio composition reflects our growth during 2003 due to low interest BORGE ENDRESEN
bottom-up approach, rather than rates and economic growth. We believe Mr. Endresen, Chartered
macroeconomic or geographical trends. information technology stocks did well [PHOTO OF Financial Analyst, is manager
That said, our exposure to German and due to increased capital expenditure BORGE of AIM International Emerging
Canadian stocks contributed to fund spending. Sectors that contributed the ENDRESEN Growth Fund. Mr. Endresen
performance as both countries, we least to performance, but were still joined AIM in 1999 and
believe, tend to outperform at the start decidedly positive for the fiscal year, graduated summa cum laude
of new economic cycles. included energy and utilities. from the University of Oregon
with a B.S. in finance. He also earned an
Core fund holding, Puma Rudolf Dassler IN CLOSING M.B.A. from The University of Texas at
Sport, a German sporting goods Austin.
manufacturer, advanced amid a 43.2% After a few challenging years for
increase in sales for the first nine international markets, we are pleased to JASON T. HOLZER
months of 2003 compared with the same provide shareholders excellent absolute Mr. Holzer, Chartered
period a year ago. And Canadian holding, and relative fund returns for the fiscal [PHOTO OF Financial Analyst, is lead
Home Capital Group Inc., reported in year. And we remain committed to our JASON T. manager of AIM European
October that the company had now investment goal of focusing on companies HOLZER Growth Fund. Mr. Holzer
completed quarter-over-quarter increases that have experienced above-average, joined AIM in 1996. He
in earnings for 33 consecutive quarters. long-term earnings growth with strong received a B.A. in
prospects for future growth. quantitative economics and
Considering the strong returns of an M.S. in engineering-economic systems
international small-cap markets during See important fund and index from Stanford University.
the reporting period, the fund had few disclosures inside front cover.
detractors to report. However, Cranswick, BARRETT K. SIDES
a U.K. agricultural Mr. Sides is lead manager of
[PHOTO OF AIM International Emerging
BARRETT K. Growth Fund. He joined AIM in
SIDES 1990. Mr. Sides graduated
with a B.S. in economics from
Bucknell University. He also
received a master's in
international business from the University
of St. Thomas.
Assisted by Asia Pacific Team and
Europe/Canada Team
TOP 10 COUNTRIES * FUND VS. INDEXES TOTAL NUMBER OF HOLDINGS* 154
TOTAL NET ASSETS $113 million
1. Canada 22.3% Total returns, 12/31/02-12/31/03,
excluding sales charges. *Excludes money market fund holdings.
2. United Kingdom 11.0
If sales charges were included, The fund's holdings are subject to
3. Ireland 5.5 performance would be lower. change, and there is no assurance that
the fund will continue to hold any
4. Germany 5.2 Class A Shares 75.10% particular security.
Class B Shares 73.83
5. Japan 5.1 Class C Shares 73.68 Source: Lipper, Inc.
6. Taiwan 4.5 MSCI EAFE Index ARROW
(Broad Market Index) 38.59 BUTTON For More Information Visit
7. India 3.2 IMAGE AIMinvestments.com
MSCI All Country (AC) 34.91
8. Hong Kong 3.1 World Free ex-USA Growth Index
(Style-specific Index)
9. South Korea 2.7
Lipper International Small Cap 55.10
10. Netherlands 2.6 Fund Index (Peer Group Index)
</Table>
3
FUND PERFORMANCE
RESULTS OF A $10,000 INVESTMENT
8/31/00-12/31/03
<Table>
<Caption>
DATE AIM INTER- AIM INTER- AIM INTER- MSCI EAFE MSCI ALL LIPPER INTER-
NATIONAL EMERGING NATIONAL EMERGING NATIONAL EMERGING INDEX COUNTRY(AC) NATIONAL SMALL
GROWTH FUND GROWTH FUND GROWTH FUND WORLD FREE EX-USA CAP FUND INDEX
CLASS A SHARES CLASS B SHARES CLASS C SHARES GROWTH INDEX
8/31/00 9450 10000 10000 10000 10000 10000
09/30/2000 8930 9450 9450 9513 9244 9544
10/31/2000 8250 8720 8730 9288 8720 8890
11/30/2000 7172 7581 7590 8940 8226 8350
12/31/2000 7532 7951 7950 9258 8345 8554
01/31/2001 8146 8591 8600 9253 8487 8678
02/28/2001 7126 7511 7520 8559 7529 8364
03/31/2001 6237 6570 6580 7989 6956 7625
04/30/2001 6577 6931 6930 8544 7436 8044
05/31/2001 6719 7080 7079 8242 7177 8075
06/30/2001 6577 6930 6919 7905 6838 7842
07/31/2001 6502 6850 6839 7761 6657 7541
08/31/2001 6388 6720 6709 7565 6345 7468
09/30/2001 5557 5841 5839 6799 5696 6559
10/31/2001 6076 6381 6379 6973 5940 6842
11/30/2001 6502 6821 6819 7230 6294 7051
12/31/2001 6742 7071 7070 7273 6390 7025
01/31/2002 6752 7071 7070 6886 6096 6874
02/28/2002 6837 7171 7159 6935 6175 6985
[MOUNTAIN CHART] 03/31/2002 7245 7591 7580 7343 6461 7319
04/30/2002 7379 7731 7720 7358 6476 7502
05/31/2002 7616 7971 7970 7451 6485 7748
06/30/2002 7626 7981 7970 7155 6276 7511
07/31/2002 6932 7251 7240 6448 5619 6889
08/31/2002 6876 7191 7180 6434 5594 6832
09/30/2002 6296 6571 6570 5743 5103 6278
10/31/2002 6410 6691 6690 6051 5395 6313
11/30/2002 6552 6831 6830 6326 5581 6489
12/31/2002 6562 6841 6840 6113 5448 6467
01/31/2003 6638 6911 6910 5858 5213 6368
02/28/2003 6629 6901 6900 5724 5116 6237
03/31/2003 6705 6981 6970 5611 5058 6186
04/30/2003 7227 7511 7510 6161 5487 6780
05/31/2003 7883 8201 8189 6535 5793 7379
06/30/2003 8158 8481 8479 6693 5919 7657
07/31/2003 8481 8801 8799 6855 6020 7900
08/31/2003 8890 9231 9219 7020 6175 8314
09/30/2003 9460 9811 9799 7236 6360 8740
10/31/2003 10438 10821 10809 7687 6736 9363
11/30/2003 10770 11152 11149 7858 6888 9454
12/31/03 11492 11590 11880 8472 7351 10031
Source: Lipper, Inc.
</Table>
Past performance cannot guarantee comparable future results.
Your fund's total return includes sales charges, expenses and management fees.
Results for B shares are calculated as if a hypothetical shareholder had
liquidated his entire investment in the fund at the close of the reporting
period and paid the applicable contingent deferred sales charges.
The performance of the fund's share classes will differ due to different
sales charge structures and class expenses. Performance shown in the chart and
table does not reflect deduction of taxes a shareholder would pay on fund
distributions or sale of fund shares. Performance of the indexes does not
reflect the effects of taxes.
<Table>
Average annual total returns and the investment return and principal
As of 12/31/03, including sales charges value of an investment will fluctuate so
Class A Shares that an investor's shares, when redeemed,
Inception (8/31/00) 4.26% may be worth more or less than their
1 Year 65.52 original cost.
Class B Shares Class A share performance reflects the
Inception (8/31/00) 4.52% maximum 5.50% sales charge, and Class B
1 Year 68.83 and Class C share performance reflects
the applicable contingent deferred sales
Class C Shares charge (CDSC) for the period involved.
Inception (8/31/00) 5.30% The CDSC on Class B shares declines from
1 Year 72.68 5% beginning at the time of purchase to
0% at the beginning of the seventh year.
Current performance may be lower or The CDSC on Class C shares is 1% for the
higher than the performance data quoted. first year after purchase. The
Past performance cannot guarantee performance of the fund's share classes
comparable future results. Due to will differ due to different sales charge
significant market volatility, results of structures and class expenses.
an investment made today may differ
substantially from the historical A redemption fee of 2% will be imposed
performance shown. Please visit on certain redemptions or exchanges out
AIMinvestments.com for the most current of the fund within 30 days of purchase.
month-end performance. Exceptions to the redemption fee are
listed in the fund's prospectus.
The fund's performance figures are
historical, and they reflect fund Had the advisor not waived fees and/or
expenses, the reinvestment of reimbursed expenses, returns would have
distributions, and changes in net asset been lower.
value. Performance data quoted represent
past performance,
</Table>
4
FINANCIALS
SCHEDULE OF INVESTMENTS
December 31, 2003
<Table>
<Caption>
MARKET
SHARES VALUE
- -----------------------------------------------------------------------
STOCKS & OTHER EQUITY INTERESTS-90.78%
AUSTRALIA-2.06%
Computershare Ltd. (Data Processing &
Outsourced Services)(a) 274,600 $ 683,376
- -----------------------------------------------------------------------
CSL Ltd. (Biotechnology)(a) 40,000 536,821
- -----------------------------------------------------------------------
Foodland Associated Ltd. (Food Retail) 14,349 209,940
- -----------------------------------------------------------------------
Ramsay Health Care Ltd. (Health Care
Facilities) 146,600 525,755
- -----------------------------------------------------------------------
Toll Holdings Ltd. (Trucking) 59,400 368,444
=======================================================================
2,324,336
=======================================================================
BELGIUM-0.89%
Mobistar S.A. (Wireless Telecommunication
Services)(a) 17,900 1,001,980
=======================================================================
BRAZIL-0.65%
Companhia Siderurgica Nacional S.A.-ADR
(Steel) 8,800 471,680
- -----------------------------------------------------------------------
Embraer-Empresa Brasileira de Aeronautica
S.A.-ADR (Aerospace & Defense)(a) 7,600 266,228
=======================================================================
737,908
=======================================================================
CANADA-22.31%
AKITA Drilling Ltd.-Class A (Oil & Gas
Drilling) 29,200 544,346
- -----------------------------------------------------------------------
Algoma Steel Inc. (Steel)(a) 70,000 380,787
- -----------------------------------------------------------------------
Allstream Inc.-Class B (Integrated
Telecommunication Services) 14,100 777,350
- -----------------------------------------------------------------------
Badger Daylighting Inc. (Construction &
Engineering)(a) 358,100 817,883
- -----------------------------------------------------------------------
BMTC Group, Inc.-Class A (Specialty Stores) 36,124 365,142
- -----------------------------------------------------------------------
Calian Technology Ltd. (Data Processing &
Outsourced Services) 130,900 1,222,137
- -----------------------------------------------------------------------
Canadian Western Bank (Regional Banks) 17,700 537,146
- -----------------------------------------------------------------------
CanWest Global Communications Corp.
(Broadcasting & Cable TV)(a) 56,700 605,938
- -----------------------------------------------------------------------
Crew Energy Inc. (Oil & Gas Exploration &
Production)(a) 160,000 467,901
- -----------------------------------------------------------------------
CryptoLogic Inc. (Internet Software &
Services) 79,700 951,972
- -----------------------------------------------------------------------
DataMirror Corp. (Application Software)(a) 37,000 465,069
- -----------------------------------------------------------------------
DRAXIS Health Inc. (Pharmaceuticals)(a) 175,000 591,435
- -----------------------------------------------------------------------
Enghouse Systems Ltd. (Application
Software)(a) 16,500 206,250
- -----------------------------------------------------------------------
Extendicare, Inc.-Class A (Health Care-Long
Term Care)(a) 120,200 1,228,897
- -----------------------------------------------------------------------
Global Railway Industries Ltd. (Construction,
Farm Machinery & Heavy Trucks)(a) 120,000 365,741
- -----------------------------------------------------------------------
Hip Interactive Corp. (Distributors)(a) 154,400 411,018
- -----------------------------------------------------------------------
Home Capital Group Inc.-Class B (Asset
Management & Custody Banks) 42,300 1,085,243
- -----------------------------------------------------------------------
</Table>
<Table>
- -----------------------------------------------------------------------
<Caption>
MARKET
SHARES VALUE
CANADA-(CONTINUED)
Intertape Polymer Group, Inc. (Metal & Glass
Containers) (Acquired 09/05/03-10/27/03;
Cost $328,302)(b) 42,700 $ 543,305
- -----------------------------------------------------------------------
Mediagrif Interactive Technologies Inc.
(Internet Software & Services)(a) 58,200 479,611
- -----------------------------------------------------------------------
Mega Bloks (Leisure Products)(a) 27,800 493,364
- -----------------------------------------------------------------------
Microcell Telecommunications Inc.-Class B
(Wireless Telecommunication Services)(a) 38,200 509,628
- -----------------------------------------------------------------------
Pason Systems Inc. (Oil & Gas Equipment &
Services) 56,000 1,088,889
- -----------------------------------------------------------------------
Reitmans Ltd.-Class A (Apparel Retail) 66,600 1,278,042
- -----------------------------------------------------------------------
Richelieu Hardware Ltd. (Trading Companies &
Distributors) 38,300 562,383
- -----------------------------------------------------------------------
RONA Inc. (Home Improvement Retail) (Acquired
10/28/02-10/27/03; Cost 401,188)(a)(b) 35,300 849,542
- -----------------------------------------------------------------------
Saputo Group, Inc. (Packaged Foods& Meats) 31,400 777,731
- -----------------------------------------------------------------------
Systems Xcellence Inc. (Health Care
Services)(a) 227,700 456,806
- -----------------------------------------------------------------------
Telesystem International Wireles Inc.
(Wireless Telecommunication Services)(a) 93,000 778,588
- -----------------------------------------------------------------------
Total Energy Services Ltd. (Oil & Gas
Equipment & Services)(a) 254,600 913,495
- -----------------------------------------------------------------------
Trican Well Service Ltd. (Oil & Gas Equipment
& Services)(a) 36,100 771,582
- -----------------------------------------------------------------------
TSX Group Inc. (Specialized Finance) 30,600 1,012,917
- -----------------------------------------------------------------------
Tundra Semiconductor Corp., Ltd.
(Electronics-Semiconductors) 71,800 1,493,063
- -----------------------------------------------------------------------
VFC Inc. (Consumer Finance) (Acquired
09/26/03-12/19/03; Cost $988,814)(a)(b) 158,900 1,205,237
- -----------------------------------------------------------------------
Wajax Ltd. (Industrial Machinery)(a) 158,600 979,012
=======================================================================
25,217,450
=======================================================================
CAYMAN ISLANDS-1.27%
ASM Pacific Technology Ltd. (Semiconductor
Equipment) 69,000 302,179
- -----------------------------------------------------------------------
Global Bio-chem Technology Group Co. Ltd.
(Biotechnology) 1,116,000 689,989
- -----------------------------------------------------------------------
Xinao Gas Holdings Ltd. (Gas Utilities)(a) 794,000 442,327
=======================================================================
1,434,495
=======================================================================
CHILE-0.43%
Corpbanca (Regional Banks) (Acquired
11/19/03; Cost 404,412)(a)(b) 18,500 483,925
=======================================================================
CHINA-2.61%
China Life Insurance Co. (Life & Health
Insurance)(a) 10,700 352,779
- -----------------------------------------------------------------------
Great Wall Automobile Holdings Co. Ltd.-Class
H (Automobile Manufacturers)(a) 315,500 672,565
- -----------------------------------------------------------------------
</Table>
F-1
<Table>
<Caption>
MARKET
SHARES VALUE
- -----------------------------------------------------------------------
CHINA-(CONTINUED)
Lianhua Supermarket Holdings Ltd.-Class H
(Food Retail)(a) 242,000 $ 255,603
- -----------------------------------------------------------------------
PICC Property & Casualty Co. Ltd.-Class H
(Property & Casualty Insurance)(a) 1,466,500 656,408
- -----------------------------------------------------------------------
Tong Ren Tang Technologies Co. Ltd.
(Pharmaceuticals) 166,000 291,862
- -----------------------------------------------------------------------
Weiqiao Textile Co. Ltd.-Class H (Textiles)
(Acquired 09/19/03-12/24/03; Cost
$674,557)(a)(b) 571,700 721,657
=======================================================================
2,950,874
=======================================================================
DENMARK-1.33%
Topdanmark A.S. (Multi-Line Insurance)(a) 28,143 1,503,129
=======================================================================
FINLAND-1.17%
Nokian Renkaat Oyj (Tires & Rubber) 8,885 669,469
- -----------------------------------------------------------------------
Vacon Oyj (Electrical Components & Equipment) 52,577 648,139
=======================================================================
1,317,608
=======================================================================
FRANCE-1.54%
Camaieu (Apparel Retail) 14,095 1,090,401
- -----------------------------------------------------------------------
Trigano (Leisure Products)(a) 13,725 652,605
=======================================================================
1,743,006
=======================================================================
GERMANY-5.15%
ADVA A.G. Optical Networking (Communications
Equipment)(a) 125,588 630,329
- -----------------------------------------------------------------------
Bijou Brigitte Modische Accessoires A.G.
(Apparel, Accessories & Luxury Goods) 14,400 741,758
- -----------------------------------------------------------------------
Boewe Systec A.G. (Office Electronics)(a) 12,975 677,332
- -----------------------------------------------------------------------
Puma A.G. Rudolf Dassler Sport (Footwear)
(Acquired 01/30/02-10/27/03; Cost
$660,632)(b) 10,419 1,834,848
- -----------------------------------------------------------------------
Rheinmetall A.G.-Pfd. (Industrial
Conglomerates)(a) 26,051 775,000
- -----------------------------------------------------------------------
Vossloh A.G. (Construction & Farm Machinery &
Heavy Trucks) 20,543 1,157,679
=======================================================================
5,816,946
=======================================================================
GREECE-0.57%
Germanos S.A. (Computer & Electronics
Retail)(a) 26,021 649,399
=======================================================================
HONG KONG-3.14%
China Merchants Holdings International Co.
Ltd. (Industrial Conglomerates) 162,000 213,883
- -----------------------------------------------------------------------
COFCO International Ltd. (Packaged Foods &
Meats) 1,000,000 644,031
- -----------------------------------------------------------------------
Dah Sing Financial Group (Diversified Banks) 68,000 505,822
- -----------------------------------------------------------------------
Denway Motors Ltd. (Automobile Manufacturers) 472,000 501,571
- -----------------------------------------------------------------------
Lee & Man Paper Manufacturing Ltd. (Metal &
Glass Containers) (Acquired
09/22/03-12/24/03; Cost $538,826)(a)(b) 883,700 700,030
- -----------------------------------------------------------------------
Techtronic Industries Co. Ltd. (Household
Appliances) (Acquired 04/24/02-7/29/02;
Cost 82,574)(b) 102,000 283,129
- -----------------------------------------------------------------------
</Table>
<Table>
- -----------------------------------------------------------------------
<Caption>
MARKET
SHARES VALUE
HONG KONG-(CONTINUED)
Wing Hang Bank Ltd. (Diversified Banks)(a) 117,000 $ 696,249
=======================================================================
3,544,715
=======================================================================
HUNGARY-1.38%
Gedeon Richter Rt. (Pharmaceuticals) 13,300 1,559,718
=======================================================================
INDIA-3.24%
Bajaj Auto Ltd. (Motorcycle Manufacturers) 14,000 348,995
- -----------------------------------------------------------------------
Bharat Forge Ltd. (Industrial Machinery) 42,800 744,978
- -----------------------------------------------------------------------
Dr. Reddy's Laboratories Ltd.-ADR
(Pharmaceuticals) 10,600 335,490
- -----------------------------------------------------------------------
HDFC Bank Ltd. (Diversified Banks) 28,000 225,013
- -----------------------------------------------------------------------
HDFC Bank Ltd.-ADR (Diversified Banks) 4,400 134,376
- -----------------------------------------------------------------------
Housing Development Finance Corp. Ltd.
(Thrifts & Mortgage Finance) 53,000 748,505
- -----------------------------------------------------------------------
Maruti Udyog Ltd. (Automobile
Manufactures)(a) 65,400 539,398
- -----------------------------------------------------------------------
Ranbaxy Laboratories Ltd. (Pharmaceuticals) 14,400 346,610
- -----------------------------------------------------------------------
Wockhardt Ltd. (Pharmaceuticals) 15,500 244,739
=======================================================================
3,668,104
=======================================================================
IRELAND-5.51%
Anglo Irish Bank Corp. PLC (Diversified
Banks) 142,775 2,246,754
- -----------------------------------------------------------------------
Depfa Bank PLC (Diversified Banks) 10,775 1,356,743
- -----------------------------------------------------------------------
Grafton Group PLC-Units (Trading Companies &
Distributors)(c) 136,040 936,052
- -----------------------------------------------------------------------
ICON PLC-ADR (Health Care Services)(a) 13,800 601,680
- -----------------------------------------------------------------------
Independent News & Media PLC (Publishing) 461,885 1,092,290
=======================================================================
6,233,519
=======================================================================
ISRAEL-0.53%
Taro Pharmaceutical Industries Ltd.
(Pharmaceuticals)(a) 9,220 594,690
=======================================================================
ITALY-1.19%
Merloni Elettrodomestici S.p.A. (Household
Appliances) 71,328 1,341,366
=======================================================================
JAPAN-5.13%
Daiwa House Industry Co., Ltd. (Homebuilding) 73,000 775,149
- -----------------------------------------------------------------------
Hosiden Corp. (Electronic Equipment
Manufacturers) 23,400 266,345
- -----------------------------------------------------------------------
JSR Corp. (Specialty Chemicals) 42,000 936,941
- -----------------------------------------------------------------------
NEC Electronics Corp. (Semiconductors)
(Acquired 07/14/03-08/20/03; Cost
$208,737)(b) 5,500 401,639
- -----------------------------------------------------------------------
NOK Corp. (Auto Parts & Equipment) 11,000 399,590
- -----------------------------------------------------------------------
Sekisui Chemical Co., Ltd. (Homebuilding)(a) 157,000 798,454
- -----------------------------------------------------------------------
Stanley Electric Co., Ltd. (Auto Parts &
Equipment) 45,000 869,737
- -----------------------------------------------------------------------
THK Co., Ltd. (Industrial Machinery)(a) 36,800 747,243
- -----------------------------------------------------------------------
Yamaha Corp. (Leisure Products) 30,700 601,933
=======================================================================
5,797,031
=======================================================================
</Table>
F-2
<Table>
<Caption>
MARKET
SHARES VALUE
- -----------------------------------------------------------------------
LUXEMBOURG-1.60%
Quilmes Industrial S.A.-ADR (Brewers)(a) 27,400 $ 447,990
- -----------------------------------------------------------------------
SBS Broadcasting S.A. (Broadcasting & Cable
TV)(a) 41,800 1,362,680
=======================================================================
1,810,670
=======================================================================
MEXICO-0.31%
Consorcio ARA, S.A. de C.V. (Homebuilding)(a) 142,900 355,023
=======================================================================
NETHERLANDS-2.63%
Orthofix International N.V. (Health Care
Equipment)(a) 16,700 817,966
- -----------------------------------------------------------------------
Randstad Holding N.V. (Employment
Services)(a) 38,725 936,735
- -----------------------------------------------------------------------
Sligro Food Group N.V. (Food Distributors) 17,411 535,487
- -----------------------------------------------------------------------
Versatel Telecom International N.V.
(Integrated Telecommunication Services)(a) 312,132 679,251
=======================================================================
2,969,439
=======================================================================
NORWAY-1.71%
Aktiv Kapital A.S.A. (Specialized Finance) 119,784 1,198,415
- -----------------------------------------------------------------------
Ekornes A.S.A. (Home Furnishings) 39,846 734,593
=======================================================================
1,933,008
=======================================================================
PHILIPPINES-0.43%
Philippine Long Distance Telephone Co.
(Integrated Telecommunication Services)(a) 27,600 482,031
=======================================================================
SINGAPORE-1.92%
Keppel Corp. Ltd. (Industrial Conglomerates) 154,000 553,223
- -----------------------------------------------------------------------
Keppel Land Ltd. (Real Estate Management &
Development)(a) 323,000 300,545
- -----------------------------------------------------------------------
Neptune Orient Lines Ltd. (Marine)(a) 442,000 562,245
- -----------------------------------------------------------------------
SembCorp Logistics Ltd. (Marine Ports &
Services) 456,000 537,087
- -----------------------------------------------------------------------
Venture Corp. Ltd. (Electronic Manufacturing
Services) 18,000 212,008
=======================================================================
2,165,108
=======================================================================
SOUTH KOREA-2.69%
Cheil Communications Inc. (Advertising)(a) 2,100 304,654
- -----------------------------------------------------------------------
CJ Corp. (Packaged Foods & Meats) 10,010 521,275
- -----------------------------------------------------------------------
Daewoo Shipbuilding & Marine Engineering Co.,
Ltd. (Construction & Farm Machinery & Heavy
Trucks)(a) 17,400 223,245
- -----------------------------------------------------------------------
Hana Bank (Diversified Banks) 34,500 636,478
- -----------------------------------------------------------------------
Hankook Tire Co. Ltd. (Tires & Rubber) 55,400 418,113
- -----------------------------------------------------------------------
Hyundai Department Store Co., Ltd.
(Department Stores)(a) 19,600 639,363
- -----------------------------------------------------------------------
Kook Soon Dang Brewery Co., Ltd. (Packaged
Foods & Meats) 13,386 298,589
=======================================================================
3,041,717
=======================================================================
SPAIN-0.47%
Corporacion Mapfre S.A. (Multi-Line
Insurance) 37,500 529,733
=======================================================================
</Table>
<Table>
- -----------------------------------------------------------------------
<Caption>
MARKET
SHARES VALUE
SWITZERLAND-1.09%
Actelion Ltd. (Biotechnology)(a) 7,400 $ 796,437
- -----------------------------------------------------------------------
Micronas Semiconductor Holding A.G.
(Semiconductors)(a) 10,265 438,191
=======================================================================
1,234,628
=======================================================================
TAIWAN-4.49%
Asia Optical Co., Inc. (Photographic
Products)(a) 76,000 523,675
- -----------------------------------------------------------------------
Au Optronics Corp. (Electronic Equipment
Manufacturers)(a) 220,000 257,185
- -----------------------------------------------------------------------
Ichia Technologies, Inc. (Computer Storage &
Peripherals)(a) 244,000 445,465
- -----------------------------------------------------------------------
Largan Precision Co., Ltd. (Photographic
Products) 36,200 351,767
- -----------------------------------------------------------------------
Merry Electronics Co., Ltd. (Electronic
Equipment Manufacturers)(a) 361,000 637,809
- -----------------------------------------------------------------------
Novatek Microelectronics Corp., Ltd.
(Semiconductors) 66,100 186,855
- -----------------------------------------------------------------------
Oriental Union Chemical Corp. (Commodity
Chemicals)(a) 392,000 499,812
- -----------------------------------------------------------------------
President Chain Store Corp. (Food Retail) 250,000 382,803
- -----------------------------------------------------------------------
Siliconware Precision Industries Co.
(Semiconductors)(a) 528,000 541,060
- -----------------------------------------------------------------------
Waffer Technology Co., Ltd. (Semiconductor
Equipment)(a) 152,000 463,251
- -----------------------------------------------------------------------
Wan Hai Lines Ltd. (Marine)(a) 493,000 445,674
- -----------------------------------------------------------------------
Yang Ming Marine Transport (Marine)(a) 344,000 341,366
=======================================================================
5,076,722
=======================================================================
THAILAND-1.70%
Kasikornbank PCL (Diversified Banks)(a) 361,000 637,745
- -----------------------------------------------------------------------
Land & Houses PCL (Homebuilding) 783,300 251,058
- -----------------------------------------------------------------------
Siam Cement PCL (The) (Construction
Materials) 35,900 250,061
- -----------------------------------------------------------------------
Siam Commercial Bank PCL (Diversified
Banks)(a) 575,800 784,706
=======================================================================
1,923,570
=======================================================================
UNITED KINGDOM-11.00%
Alba PLC (Consumer Electronics) 81,130 919,846
- -----------------------------------------------------------------------
Cattles PLC (Consumer Finance) 180,470 1,077,051
- -----------------------------------------------------------------------
Enterprise Inns PLC (Restaurants) 72,460 1,311,886
- -----------------------------------------------------------------------
Galen Holdings PLC (Pharmaceuticals) 82,490 1,053,094
- -----------------------------------------------------------------------
Gresham Computing PLC (Application
Software)(a) 51,100 305,651
- -----------------------------------------------------------------------
ICAP PLC (Investment Banking & Brokerage) 39,020 1,083,372
- -----------------------------------------------------------------------
Johnston Press PLC (Publishing) 117,790 979,538
- -----------------------------------------------------------------------
Kensington Group PLC (Thrifts & Mortgage
Finance) 116,350 682,706
- -----------------------------------------------------------------------
Majestic Wine PLC (Specialty Stores) 30,100 479,312
- -----------------------------------------------------------------------
McBride PLC (Household Products) 489,130 1,170,278
- -----------------------------------------------------------------------
Photo-Me International PLC (Photographic
Products)(a) 332,310 688,274
- -----------------------------------------------------------------------
RPS Group PLC (Environmental Services) 229,480 603,337
- -----------------------------------------------------------------------
</Table>
F-3
<Table>
<Caption>
MARKET
SHARES VALUE
- -----------------------------------------------------------------------
UNITED KINGDOM-(CONTINUED)
Taylor & Francis Group PLC (Publishing) 122,520 $ 1,113,486
- -----------------------------------------------------------------------
Topps Tiles PLC (Home Improvement Retail) 40,040 406,929
- -----------------------------------------------------------------------
Ultra Electronics Holdings PLC (Aerospace &
Defense) 59,230 559,445
=======================================================================
12,434,205
=======================================================================
UNITED STATES OF AMERICA-0.64%
Laidlaw International Inc.(a) 52,500 726,075
=======================================================================
Total Stocks & Other Equity Interests
(Cost $78,036,615) 102,602,128
=======================================================================
</Table>
<Table>
- -----------------------------------------------------------------------
<Caption>
MARKET
SHARES VALUE
MONEY MARKET FUNDS-7.18%
Liquid Assets Portfolio(d) 4,055,406 $ 4,055,406
- -----------------------------------------------------------------------
STIC Prime Portfolio(d) 4,055,406 4,055,406
=======================================================================
Total Money Market Funds (Cost
$8,110,812) 8,110,812
=======================================================================
TOTAL INVESTMENTS--97.96% (Cost $86,147,427) 110,712,940
=======================================================================
OTHER ASSETS LESS LIABILITIES--2.04% 2,307,151
=======================================================================
NET ASSETS-100.00% $113,020,091
_______________________________________________________________________
=======================================================================
</Table>
Investment Abbreviations:
<Table>
ADR - American Depositary Receipt
Pfd. - Preferred
</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 Fund has no rights to demand registration of these securities.
The aggregate market value of these securities at 12/31/03 was $7,023,312,
which represented 6.21% of the Fund's net assets. Unless otherwise stated,
these securities are not considered illiquid.
(c) Each unit represents one ordinary share, one ordinary C share, and seven
redeemable shares.
(d) The money market fund and the Fund are affiliated by having the same
investment advisor. See Note 3.
See accompanying notes which are an integral part of the financial statements.
F-4
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2003
<Table>
ASSETS:
Investments, at market value (cost
$78,036,615) $102,602,128
- -----------------------------------------------------------
Investments in affiliated money market funds
(cost $8,110,812) 8,110,812
- -----------------------------------------------------------
Foreign currencies, at value (cost $583,757) 586,343
- -----------------------------------------------------------
Receivables for:
Investments sold 441,631
- -----------------------------------------------------------
Fund shares sold 1,461,367
- -----------------------------------------------------------
Dividends 206,986
- -----------------------------------------------------------
Amount due from advisor 5,573
- -----------------------------------------------------------
Investment for deferred compensation and
retirement plans 16,452
- -----------------------------------------------------------
Other assets 20,687
===========================================================
Total assets 113,451,979
___________________________________________________________
===========================================================
LIABILITIES:
Payables for:
Investments purchased 63,874
- -----------------------------------------------------------
Fund shares reacquired 148,318
- -----------------------------------------------------------
Deferred compensation and retirement plans 16,452
- -----------------------------------------------------------
Accrued distribution fees 43,321
- -----------------------------------------------------------
Accrued transfer agent fees 21,146
- -----------------------------------------------------------
Accrued operating expenses 138,777
===========================================================
Total liabilities 431,888
===========================================================
Net assets applicable to shares outstanding $113,020,091
___________________________________________________________
===========================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $ 88,560,253
- -----------------------------------------------------------
Undistributed net investment income (loss) (77,408)
- -----------------------------------------------------------
Undistributed net realized gain from
investment securities, foreign currencies
and futures contracts 37,394
- -----------------------------------------------------------
Unrealized appreciation of investment
securities, foreign currencies and futures
contracts 24,499,852
===========================================================
$113,020,091
___________________________________________________________
===========================================================
NET ASSETS:
Class A $ 87,268,660
___________________________________________________________
===========================================================
Class B $ 16,542,964
___________________________________________________________
===========================================================
Class C $ 9,208,467
___________________________________________________________
===========================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER
SHARE, UNLIMITED NUMBER OF SHARES
AUTHORIZED:
Class A 7,226,077
___________________________________________________________
===========================================================
Class B 1,391,171
___________________________________________________________
===========================================================
Class C 774,743
___________________________________________________________
===========================================================
Class A:
Net asset value per share $ 12.08
- -----------------------------------------------------------
Offering price per share:
(Net asset value of $12.08 divided by
94.50%) $ 12.78
___________________________________________________________
===========================================================
Class B:
Net asset value and offering price per
share $ 11.89
___________________________________________________________
===========================================================
Class C:
Net asset value and offering price per
share $ 11.89
___________________________________________________________
===========================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
F-5
STATEMENT OF OPERATIONS
For the year ended December 31, 2003
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $87,476) $ 668,462
- -------------------------------------------------------------------------
Dividends from affiliated money market funds 31,537
- -------------------------------------------------------------------------
Interest 4,248
=========================================================================
Total investment income 704,247
=========================================================================
EXPENSES:
Advisory fees 433,171
- -------------------------------------------------------------------------
Administrative services fees 50,000
- -------------------------------------------------------------------------
Custodian fees 164,623
- -------------------------------------------------------------------------
Distribution fees
Class A 118,180
- -------------------------------------------------------------------------
Class B 74,842
- -------------------------------------------------------------------------
Class C 43,470
- -------------------------------------------------------------------------
Interest 1,876
- -------------------------------------------------------------------------
Transfer agent fees 98,083
- -------------------------------------------------------------------------
Trustees' fees 9,323
- -------------------------------------------------------------------------
Professional fees 66,968
- -------------------------------------------------------------------------
Other 87,072
=========================================================================
Total expenses 1,147,608
=========================================================================
Less: Fees waived and expense offset arrangements (158,914)
=========================================================================
Net expenses 988,694
=========================================================================
Net investment income (loss) (284,447)
=========================================================================
REALIZED AND UNREALIZED GAIN FROM INVESTMENT SECURITIES,
FOREIGN CURRENCIES AND FUTURES CONTRACTS:
Net realized gain from:
Investment securities (Net of tax on sale of foreign
investments of $813) -- Note 1F 5,355,113
- -------------------------------------------------------------------------
Foreign currencies 70,908
- -------------------------------------------------------------------------
Futures contracts 326,947
=========================================================================
5,752,968
=========================================================================
Change in net unrealized appreciation of:
Investment securities (Net of tax on sale of foreign
investments of $72,497) -- Note 1F 23,341,971
- -------------------------------------------------------------------------
Foreign currencies 6,476
- -------------------------------------------------------------------------
Futures contracts 21
=========================================================================
23,348,468
=========================================================================
Net gain from investment securities, foreign currencies and
futures contracts 29,101,436
=========================================================================
Net increase in net assets resulting from operations $28,816,989
_________________________________________________________________________
=========================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
F-6
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 2003 and 2002
<Table>
<Caption>
2003 2002
- -----------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (284,447) $ (182,360)
- -----------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities,
foreign currencies and futures contracts 5,752,968 (1,435,848)
- -----------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities, foreign currencies and futures
contracts 23,348,468 (216,476)
=========================================================================================
Net increase (decrease) in net assets resulting from
operations 28,816,989 (1,834,684)
=========================================================================================
Distributions to shareholders from net investment income:
Class A (120,788) --
- -----------------------------------------------------------------------------------------
Share transactions-net:
Class A 56,079,420 5,678,996
- -----------------------------------------------------------------------------------------
Class B 8,070,154 2,421,609
- -----------------------------------------------------------------------------------------
Class C 3,704,141 398,520
=========================================================================================
Net increase in net assets resulting from share
transactions 67,853,715 8,499,125
=========================================================================================
Net increase in net assets 96,549,916 6,664,441
=========================================================================================
NET ASSETS:
Beginning of year 16,470,175 9,805,734
=========================================================================================
End of year (including undistributed net investment income
(loss) of $(77,408) and $(14,261) for 2003 and 2002,
respectively) $113,020,091 $16,470,175
_________________________________________________________________________________________
=========================================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
F-7
NOTES TO FINANCIAL STATEMENTS
December 31, 2003
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM International Emerging Growth Fund (the "Fund") is a series portfolio of AIM
Funds Group (the "Trust"). The Trust is a Delaware statutory trust registered
under the Investment Company Act of 1940, as amended (the "1940 Act"), as an
open-end series management investment company consisting of nine separate
portfolios, each authorized to issue an unlimited number of shares of beneficial
interest. The Fund currently offers multiple classes of shares. Matters
affecting each portfolio or class will be voted on exclusively by the
shareholders of such portfolio or class. The assets, liabilities and operations
of each portfolio are accounted for separately. Information presented in these
financial statements pertains only to the Fund.
The Fund's investment objective is to achieve long-term growth of capital.
Companies are listed in the Schedule of Investments based on the country in
which they are organized.
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 on the basis of prices furnished
by independent pricing services or market makers. Each security reported on
the NASDAQ National Market System is valued at the NASDAQ Official Closing
Price ("NOCP") as of the close of the customary trading session on the
valuation date or absent a NOCP, at the closing bid price. 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. Issuer specific events, market trends, bid/ask quotes of brokers
and information providers and other market data may be reviewed in the
course of making a good faith determination of a security's fair value.
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
ordinarily be reflected in the computation of the Fund's net asset value.
If a development/event is so significant such 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. Adjustments to closing prices to reflect fair value on affected
foreign securities may be provided by an independent pricing service.
Multiple factors may be considered by the independent pricing service in
determining adjustments to reflect fair value and may include information
relating to sector indices, ADRs, domestic and foreign index futures and
exchange-traded funds.
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.
The Fund allocates income and realized and unrealized capital gains and
losses to a class based on the relative net assets of each class.
C. 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. REDEMPTION FEES -- Effective November 24, 2003, the Fund instituted a 2%
redemption fee on certain share classes that is to be retained by the Fund
to offset transaction costs and other expenses associated with short-term
redemptions and exchanges. The fee, subject to certain exceptions, is
imposed on certain redemptions,
F-8
including exchanges of shares held less than 30 days. The redemption fee is
accounted for as an addition to paid-in-capital by the Fund and is
allocated among the share classes based on the relative net assets of each
class.
E. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of
Subchapter M of the Internal Revenue Code necessary to qualify as a
regulated investment company and, as such, will not be subject to federal
income taxes on otherwise taxable income (including net realized capital
gain) which is distributed to shareholders. Therefore, no provision for
federal income taxes is recorded in the financial statements. Any capital
loss carryforwards listed are reduced for limitations, if any, to the
extent required by the Internal Revenue Code.
F. 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 (net of foreign taxes withheld on disposition) and income items
denominated in foreign currencies are translated into U.S. dollar amounts
on the respective dates of such transactions. The Fund does not separately
account for the portion of the results of operations resulting from changes
in foreign exchange rates on investments and the fluctuations arising from
changes in market prices of securities held. The combined results of
changes in foreign exchange rates and the fluctuation of market prices on
investments (net of estimated foreign tax withholding) are included with
the net realized and unrealized gain or loss from investments in the
Statement of Operations. Reported net realized foreign currency gains or
losses arise from, (i) sales of foreign currencies, (ii) currency gains or
losses realized between the trade and settlement dates on securities
transactions, and (iii) the difference between the amounts of dividends,
interest, and foreign withholding taxes recorded on the Fund's books and
the U.S. dollar equivalent of the amounts actually received or paid. Net
unrealized foreign currency gains and losses arise from changes in the fair
values of assets and liabilities, other than investments in securities at
fiscal period end, resulting from changes in exchange rates.
G. 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.
H. FUTURES CONTRACTS -- The Fund may purchase or sell futures contracts as a
hedge against changes in market conditions. Initial margin deposits
required upon entering into futures contracts are satisfied by the
segregation of specific securities as collateral for the account of the
broker (the Fund's agent in acquiring the futures position). During the
period the futures contracts are open, changes in the value of the
contracts are recognized as unrealized gains or losses by "marking to
market" on a daily basis to reflect the market value of the contracts at
the end of each day's trading. Variation margin payments are made or
received depending upon whether unrealized gains or losses are incurred.
When the contracts are closed, the Fund recognizes a realized gain or loss
equal to the difference between the proceeds from, or cost of, the closing
transaction and the Fund's basis in the contract. If the Fund were unable
to liquidate a futures contract and/or enter into an offsetting closing
transaction, the Fund would continue to be subject to market risk with
respect to the value of the contracts and continue to be required to
maintain the margin deposits on the futures contracts.
I. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund and which are directly attributable to that class are
charged to the operations of such class. All other expenses are allocated
among the classes based on relative net assets.
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement,
the Fund pays an advisory fee to AIM at the annual rate of 0.95% of the Fund's
average daily net assets. AIM has contractually agreed to waive fees and/or
reimburse expenses (excluding interest, taxes, fund merger and reorganization
expenses, extraordinary items, including other items designated as such by the
Board of Trustees 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 shares 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
funds on investments by the Fund in such affiliated money market funds. For the
year ended December 31, 2003, AIM waived fees of $158,359.
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, 2003, AIM was
paid $50,000 for such services.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay AIM Investment Services, Inc. ("AISI"), formerly known as A I M Fund
Services, Inc., a fee for providing transfer agency and shareholder services to
the Fund. During the year ended December 31, 2003, AISI retained $49,563 for
such services.
The Trust has entered into a master distribution agreement 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,
Class B 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 Class C shares. Of these amounts, up to 0.25% of the
average daily net assets of the Class A, Class B or Class C shares may be paid
to furnish continuing personal shareholder services to their customers who
purchase and own shares of such classes. Any amounts not paid as a service fee
under the Plans would constitute an asset-based sales charge. NASD Rules also
impose a cap on the total sales charges, including asset-based
F-9
sales charges that may be paid by any class of shares of the Fund. Pursuant to
the Plans, for the year ended December 31, 2003, the Class A, Class B and Class
C shares paid $118,180, $74,842 and $43,470, respectively.
Front-end sales commissions and contingent deferred sales charges ("CDSC")
(collectively the "sales charges") are not recorded as expenses of the Fund.
Front-end sales commissions are deducted from proceeds from the sales of Fund
shares prior to investment in Class A shares of the Fund. CDSC are deducted from
redemption proceeds prior to remittance to the shareholder. During year ended
December 31, 2003, AIM Distributors retained $25,330 in front-end sales
commissions from the sale of Class A shares and $1,609, $0 and $1,368 from Class
A, Class B and Class C shares, respectively, for CDSC imposed upon redemptions
by shareholders.
Certain officers and trustees of the Trust are officers and directors of
AIM, AISI and/or AIM Distributors.
NOTE 3--INVESTMENTS IN AFFILIATES
The Fund is permitted pursuant to an exemptive order from the Securities and
Exchange Commission ("SEC") and approved procedures by the Board of Trustees to
invest daily available cash balances in affiliated money market funds. Each day
the prior day's balance invested in the affiliated money market fund is redeemed
in full and a new purchase amount is submitted to invest the current day's
available cash. The table below shows the transactions in and earnings from
investments in affiliated money market funds for the period ended December 31,
2003.
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND
FUND 12/31/2002 AT COST FROM SALES (DEPRECIATION) 12/31/2003 INCOME
- -----------------------------------------------------------------------------------------------------------------------
Liquid Assets Portfolio $ 641,539 $38,431,668 $(35,017,801) $ -- $4,055,406 $15,900
- -----------------------------------------------------------------------------------------------------------------------
STIC Prime Portfolio 641,539 38,431,668 (35,017,801) -- $4,055,406 15,637
=======================================================================================================================
$1,283,078 $76,863,336 $(70,035,602) $ -- $8,110,812 $31,537
_______________________________________________________________________________________________________________________
=======================================================================================================================
<Caption>
REALIZED
FUND GAIN (LOSS)
- ---------------------------------------
Liquid Assets Portfolio $ --
- ---------------------------------------
STIC Prime Portfolio --
=======================================
$ --
_______________________________________
=======================================
</Table>
NOTE 4--EXPENSE OFFSET ARRANGEMENTS
Indirect expense offset arrangements are comprised of transfer agency credits
resulting from Demand Deposit Account (DDA) balances in transfer agency clearing
accounts and custodian credits resulting from periodic overnight cash balances
at the custodian. For the year ended December 31, 2003, the Fund received
reductions in transfer agency fees from AISI (an affiliate of AIM) of $515 and
reductions in custodian fees of $40 under expense offset arrangements which
resulted in a reduction of the Fund's total expenses of $555.
NOTE 5--TRUSTEES' FEES
Trustees' fees represent remuneration paid to each Trustee of the Trust who is
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 and INVESCO Funds in which their deferral accounts
shall be deemed to be invested.
Current Trustees are eligible to participate in a retirement plan that
provides for benefits to be paid upon retirement to Trustees over a period of
time based on the number of years of service. Certain former Trustees also
participate in a retirement plan and receive benefits under such plan.
During the year ended December 31, 2003, the Fund paid legal fees of $3,646
for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the
Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 6--BORROWINGS
The Fund may participate in an interfund lending facility that AIM has
established for temporary borrowings by the AIM Funds and the INVESCO Funds. An
interfund loan will be made under this facility only if the loan rate (an
average of the rate available on bank loans and the rate available on
investments in overnight repurchase agreements) is favorable to both the lending
fund and the borrowing fund. Under certain circumstances, a loan will be secured
by collateral. To the extent that the loan is required to be secured by
collateral, the collateral is marked to market daily to ensure that the market
value is at least 102% of the outstanding principal value of the loan. The Fund
did not borrow or lend under the facility during the year ended December 31,
2003.
Effective June 26, 2003, the Fund became a participant in an uncommitted
unsecured revolving credit facility with State Street Bank and Trust Company
("SSB"). The Fund may borrow up to the lesser of (i) $125,000,000 or (ii) the
limits set by its prospectus for borrowings. The Fund and other funds advised by
AIM which are parties to the credit facility can borrow on a first come, first
served basis. Principal on each loan outstanding shall bear interest at the bid
rate quoted by SSB at the time of the request for the loan.
During the reporting period, the Fund was a participant in a committed
credit facility with a syndicate administered by Citibank, N.A. The Fund could
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 were
parties to the credit facility could borrow on a first come, first served basis.
The funds which were party to the credit facility were charged a commitment fee
of 0.09% on the unused balance of the committed line. The commitment fee was
allocated among the funds based on their respective average net assets for the
period. The committed credit facility expired May 20, 2003.
During the year ended December 31, 2003, the Fund did not borrow or lend
under the interfund lending facility or borrow under either the uncommitted
unsecured revolving credit facility or the committed credit facility.
Additionally the Fund is permitted to temporarily carry a negative or
overdrawn balance in its account with the custodian bank. To compensate the
custodian bank for such overdrafts, the overdrawn Fund may either (i) leave
funds in the account so the custodian can be
F-10
compensated by earning the additional interest; or (ii) compensate by paying the
custodian bank. In either case, the custodian bank will be compensated an amount
equal to the Federal Funds rate plus 100 basis points.
NOTE 7--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
Distributions to Shareholders:
The tax character of distributions paid during the years ended December 31, 2003
and 2002 were as follows:
<Table>
<Caption>
2003 2002
- -------------------------------------------------------------
Distributions paid from ordinary income $120,788 $ --
_____________________________________________________________
=============================================================
</Table>
Tax Components of Net Assets:
As of December 31, 2003, the components of net assets on a tax basis were as
follows:
<Table>
Undistributed ordinary income $ 81,918
- -----------------------------------------------------------
Undistributed long-term gain 126,039
- -----------------------------------------------------------
Unrealized appreciation -- investments 24,267,754
- -----------------------------------------------------------
Temporary book/tax differences (15,873)
- -----------------------------------------------------------
Capital (par value and additional paid-in) 88,560,253
===========================================================
Total net assets $113,020,091
___________________________________________________________
===========================================================
</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 the recognition for tax purposes of unrealized gains on
passive foreign investment companies. The tax-basis unrealized appreciation on
investments amount includes appreciation on foreign currencies of $6,837
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 director deferral of trustee
compensation.
NOTE 8--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities
and money market funds) purchased and sold by the Fund during the year ended
December 31, 2003 was $98,522,593 and $39,864,543, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF
INVESTMENT SECURITIES ON A TAX BASIS
- -----------------------------------------------------------
Aggregate unrealized appreciation of
investment securities $24,558,318
- -----------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (297,401)
===========================================================
Net unrealized appreciation of investment
securities $24,260,917
___________________________________________________________
===========================================================
Cost of investments for tax purposes is
$86,452,023.
</Table>
NOTE 9--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of foreign currency
transactions, passive foreign investment companies excise taxes, and redemption
fees, on December 31, 2003, undistributed net investment income was increased by
$342,088, undistributed net realized gains decreased by $341,735, undistributed
appreciation of investment securities decreased by $21 and shares of beneficial
interest decreased by $332. This reclassification had no effect on the net
assets of the Fund.
F-11
NOTE 10--SHARE INFORMATION
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 CDSC. Under some
circumstances, Class A shares are subject to CDSC. Generally, Class B shares
will automatically convert to Class A shares eight years after the end of the
calendar month of purchase.
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING
- ----------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
2003 2002
-------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------------------------------------------------------------
Sold:
Class A 11,919,761 $109,893,228 3,320,793 $ 24,876,290
- ----------------------------------------------------------------------------------------------------------------------
Class B 1,165,952 11,299,951 639,639 4,859,028
- ----------------------------------------------------------------------------------------------------------------------
Class C 2,225,582 18,994,606 505,667 3,617,347
======================================================================================================================
Issued as reinvestment of dividends:
Class A 7,488 87,303 -- --
- ----------------------------------------------------------------------------------------------------------------------
Automatic conversion of Class B shares to Class A shares:
Class A 33,321 340,599 3,706 26,644
- ----------------------------------------------------------------------------------------------------------------------
Class B (33,826) (340,599) (3,719) (26,644)
======================================================================================================================
Reacquired:
Class A (6,138,550) (54,241,710)* (2,653,242) (19,223,938)
- ----------------------------------------------------------------------------------------------------------------------
Class B (313,814) (2,889,198)* (348,193) (2,410,775)
- ----------------------------------------------------------------------------------------------------------------------
Class C (1,867,698) (15,290,465)* (454,970) (3,218,827)
======================================================================================================================
6,998,216 $ 67,853,715 1,009,681 $ 8,499,125
______________________________________________________________________________________________________________________
======================================================================================================================
</Table>
* Net of redemption fees of $121, $28 and $17 for Class A, Class B and Class C
respectively, based on the relative net assets of each class.
F-12
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
---------------------------------------------------------
AUGUST 31, 2000
(DATE OPERATIONS
YEAR ENDED DECEMBER 31, COMMENCED) TO
---------------------------------- DECEMBER 31,
2003 2002 2001 2000
- -----------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 6.91 $ 7.10 $ 7.97 $ 10.00
- -----------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.04)(a) (0.06)(a) (0.08)(a) (0.03)(a)
- -----------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 5.24 (0.13) (0.76) (2.00)
=======================================================================================================================
Total from investment operations 5.20 (0.19) (0.84) (2.03)
=======================================================================================================================
Less dividends from net investment income (0.03) -- (0.03) --
- -----------------------------------------------------------------------------------------------------------------------
Redemption fees added to paid-in-capital 0.00 -- -- --
- -----------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 12.08 $ 6.91 $ 7.10 $ 7.97
_______________________________________________________________________________________________________________________
=======================================================================================================================
Total return(b) 75.10% (2.68)% (10.48)% (20.30)%
_______________________________________________________________________________________________________________________
=======================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $87,269 $9,703 $ 5,202 $ 5,625
_______________________________________________________________________________________________________________________
=======================================================================================================================
Ratio of expenses to average net assets:
With fee waivers 2.00%(c) 2.01% 2.00%(d) 2.11%(e)
- -----------------------------------------------------------------------------------------------------------------------
Without fee waivers 2.35%(c) 3.03% 4.53%(d) 6.83%(e)
=======================================================================================================================
Ratio of net investment income (loss) to average net assets (0.46)%(c) (0.85)% (1.12)% (1.09)%(e)
_______________________________________________________________________________________________________________________
=======================================================================================================================
Portfolio turnover rate(f) 93% 118% 145% 30%
_______________________________________________________________________________________________________________________
=======================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, 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
$33,765,767.
(d) Ratio of expenses to average net assets including interest expense were
2.02% and 4.55% with and without waivers and expense reimbursements,
respectively. Ratio of interest expense to average net assets was 0.02%.
(e) Annualized.
(f) Not annualized for periods less than one year.
F-13
NOTE 11--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS B
---------------------------------------------------------
AUGUST 31,
2000
(DATE OPERATIONS
YEAR ENDED DECEMBER 31, COMMENCED) TO
---------------------------------- DECEMBER 31,
2003 2002 2001 2000
- -----------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 6.84 $ 7.07 $ 7.95 $ 10.00
- -----------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.10)(a) (0.11)(a) (0.13)(a) (0.05)(a)
- -----------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 5.15 (0.12) (0.75) (2.00)
=======================================================================================================================
Total from investment operations 5.05 (0.23) (0.88) (2.05)
=======================================================================================================================
Redemption fees added to paid-in-capital 0.00 -- -- --
=======================================================================================================================
Net asset value, end of period $ 11.89 $ 6.84 $ 7.07 $ 7.95
_______________________________________________________________________________________________________________________
=======================================================================================================================
Total return(b) 73.83% (3.25)% (11.07)% (20.50)%
_______________________________________________________________________________________________________________________
=======================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $16,543 $3,918 $ 2,016 $ 1,992
_______________________________________________________________________________________________________________________
=======================================================================================================================
Ratio of expenses to average net assets:
With fee waivers 2.65%(c) 2.66% 2.70%(d) 2.81%(e)
- -----------------------------------------------------------------------------------------------------------------------
Without fee waivers 3.00%(c) 3.68% 5.23%(d) 7.53%(e)
=======================================================================================================================
Ratio of net investment income (loss) to average net assets (1.11)%(c) (1.50)% (1.83)% (1.79)%(e)
_______________________________________________________________________________________________________________________
=======================================================================================================================
Portfolio turnover rate(f) 93% 118% 145% 30%
_______________________________________________________________________________________________________________________
=======================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, 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
$7,484,179.
(d) Ratio of expenses to average net assets including interest expense were
2.72% and 5.25% with and without waivers and expense reimbursements,
respectively. Ratio of interest expense to average net assets was 0.02%.
(e) Annualized.
(f) Not annualized for periods less than one year.
F-14
NOTE 11--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS C
---------------------------------------------------------
AUGUST 31, 2000
(DATE OPERATIONS
YEAR ENDED DECEMBER 31, COMMENCED) TO
---------------------------------- DECEMBER 31,
2003 2002 2001 2000
- -----------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 6.83 $ 7.07 $ 7.95 $ 10.00
- -----------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.10)(a) (0.11)(a) (0.13)(a) (0.05)(a)
- -----------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 5.16 (0.13) (0.75) (2.00)
=======================================================================================================================
Total from investment operations 5.06 (0.24) (0.88) (2.05)
=======================================================================================================================
Redemption fees added to paid-in-capital 0.00 -- -- --
=======================================================================================================================
Net asset value, end of period $ 11.89 $ 6.83 $ 7.07 $ 7.95
_______________________________________________________________________________________________________________________
=======================================================================================================================
Total return(b) 74.09% (3.39)% (11.07)% (20.50)%
_______________________________________________________________________________________________________________________
=======================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 9,208 $2,849 $ 2,588 $ 2,649
_______________________________________________________________________________________________________________________
=======================================================================================================================
Ratio of expenses to average net assets:
With fee waivers 2.65%(c) 2.66% 2.70%(d) 2.81%(e)
- -----------------------------------------------------------------------------------------------------------------------
Without fee waivers 3.00%(c) 3.68% 5.23%(d) 7.53%(e)
=======================================================================================================================
Ratio of net investment income (loss) to average net assets (1.11)%(c) (1.50)% (1.83)% (1.79)%(e)
_______________________________________________________________________________________________________________________
=======================================================================================================================
Portfolio turnover rate(f) 93% 118% 145% 30%
_______________________________________________________________________________________________________________________
=======================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, 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
$4,346,998.
(d) Ratios of expenses to average net assets including interest expense were
2.72% and 5.25% with and without waivers and expense reimbursements,
respectively. Ratio of interest expense to average net assets was 0.02%.
(e) Annualized.
(f) Not annualized for periods less than one year.
F-15
NOTE 12--LEGAL PROCEEDINGS
Your Fund's investment advisor, A I M Advisors, Inc. ("AIM"), is an indirect
wholly owned subsidiary of AMVESCAP PLC ("AMVESCAP"). Another indirect wholly
owned subsidiary of AMVESCAP, INVESCO Funds Group, Inc. ("IFG"), was formerly
the investment advisor to the INVESCO Funds. IFG continues to serve as the
investment advisor to INVESCO Variable Investment Funds, Inc. ("IVIF"). On
November 25, 2003, AIM succeeded IFG as the investment advisor to the INVESCO
Funds other than IVIF.
The mutual fund industry as a whole is currently subject to a wide range of
inquiries and litigation related to issues of "market timing" and "late
trading." Both AIM and IFG are the subject of a number of such inquiries, as
described below.
A. Regulatory Inquiries and Actions
1. IFG
On December 2, 2003 each of the Securities and Exchange Commission ("SEC") and
the Office of the Attorney General of the State of New York ("NYAG") filed civil
proceedings against IFG and Raymond R. Cunningham, in his capacity as the Chief
Executive Officer of IFG. Mr. Cunningham currently holds the positions of Chief
Operating Officer and Senior Vice President of A I M Management Group Inc., the
parent of AIM, and the position of Senior Vice President of AIM. In addition, on
December 2, 2003, the State of Colorado filed civil proceedings against IFG.
Neither the Fund nor any of the other AIM or INVESCO Funds has been named as a
defendant in any of these proceedings.
The SEC complaint alleges that IFG failed to disclose in the INVESCO Funds'
prospectuses and to the INVESCO Funds' independent directors that IFG had
entered into certain arrangements permitting market timing of the INVESCO Funds.
The SEC is seeking injunctions, including permanent injunctions from serving as
an investment advisor, officer or director of an investment company; an
accounting of all market timing as well as certain fees and compensation
received; disgorgement; civil monetary penalties; and other relief.
The NYAG and Colorado complaints make substantially similar allegations. The
NYAG is seeking injunctions, including permanent injunctions from directly or
indirectly selling or distributing shares of mutual funds; disgorgement of all
profits obtained, including fees collected, and payment of all restitution and
damages caused, directly or indirectly from the alleged illegal activities;
civil monetary penalties; and other relief. The State of Colorado is seeking
injunctions; restitution, disgorgement and other equitable relief, civil
monetary penalties; and other relief.
In addition, IFG has received inquiries in the form of subpoenas or other oral
or written requests for information from various regulators concerning market
timing activity, late trading, fair value pricing and related issues concerning
the INVESCO Funds. These regulators include the Florida Department of Financial
Services, the Commissioner of Securities for the State of Georgia, the Office of
the State Auditor for the State of West Virginia, and the Office of the
Secretary of State for West Virginia. IFG has also received more limited
inquiries concerning related matters from the United States Department of Labor,
NASD, Inc., and the SEC. IFG is providing full cooperation with respect to these
inquiries.
2. AIM
AIM has also received inquiries in the form of subpoenas or other oral or
written requests for information from various regulators concerning market
timing activity, late trading, fair value pricing, and related issues concerning
the AIM Funds. AIM has received requests for information and documents
concerning these and related matters from the SEC and the Massachusetts
Secretary of the Commonwealth. In addition, AIM has received subpoenas
concerning these and related matters from the NYAG, the United States Attorney's
Office for the District of Massachusetts, the Commissioner of Securities for the
State of Georgia, the Office of the State Auditor for the State of West
Virginia, and the Office of the Secretary of State for West Virginia. AIM has
also received more limited inquiries from the SEC and NASD, Inc. concerning
specific funds, entities and/or individuals, none of which directly bears upon
the Fund. AIM is providing full cooperation with respect to these inquiries.
3. AMVESCAP Response
AMVESCAP is seeking to resolve both the pending regulatory complaints against
IFG alleging market timing and the ongoing market timing investigations with
respect to IFG and AIM. AMVESCAP recently found, in its ongoing review of these
matters, that shareholders were not always effectively protected from the
potential adverse impact of market timing and illegal late trading through
intermediaries. These findings were based, in part, on an extensive economic
analysis by outside experts who have been retained by AMVESCAP to examine the
impact of these activities. In light of these findings, AMVESCAP has publicly
stated that any AIM or INVESCO Fund, or any shareholders thereof, harmed by
these activities will receive full restitution. AMVESCAP has informed regulators
of these findings. In addition, AMVESCAP has retained outside counsel to
undertake a comprehensive review of AIM's and IFG's policies, procedures and
practices, with the objective that they rank among the most effective in the
fund industry.
There can be no assurance that AMVESCAP will be able to reach a satisfactory
settlement with the regulators, or that any such settlement will not include
terms which would have the effect of barring either or both of IFG and AIM, or
any other investment advisor directly or indirectly owned by AMVESCAP, from
serving as an investment advisor to any registered investment company including
the Fund. The Fund has been informed by AIM that, if either of these results
occurs, AIM will seek exemptive relief from the SEC to permit it to continue to
serve as the Fund's investment advisor. There can be no assurance that such
exemptive relief will be granted. Any settlement with the regulators could also
include terms which would bar Mr. Cunningham from serving as an officer or
director of any registered investment company.
B. Private Actions
In addition to the complaints described above, multiple lawsuits, including
purported class action and shareholder derivative suits, have been filed against
various parties (including, depending on the lawsuit, certain INVESCO Funds,
certain AIM Funds, IFG, AIM, A I M Management Group Inc., the parent of AIM,
AMVESCAP, certain related entities and certain of their officers, including Mr.
Cunningham). The allegations in the majority of the lawsuits are substantially
similar to the allegations in the regulatory complaints against IFG described
above. Certain other lawsuits allege that certain AIM and INVESCO Funds
inadequately employed fair value pricing. Such lawsuits allege a variety of
theories of recovery, including but not limited to: (i) violation of various
provisions of the Federal and state securities laws; (ii) violation of various
provisions of the Employee Retirement Income Security Act
F-16
NOTE 12--LEGAL PROCEEDINGS (CONTINUED)
("ERISA"); (iii) breach of fiduciary duty; and (iv) breach of contract. The
lawsuits have been filed in both Federal and state courts and seek such remedies
as compensatory damages; restitution; rescission; accounting for wrongfully
gotten gains, profits and compensation; injunctive relief; disgorgement;
equitable relief; various corrective measures under ERISA; rescission of certain
Funds' advisory agreements with AIM; declaration that the advisory agreement is
unenforceable or void; refund of advisory fees; interest; and attorneys' and
experts' fees.
IFG has removed certain of the state court proceedings to Federal District
Court. At a hearing before the Judicial Panel on Multidistrict Litigation
concerning the most efficient way to manage the numerous lawsuits alleging
market timing in mutual funds throughout the industry, IFG and AIM supported
transfer of all cases pending against them to one district for consolidated
proceedings. The Panel has not issued a ruling.
Additional lawsuits or regulatory actions arising out of these circumstances
and presenting similar allegations and requests for relief may be filed against
the Fund, IFG, AIM, AMVESCAP and related entities and individuals in the future.
As a result of these developments, investors in the AIM and INVESCO Funds
might react by redeeming their investments. This might require the Funds to sell
investments to provide for sufficient liquidity and could also have an adverse
effect on the investment performance of the Funds.
At the present time, management of AIM and the Fund is unable to estimate the
impact, if any, that the outcome of the matters described above may have on the
Fund or AIM.
F-17
REPORT OF INDEPENDENT AUDITORS
To the Board of Trustees and Shareholders
of AIM International Emerging Growth Fund
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the AIM International Emerging
Growth Fund (one of the funds constituting AIM Funds Group; hereafter referred
to as the "Fund") at December 31, 2003, the results of its operations for the
year then ended, the changes in its net assets for each of the two years in the
period then ended and the financial highlights for each of the periods
indicated, in conformity with accounting principles generally accepted in the
United States of America. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Fund's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with 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, 2003 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
PRICEWATERHOUSECOOPERS LLP
February 20, 2004
Houston, Texas
F-18
PROXY RESULTS (UNAUDITED)
A Special Meeting of Shareholders of AIM International Emerging Growth Fund, a
portfolio of AIM Funds Group, a Delaware statutory trust, was held on October
21, 2003. The meeting was held for the following purpose:
(1)* To elect sixteen individuals to the Board, each of whom will serve until
his or her successor is elected and qualified: Bob R. Baker, Frank S.
Bayley, James T. Bunch, Bruce L. Crockett, Albert R. Dowden, Edward K.
Dunn, Jr., Jack M. Fields, Carl Frischling, Robert H. Graham, Gerald J.
Lewis, Prema Mathai-Davis, Lewis F. Pennock, Ruth H. Quigley, Louis S.
Sklar, Larry Soll, Ph D. and Mark H. Williamson.
The results of the voting on the above matter were as follows:
<Table>
<Caption>
WITHHOLDING
TRUSTEES/MATTER VOTES FOR AUTHORITY
- ---------------------------------------------------------------------------------
(1)* Bob R. Baker................................. 822,704,205 11,194,804
Frank S. Bayley.............................. 822,781,451 11,117,558
James T. Bunch............................... 822,886,061 11,012,948
Bruce L. Crockett............................ 822,942,379 10,956,630
Albert R. Dowden............................. 822,923,043 10,975,966
Edward K. Dunn, Jr........................... 822,752,667 11,146,342
Jack M. Fields............................... 823,013,560 10,885,449
Carl Frischling.............................. 822,602,646 11,296,363
Robert H. Graham............................. 822,881,635 11,017,374
Gerald J. Lewis.............................. 822,460,720 11,438,289
Prema Mathai-Davis........................... 822,715,053 11,183,956
Lewis F. Pennock............................. 822,839,481 11,059,528
Ruth H. Quigley.............................. 822,446,309 11,452,700
Louis S. Sklar............................... 822,882,710 11,016,299
Larry Soll, Ph.D............................. 822,748,856 11,150,153
Mark H. Williamson........................... 822,801,778 11,097,231
</Table>
* Proposal required approval by a combined vote of all the portfolios of AIM
Funds Group.
F-19
OTHER INFORMATION
TRUSTEES AND OFFICERS
As of January 1, 2004
The address of each trustee and officer of AIM Funds Group (the "Trust"), is 11
Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee oversees 104
portfolios in the AIM and INVESCO Funds complex, except for Messrs. Baker,
Bunch, Lewis and Soll who oversee 96 portfolios and Mr. Williamson who oversees
117 portfolios in the AIM and INVESCO Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
<Table>
<Caption>
NAME, YEAR OF BIRTH AND TRUSTEE AND/
POSITION(S) HELD WITH THE OR OFFICER PRINCIPAL OCCUPATION(S)
TRUST SINCE DURING PAST 5 YEARS
- ----------------------------------------------------------------------------------------------------------------
INTERESTED PERSONS
- ----------------------------------------------------------------------------------------------------------------
Robert H. Graham(1) -- 1946 1992 Director and Chairman, A I M Management Group Inc.
Trustee, Chairman and (financial services holding company); and Director and Vice
President Chairman, AMVESCAP PLC and Chairman of AMVESCAP PLC -- AIM
Division (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), AIM Investment Services, Inc.,
(registered transfer agent), and Fund Management Company
(registered broker dealer); and Chief Executive Officer,
AMVESCAP PLC -- Managed Products
- ----------------------------------------------------------------------------------------------------------------
Mark H. Williamson(2) -- 1951 2003 Director, President and Chief Executive Officer, A I M
Trustee and Executive Vice Management Group Inc. (financial services holding company);
President Director, Chairman and President, A I M Advisors, Inc.
(registered investment advisor); Director, A I M Capital
Management, Inc. (registered investment advisor) and A I M
Distributors, Inc. (registered broker dealer); Director and
Chairman, AIM Investment Services, Inc. (registered transfer
agent), and Fund Management Company (registered broker
dealer); and Chief Executive Officer, AMVESCAP PLC -- AIM
Division (parent of AIM and a global investment management
firm)
Formerly: Director, Chairman, President and Chief Executive
Officer, INVESCO Funds Group, Inc. and INVESCO Distributors,
Inc.; Chief Executive Officer, AMVESCAP PLC -- Managed
Products; Chairman and Chief Executive Officer of
NationsBanc Advisors, Inc.; and Chairman of NationsBanc
Investments, Inc.
- ----------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- ----------------------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 2003 Consultant
Trustee
Formerly: President and Chief Executive Officer, AMC Cancer
Research Center; and Chairman and Chief Executive Officer,
First Columbia Financial Corporation
- ----------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2001 Of Counsel, law firm of Baker & McKenzie
Trustee
- ----------------------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 2003 Co-President and Founder, Green, Manning & Bunch Ltd.,
Trustee (investment banking firm); and Director, Policy Studies,
Inc. and Van Gilder Insurance Corporation
Formerly: General Counsel and Director, Boettcher & Co.; and
Chairman and Managing Partner, law firm of Davis, Graham &
Stubbs
- ----------------------------------------------------------------------------------------------------------------
Bruce L. Crockett -- 1944 1987 Chairman, Crockett Technology Associates (technology
Trustee consulting company)
- ----------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2000 Director of a number of public and private business
Trustee corporations, including the Boss Group Ltd. (private
investment and management) and Magellan Insurance Company
Formerly: Director, President and Chief Executive Officer,
Volvo Group North America, Inc.; Senior Vice President, AB
Volvo; and director of various affiliated Volvo companies
- ----------------------------------------------------------------------------------------------------------------
Edward K. Dunn, Jr. -- 1935 1998 Formerly: Chairman, Mercantile Mortgage Corp.; President and
Trustee Chief Operating Officer, Mercantile-Safe Deposit & Trust
Co.; and President, Mercantile Bankshares Corp.
- ----------------------------------------------------------------------------------------------------------------
Jack M. Fields -- 1952 1997 Chief Executive Officer, Twenty First Century Group, Inc.
Trustee (government affairs company) and Texana Timber LP
- ----------------------------------------------------------------------------------------------------------------
<Caption>
NAME, YEAR OF BIRTH AND
POSITION(S) HELD WITH THE OTHER DIRECTORSHIP(S)
TRUST HELD BY TRUSTEE
- -------------------------------- ----------------------
INTERESTED PERSONS
- -------------------------------------------------------------------------------
Robert H. Graham(1) -- 1946 None
Trustee, Chairman and
President
- ------------------------------------------------------------------------------------------------------
Mark H. Williamson(2) -- 1951 None
Trustee and Executive Vice
President
- ----------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- ----------------------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 None
Trustee
- ----------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 Badgley Funds, Inc.
Trustee (registered investment
company)
- ----------------------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 None
Trustee
- ----------------------------------------------------------------------------------------------------------------
Bruce L. Crockett -- 1944 ACE Limited (insurance
Trustee company); and
Captaris, Inc.
(unified messaging
provider)
- ----------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 Cortland Trust, Inc.
Trustee (Chairman) (registered
investment company);
Annuity and Life Re
(Holdings), Ltd.
(insurance company)
- ----------------------------------------------------------------------------------------------------------------
Edward K. Dunn, Jr. -- 1935 None
Trustee
- ----------------------------------------------------------------------------------------------------------------
Jack M. Fields -- 1952 Administaff
Trustee
- ----------------------------------------------------------------------------------------------------------------
</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.
Trustees and Officers (continued)
As of January 1, 2004
The address of each trustee and officer of AIM Funds Group (the "Trust"), is 11
Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee oversees 104
portfolios in the AIM and INVESCO Funds complex, except for Messrs. Baker,
Bunch, Lewis and Soll who oversee 96 portfolios and Mr. Williamson who oversees
117 portfolios in the AIM and INVESCO Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
<Table>
<Caption>
NAME, YEAR OF BIRTH AND TRUSTEE AND/ PRINCIPAL OCCUPATION(S)
POSITION(S) HELD WITH THE TRUST OR OFFICER SINCE DURING PAST 5 YEARS
- -------------------------------------------------------------------------------------------------------------------
Carl Frischling -- 1937 1993 Partner, law firm of Kramer Levin Naftalis and Frankel LLP
Trustee
- -------------------------------------------------------------------------------------------------------------------
Gerald J. Lewis -- 1933 2003 Chairman, Lawsuit Resolution Services (San Diego,
Trustee California)
Formerly: Associate Justice of the California Court of
Appeals
- -------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA of the USA
Trustee
- -------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 1992 Partner, law firm of Pennock & Cooper
Trustee
- -------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2001 Retired
Trustee
- -------------------------------------------------------------------------------------------------------------------
Louis S. Sklar -- 1939 1993 Executive Vice President, Development and Operations Hines
Trustee Interests Limited Partnership (real estate development
company)
- -------------------------------------------------------------------------------------------------------------------
Larry Soll, Ph.D. -- 1942 2003 Retired
Trustee
- -------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- -------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 2003 Director, Senior Vice President, Secretary and General
Senior Vice President and Chief Counsel, A I M Management Group Inc. (financial services
Legal Officer holding company) and A I M Advisors, Inc.; Vice President,
A I M Capital Management, Inc., A I M Distributors, Inc. and
AIM Investment Services, Inc.; and Director, Vice President
and General Counsel, Fund Management Company
Formerly: Senior Vice President and General Counsel, Liberty
Financial Companies, Inc.; and Senior Vice President and
General Counsel, Liberty Funds Group, LLC
- -------------------------------------------------------------------------------------------------------------------
Robert G. Alley -- 1948 1992 Managing Director, Chief Fixed Income Officer and Senior
Vice President Investment Officer, A I M Capital Management, Inc.; and Vice
President, A I M Advisors, Inc.
- -------------------------------------------------------------------------------------------------------------------
Stuart W. Coco -- 1955 1992 Managing Director and Chief Research Officer -- Fixed
Vice President Income, 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 Advisors,
Vice President Inc. and A I M Capital Management, Inc.; and Vice President,
AIM Investment Services, Inc.
- -------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, A I M Advisors, Inc.;
Vice President and Treasurer Senior Vice President, AIM Investment Services, Inc.; and
Vice President, A I M Distributors, Inc.
- -------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 1992 Managing Director and Chief Management Officer, A I M
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 President, Chief
Vice President Executive Officer and Chief Investment Officer, A I M
Capital Management, Inc.
- -------------------------------------------------------------------------------------------------------------------
<Caption>
NAME, YEAR OF BIRTH AND OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST HELD BY TRUSTEE
- --------------------------------- ----------------------
Carl Frischling -- 1937 Cortland Trust, Inc.
Trustee (registered investment
company)
- -------------------------------------------------------------------------------------------------------------------
Gerald J. Lewis -- 1933 General Chemical
Trustee Group, Inc.,
Wheelabrator
Technologies, Inc.
(waste management
company), Fisher
Scientific, Inc.,
Henley Manufacturing,
Inc. (laboratory
supplies), and
California Coastal
Properties, Inc.
- -------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 None
Trustee
- -------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 None
Trustee
- -------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 None
Trustee
- -------------------------------------------------------------------------------------------------------------------
Louis S. Sklar -- 1939 None
Trustee
- -------------------------------------------------------------------------------------------------------------------
Larry Soll, Ph.D. -- 1942 None
Trustee
- -------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- -------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 N/A
Senior Vice President and Chief
Legal Officer
- -------------------------------------------------------------------------------------------------------------------
Robert G. Alley -- 1948 N/A
Vice President
- -------------------------------------------------------------------------------------------------------------------
Stuart W. Coco -- 1955 N/A
Vice President
- -------------------------------------------------------------------------------------------------------------------
Melville B. Cox -- 1943 N/A
Vice President
- -------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961
Vice President and Treasurer
- -------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 N/A
Vice President
- -------------------------------------------------------------------------------------------------------------------
Edgar M. Larsen -- 1940 N/A
Vice President
- -------------------------------------------------------------------------------------------------------------------
</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 LLP
Suite 100 11 Greenway Plaza 11 Greenway Plaza 1201 Louisiana, Suite 2900
Houston, TX 77046-1173 Suite 100 Suite 100 Houston, TX 77002-5678
Houston, TX 77046-1173 Houston, TX 77046-1173
COUNSEL TO THE FUND COUNSEL TO THE TRUSTEES TRANSFER AGENT CUSTODIAN
Ballard Spahr Kramer, Levin, Naftalis & AIM Investment 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 19103-7599 New York, NY 10022-3852 Boston, MA 02110
</Table>
REQUIRED FEDERAL INCOME TAX INFORMATION (UNAUDITED)
Of ordinary dividends paid to shareholders during the Fund's tax year ended
December 31, 2003, 0.00% is eligible for the dividends received deduction for
corporations.
For its tax year ended December 31, 2003, the Fund designated 100%, or the
maximum allowable, of its dividend distributions as qualified dividend income.
The actual amounts for the calendar year will be designated in the Fund's year
end tax statement.
<Table>
DOMESTIC EQUITY INTERNATIONAL/GLOBAL EQUITY FIXED INCOME
AIM Aggressive Growth Fund AIM Asia Pacific Growth Fund TAXABLE
AIM Balanced Fund* AIM Developing Markets Fund
AIM Basic Balanced Fund* AIM European Growth Fund AIM Floating Rate Fund
AIM Basic Value Fund AIM European Small Company Fund AIM High Yield Fund
AIM Blue Chip Fund AIM Global Aggressive Growth Fund AIM Income Fund
AIM Capital Development Fund AIM Global Growth Fund AIM Intermediate Government Fund
AIM Charter Fund AIM Global Trends Fund AIM Limited Maturity Treasury Fund
AIM Constellation Fund AIM Global Value Fund(5) AIM Money Market Fund
AIM Dent Demographic Trends Fund AIM International Emerging Growth Fund AIM Short Term Bond Fund
AIM Diversified Dividend Fund(1) AIM International Growth Fund AIM Total Return Bond Fund
AIM Emerging Growth Fund AIM Trimark Fund INVESCO U.S. Government Money Fund
AIM Large Cap Basic Value Fund INVESCO International Core Equity Fund(6)
AIM Large Cap Growth Fund TAX-FREE
AIM Libra Fund SECTOR EQUITY
AIM Mid Cap Basic Value Fund AIM High Income Municipal Fund
AIM Mid Cap Core Equity Fund(2) AIM Global Health Care Fund AIM Municipal Bond Fund
AIM Mid Cap Growth Fund AIM Real Estate Fund AIM Tax-Exempt Cash Fund
AIM Opportunities I Fund INVESCO Advantage Health Sciences Fund AIM Tax-Free Intermediate Fund
AIM Opportunities II Fund INVESCO Energy Fund
AIM Opportunities III Fund INVESCO Financial Services Fund
AIM Premier Equity Fund INVESCO Gold & Precious Metals Fund
AIM Select Equity Fund INVESCO Health Sciences Fund
AIM Small Cap Equity Fund(3) INVESCO Leisure Fund
AIM Small Cap Growth Fund(4) INVESCO Multi-Sector Fund
AIM Trimark Endeavor Fund INVESCO Technology Fund
AM Trimark Small Companies Fund INVESCO Utilities Fund
AIM Weingarten Fund
INVESCO Core Equity Fund
INVESCO Dynamics Fund
INVESCO Mid-Cap Growth Fund
INVESCO Small Company Growth Fund
INVESCO S&P 500 Index Fund
INVESCO Total Return Fund*
</Table>
* Domestic equity and income fund
(1) Effective May 2, 2003, AIM Large Cap Core Equity Fund was renamed AIM
Diversified Dividend Fund. (2) As of the close of business on February 27, 2004,
AIM Mid Cap Core Equity Fund is available to new investors on a limited basis.
For information on who may continue to invest in AIM Mid Cap Core Equity Fund,
please contact your financial advisor. (3) AIM Small Cap Equity Fund was closed
to most investors on December 19, 2003. For information on who may continue to
invest in AIM Small Cap Equity Fund, please contact your financial advisor. (4)
AIM Small Cap Growth Fund was closed to most investors on March 18, 2002. For
information on who may continue to invest in AIM Small Cap Growth Fund, please
contact your financial advisor. (5) Effective April 30, 2003, AIM Worldwide
Spectrum Fund was renamed AIM Global Value Fund. (6) Effective November 24,
2003, INVESCO International Blue Chip Value Fund was renamed INVESCO
International Core Equity Fund.
For more complete information about any AIM or INVESCO fund, including sales
charges and expenses, ask your financial advisor for a prospectus. Please read
the prospectus carefully and consider the investment objectives, risks, and
charges and expenses of the investment carefully before investing. If used after
April, 2004, this brochure must be accompanied by a fund Performance &
Commentary or by an AIM Quarterly Performance Review for the most recent
quarter-end. Mutual funds distributed by A I M Distributors, Inc.
A I M Management Group Inc. has provided leadership in the investment management
industry since 1976 and manages $149 billion in assets for approximately 11
million shareholders, including individual investors, corporate clients and
financial institutions. AIM is a subsidiary of AMVESCAP PLC, one of the world's
largest independent financial services companies with $371 billion in assets
under management. Data as of December 31, 2003.
AIMinvestments.com IEG-AR-1
<Table>
YOUR GOALS. OUR SOLUTIONS.--Servicemark--
- -------------------------------------------------------------------------------------
Mutual Retirement Annuities College Separately Offshore Alternative Cash [AIM INVESTMENTS LOGO APPEARS HERE]
Funds Products Savings Managed Products Investments Management
Plans Accounts
</Table>
AIM MID CAP BASIC VALUE FUND
Annual Report to Shareholders o December 31, 2003
[COVER IMAGE]
YOUR GOALS. OUR SOLUTIONS. [AIM INVESTMENTS LOGO APPEARS HERE]
--Servicemark-- --Servicemark--
====================================================================
AIM MID CAP BASIC VALUE FUND SEEKS LONG-TERM GROWTH OF CAPITAL.
====================================================================
o Unless otherwise stated, information presented is as of 12/31/03
and is based on total net assets.
ABOUT SHARE CLASSES
<Table>
o Effective 9/30/03, Class B shares are ABOUT INDEXES USED IN THIS REPORT Industry classifications used in this
not available as an investment for report are generally according to the
retirement plans maintained pursuant to o The unmanaged Standard & Poor's Global Industry Classification Standard,
Section 401 of the Internal Revenue Composite Index of 500 Stocks (the S&P which was developed by and is the
Code, including 401(k) plans, money 500--Registered Trademark-- is an index exclusive property and a service mark of
purchase pension plans and profit of common stocks frequently used as a Morgan Stanley Capital International
sharing plans. Plans that have existing general measure of U.S. stock market Inc. and Standard & Poor's.
accounts invested in Class B shares will performance.
continue to be allowed to make A description of the policies and
additional purchases. o The unmanaged Lipper Mid-Cap Value procedures that the Fund uses to
Fund Index represents an average of the determine how to vote proxies relating
PRINCIPAL RISKS OF INVESTING IN THE FUND performance of the 30 largest to portfolio securities is available
mid-capitalization value funds tracked without charge, upon request, by calling
o The fund may participate in the by Lipper, Inc., an independent mutual 800-959-4246, or on the AIM Web site,
initial public offering (IPO) market in fund performance monitor. AIMinvestments.com.
some market cycles. Because of the
fund's small asset base, any investment o The unmanaged Russell
the fund may make in IPOs may Midcap--Registered Trademark-- Value
significantly affect the fund's total Index is a subset of the Russell Midcap
return. As the fund's assets grow, the Index, which represents the performance
impact of IPO investments will decline, of the stocks of domestic
which may reduce the effect of IPO mid-capitalization companies; the Value
investments on the fund's total return. subset measures the performance of
Russell Midcap companies with lower
o Investing in small- and mid-sized price/book ratios and lower forecasted
companies involves risks not associated growth values.
with investing in more established
companies. Also, small companies may o A direct investment cannot be made in
have business risk, significant stock an index. Unless otherwise indicated,
price fluctuations and illiquidity. index results include reinvested
dividends, and they do not reflect sales
charges. Performance of an index of
funds reflects fund expenses;
performance of a market index does not.
</Table>
<Table>
===================================================
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE THIS REPORT MAY BE DISTRIBUTED ONLY TO SHAREHOLDERS OR TO PERSONS
=================================================== WHO HAVE RECEIVED A CURRENT PROSPECTUS OF THE FUND. PLEASE READ
THE PROSPECTUS CAREFULLY AND CONSIDER THE INVESTMENT OBJECTIVES,
RISKS, AND CHARGES AND EXPENSES OF THE INVESTMENT CAREFULLY
BEFORE INVESTING.
</Table>
AIMinvestments.com
TO OUR SHAREHOLDERS
DEAR FELLOW SHAREHOLDER IN THE AIM FAMILY OF
FUNDS--Registered Trademark--:
[PHOTO OF The fiscal year ended December 31, 2003, was a welcome
ROBERT H. change from the bear market of the previous three years.
GRAHAM] Major stock market indexes here and abroad delivered
positive performance, with double-digit returns more the
ROBERT H. GRAHAM rule than the exception. As is historically the case, bond
market returns were more modest, but nonetheless positive as
well. The U.S. economy appears to have turned a corner, with
solid growth in gross domestic product. Overseas,
particularly in Europe, economic performance was not so
robust but appeared to pick up during the second half of the
year.
U.S. investors seem to have regained their confidence,
putting $152.77 billion in new money into stock mutual funds
during 2003 and $31.40 billion into bond funds. By contrast,
money market funds, considered a safe haven because of their emphasis on
stability of net asset value, suffered large net outflows during 2003.
The durability of these trends is, of course, unpredictable, but the economy
does appear to have the wind at its back in terms of fiscal, monetary and tax
stimulus, and corporate earnings have been strong. Nevertheless, we caution all
our shareholders against thinking that 2004 will be a repeat of 2003. We simply
do not know.
What should investors do? They should do what we have always urged: Keep
their eyes on their long-term goals, keep their portfolios diversified, and work
with their financial advisors to tailor their investments to their risk
tolerance and investment objectives. We cannot overemphasize the importance of
professional guidance when it comes to selecting investments.
For information on your fund's performance and management during the fiscal
year, please see the management discussion that begins on the following page.
VISIT OUR WEB SITE
As you are aware, the mutual fund industry, including AIM Investments, has been
the subject of allegations and investigations of late surrounding the issues of
market timing and late trading in funds. We understand how unsettling this may
be for many of our shareholders. We encourage you to visit AIMinvestments.com
often to monitor developments. We will continue to post updates on these issues
as information becomes available.
The Securities and Exchange Commission, which regulates our industry, has
already proposed new rules and regulations, and is planning to propose several
more, that address the issues of market timing and late trading, among others.
We welcome these efforts, as does the industry trade group, the Investment
Company Institute. We believe comprehensive rule making is necessary and is the
best way to establish new industry responsibilities designed to protect
shareholders. We support practical rule changes and structural modifications
that are fair, enforceable and, most importantly, beneficial for investors.
Should you visit our Web site, we invite you to explore the other material
available there, including general investing information, performance updates on
our funds, and market and economic commentary from our financial experts.
As always, AIM is committed to building solutions for your investment goals,
and we thank you for your continued participation in AIM Investments. If you
have any questions, you can contact one of our Client Service representatives at
800-959-4246.
Sincerely,
/s/ ROBERT H. GRAHAM
Robert H. Graham
Chairman and President
February 9, 2004
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
<Table>
AIM MID CAP BASIC VALUE FUND industrial capital goods and raw
POSTS DOUBLE-DIGIT RETURNS materials. Utilities, consumer staples
and other quasi-economically defensive
AIM Mid Cap Basic Value Fund Class A it reduced that rate to 1.00%, its groups did not perform as well. While
shares returned 37.06% at net asset lowest level since 1958. At the time, performance was generally in line with
value for the fiscal year ended December the Fed said it favored a more expansive peers, your fund outperformed the S&P
31, 2003. If sales charges were monetary policy because the economy had 500 Index because we were slightly more
included, performance would be lower. not yet exhibited sustainable growth. By exposed to the best-performing sectors
(Results for other share classes are October, the Fed reported that economic and our stock selection within these
shown in the table on page 3.) The expansion had increased and consumer sectors generated above-average
fund's benchmarks, the Russell Midcap spending was generally stronger.
Value Index, the S&P 500 Index, and the WHEN THE STOCK MARKET
Lipper Mid-Cap Value Fund Index, Small- and mid-cap stocks generally IS VIEWED THROUGH
returned 38.07%, 28.67% and 39.08%, outperformed large-cap stocks for the THIS INTRINSIC-VALUE LENS,
respectively. year. The performance of growth and IT BECOMES CLEAR THAT
value stocks was similar, although INVESTMENT RISK
MARKET CONDITIONS mid-cap growth stocks generally HAS LITTLE TO DO WITH
outperformed their value counterparts. HISTORICAL PRICES
Amid a backdrop of generally improving AND POPULAR
economic conditions, the S&P 500 posted YOUR FUND VOLATILITY MEASURES.
positive returns for the year. The
nation's gross domestic product, Based on our valuation estimates during returns. Versus our mid-cap peers, our
generally considered the broadest 2002, we believed the most compelling best performing sectors were technology,
measure of economic activity, expanded valuation opportunities were health care and consumer discretionary.
at an annualized rate of 3.1% in the concentrated in companies leveraged to Sectors and industries exhibiting
second quarter, 8.2% in the third an economic recovery scenario. As a relative underperformance included
quarter and 4.0% in the fourth quarter result, the changes we made to the industrial capital goods and financials,
of 2003. The job market, while portfolio in 2002 were many of the key although both contributed positively to
improving, continued to be weak, drivers of our 2003 performance. performance.
however, as the nation's unemployment
rate stood at 5.7% at the close of the Specifically, the best-performing
year. market sectors during 2003 were those
that we believe are most likely to
For the first five months of the benefit from an economic
year, the Federal Reserve (the Fed) kept recovery--consumer discretionary,
the short-term federal funds rate at financials, technology, business
1.25%. On June 25, 2003, services,
</Table>
<Table>
====================================================================================================================================
PORTFOLIO COMPOSITION BY SECTOR TOP 10 EQUITY HOLDINGS* TOP 10 INDUSTRIES*
(PIE CHART) 1. Computer Associates International, Inc. 4.2% 1. Data Processing & Outsourced Services 8.0%
FINANCIALS 26.1% 2. Interpublic Group of Cos., Inc. (The) 3.2 2. Advertising 6.1
CONSUMER DISCRETIONARY 24.0% 3. Ace Ltd. (Cayman Islands) 3.0 3. Apparel Retail 5.8
INFORMATION TECHNOLOGY 18.5% 4. R.H. Donnelley Corp. 2.9 4. Thrifts & Mortgage Finance 5.6
HEALTH CARE 9.7% 5. Anthem, Inc. 2.9 5. Managed Health Care 5.4
CASH & OTHER 21.7% 6. Aon Corp. 2.9 6. Systems Software 4.2
7. Kroger Co. (The) 2.7 7. Life & Health Insurance 3.9
8. Waters Corp. 2.6 8. Regional Banks 3.8
9. DST Systems, Inc. 2.6 9. Restaurants 3.5
10. Aetna Inc. 2.5 10. Property & Casualty Insurance 3.4
* Excludes money market fund holdings.
The fund's holdings are subject to change, and there is no assurance that the fund will continue to hold any particular security.
====================================================================================================================================
</Table>
2
<Table>
We manage the fund based on the undervalued stocks that we purchased BRET W. STANLEY
philosophy that business value is during 2002. Still, the stock proved to [PHOTO OF Mr. Stanley, CFA, is lead
separate from, but eventually be a big driver of our performance in BRET W. portfolio manager of AIM
determines, market value. Our goal is to 2003, as it was the fund's STANLEY] Mid Cap Basic Value Fund.
grow your capital by investing primarily top-performing investment. The company He began his investment
in mid-sized U.S. companies that are continues to produce substantial and career in 1988 and was a
significantly undervalued on an absolute stable cash flow, and we believe the vice president and
basis. company remains undervalued as the portfolio manager with
accounting concerns that created our Van Kampen American Capital, Inc. prior
When the stock market is viewed investment opportunity continue to to joining AIM in 1998. He received a
through this intrinsic-value lens, it abate. Other large contributors to B.B.A. in finance from The University of
becomes clear that investment risk has performance included Aetna, Zions Texas at Austin and an M.S. in finance
little to do with historical prices and Bancorp. and Waters. Although the from the University of Houston.
popular volatility measures. In fact, we magnitude of our detractors was much
believe that risk is often inversely smaller, they included Textron, TIMOTHY BEYER
related to price. This creates a UnumProvident, and Arch Coal--each [PHOTO OF Mr. Beyer, CFA, joined
paradox: investment risk may, in fact, position was sold during 2003 based on TIMOTHY AIM in 2003. Mr. Beyer
be low precisely where it appears high. valuation or impaired fundamentals. BEYER] began his investment
The bridge across this gap in market career in 1991 and served
perception is a long-term investment IN CLOSING as corporate bond analyst
horizon. As price declines significantly (1991-1994) and then as
below intrinsic value, what is known as While 2003 was a strong year, it needs an equity analyst, before
a "margin of safety" is created. While to be considered in a longer-term being promoted in 1996 to portfolio
this discount to value may be of no use context. Last year, we estimated that manager, during which time he co-managed
to a short-term trader, it is highly the fund had a near-record discount $4 billion in large cap value mutual
relevant to the long-term investor. If between year-end market value and our funds, common trust funds, and
this margin of safety is large enough, estimate of portfolio intrinsic value. institutional accounts. In 1999, he was
it creates an attractive risk-to-reward Following a 37% increase in market value appointed director of asset allocation.
equation that suggests significantly this year, we believe this discount is Mr. Beyer earned a B.S.B.A. in finance
higher upside potential with a lower still attractive but clearly more modest at East Carolina University.
risk of a permanent loss of capital. as of the end of this year.
R. CANON COLEMAN II
As we suggested last year, we thought However, we remain pleased with our [PHOTO OF Mr. Coleman, CFA, worked
this was the case with Computer estimate of portfolio value content. The R. CANON as a CPA before joining
Associates International, one of the AIM Mid Cap Basic Value philosophy COLEMAN II] AMVESCAP in 1999 in its
world's largest software companies. The recognizes businesses have an intrinsic corporate associate
stock was controversial and one of the value that is independent of the market, rotation program. He
most significantly stock prices are more volatile than worked with fund managers
business values, investors often throughout AMVESCAP
FUND VS. INDEXES overreact to negative news, and a before joining AIM in 2000. He earned a
long-term investment horizon is B.S. and M.S. in accounting from the
Total returns, 12/31/02-12/31/03, required. University of Florida and an M.B.A. from
excluding sales charges. The Wharton School at the University of
See important fund and index Pennsylvania.
If sales charges were included, disclosures inside front cover.
performance would be lower. MATTHEW W. SEINSHEIMER
[PHOTO OF Mr. Seinsheimer, CFA,
Class A Shares 37.06% MATTHEW W. began his investment
Class B Shares 36.19 SEINSHEIMER] career in 1992. He joined
Class C Shares 36.06 AIM as a senior analyst
S&P 500 Index 28.67 in 1998 and assumed his
(new Broad Market Index) current responsibilities
Russell Midcap Value Index 38.07 [ARROW in 2000. Mr. Seinsheimer
(Style-specific Index) BUTTON For More Information Visit received a B.B.A. from Southern
Lipper Mid-Cap Value Fund Index 39.08 IMAGE] AIMinvestments.com Methodist University and an M.B.A. from
(Peer Group Index) The University of Texas at Austin.
Source: Lipper, Inc. MICHAEL J. SIMON
[PHOTO OF Mr. Simon, CFA, was a
TOTAL NUMBER OF HOLDINGS* 48 MICHAEL J. vice president, equity
TOTAL NET ASSETS $107.0 MILLION SIMON] analyst and portfolio
manager prior to joining
AIM in 2001. Mr. Simon
started his investment
career in 1989. He
received a B.B.A. in finance from Texas
Christian University and an M.B.A. from
the University of Chicago.
Assisted by the Basic Value Team
</Table>
3
FUND PERFORMANCE
RESULTS OF A $10,000 INVESTMENT
12/31/01-12/31/03
<Table>
<Caption>
AIM MID CAP AIM MID CAP AIM MID CAP LIPPER
BASIC VALUE BASIC VALUE BASIC VALUE RUSSELL MID-CAP
FUND CLASS FUND CLASS FUND CLASS S&P 500 MIDCAP VALUE FUND
DATE A SHARES B SHARES C SHARES INDEX VALUE INDEX INDEX
12/31/01 9450 10000 10000 10000 10000 10000
01/31/2002 9431 9980 9970 9854 10101 9959
02/28/2002 9507 10050 10040 9664 10265 9995
03/31/2002 10357 10949 10939 10028 10790 10623
04/30/2002 10121 10700 10690 9420 10783 10594
05/31/2002 9999 10560 10550 9351 10766 10439
06/30/2002 9101 9600 9600 8685 10286 9701
07/31/2002 8099 8540 8541 8008 9279 8750
08/31/2002 8137 8570 8570 8061 9387 8774
09/30/2002 7211 7589 7590 7185 8439 8007
10/31/2002 7494 7889 7890 7817 8707 8278
[MOUNTAIN CHART] 11/30/2002 8279 8709 8700 8277 9256 8946
12/31/2002 7778 8179 8180 7791 9036 8534
01/31/2003 7637 8019 8019 7587 8785 8327
02/28/2003 7410 7779 7780 7473 8640 8141
03/31/2003 7410 7779 7780 7545 8669 8174
04/30/2003 7968 8360 8350 8167 9328 8801
05/31/2003 8847 9279 9270 8597 10149 9593
06/30/2003 8931 9359 9360 8706 10220 9741
07/31/2003 9480 9929 9930 8860 10538 10048
08/31/2003 9820 10278 10280 9032 10912 10498
09/30/2003 9499 9938 9930 8937 10827 10343
10/31/2003 10066 10528 10520 9442 11622 11060
11/30/2003 10208 10669 10660 9525 11959 11405
12/31/03 10662 10740 11130 10024 12475 11870
Source: Lipper, Inc.
</Table>
Past performance cannot guarantee comparable future results.
Your fund's total return includes sales charges, expenses and management fees.
Results for B shares are calculated as if a hypothetical shareholder had
liquidated his entire investment and paid the applicable contingent deferred
sales charges. The performance of the fund's share classes will differ due to
different sales charge structures and class expenses.
Performance shown in the chart and table does not reflect deduction of taxes
a shareholder would pay on fund distributions or sale of fund shares.
Performance of the indexes does not reflect the effects of taxes.
<Table>
AVERAGE ANNUAL TOTAL RETURNS Current performance may be lower or Class A share performance reflects
Including sales charges higher than the performance data quoted. the maximum 5.50% sales charge, and
CLASS A SHARES Past performance cannot guarantee Class B and Class C share performance
Inception (12/31/01) 3.26% comparable future results. Due to reflects the applicable contingent
1 Year 29.51 significant market volatility, results deferred sales charge (CDSC) for the
of an investment made today may differ period involved. The CDSC on Class B
CLASS B SHARES substantially from the historical shares declines from 5% beginning at the
Inception (12/31/01) 3.63% performance shown. Please visit time of purchase to 0% at the beginning
1 Year 31.19 aiminvestments.com for the most current of the seventh year. The CDSC on Class C
month-end performance. shares is 1% for the first year after
CLASS C SHARES purchase. The performance of the fund's
Inception (12/31/01) 5.50% The fund's performance figures are share classes will differ due to
1 Year 35.06 historical, and they reflect fund different sales charge structures and
expenses, the reinvestment of class expenses.
distributions, and changes in net asset
value. Performance data quoted represent
past performance, and the investment
return and principal value of an
investment will fluctuate so that an
investor's shares, when redeemed, may be
worth more or less than their original
cost.
</Table>
4
FINANCIALS
SCHEDULE OF INVESTMENTS
December 31, 2003
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
COMMON STOCKS & OTHER EQUITY INTERESTS-96.17%
ADVERTISING-6.09%
Interpublic Group of Cos., Inc. (The)(a) 216,470 $ 3,376,932
- ------------------------------------------------------------------------
R.H. Donnelley Corp.(a) 78,800 3,139,392
========================================================================
6,516,324
========================================================================
APPAREL RETAIL-5.84%
Abercrombie & Fitch Co.-Class A(a) 72,710 1,796,664
- ------------------------------------------------------------------------
Gap, Inc. (The) 86,700 2,012,307
- ------------------------------------------------------------------------
TJX Cos., Inc. (The) 110,500 2,436,525
========================================================================
6,245,496
========================================================================
ASSET MANAGEMENT & CUSTODY BANKS-2.43%
Janus Capital Group Inc. 116,840 1,917,345
- ------------------------------------------------------------------------
Waddell & Reed Financial, Inc.-Class A 29,090 682,452
========================================================================
2,599,797
========================================================================
BUILDING PRODUCTS-1.89%
American Standard Cos. Inc.(a) 20,050 2,019,035
========================================================================
DATA PROCESSING & OUTSOURCED SERVICES-7.99%
BISYS Group, Inc. (The)(a) 113,900 1,694,832
- ------------------------------------------------------------------------
Ceridian Corp.(a) 101,480 2,124,991
- ------------------------------------------------------------------------
Certegy Inc. 60,750 1,992,600
- ------------------------------------------------------------------------
DST Systems, Inc.(a) 65,570 2,738,203
========================================================================
8,550,626
========================================================================
DIVERSIFIED COMMERCIAL SERVICES-2.11%
Viad Corp. 90,200 2,255,000
========================================================================
ELECTRONIC EQUIPMENT MANUFACTURERS-2.62%
Waters Corp.(a) 84,500 2,802,020
========================================================================
EMPLOYMENT SERVICES-1.40%
Robert Half International Inc.(a) 64,330 1,501,462
========================================================================
FOOD RETAIL-2.68%
Kroger Co. (The)(a) 155,100 2,870,901
========================================================================
HEALTH CARE FACILITIES-2.06%
Universal Health Services, Inc.-Class B 40,950 2,199,834
========================================================================
HEALTH CARE SERVICES-2.22%
IMS Health Inc. 95,340 2,370,152
========================================================================
HOME FURNISHINGS-1.49%
Natuzzi S.p.A.-ADR (Italy) 158,700 1,599,696
========================================================================
</Table>
<Table>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
<Caption>
HOTELS, RESORTS & CRUISE LINES-2.96%
Orient-Express Hotels Ltd.-Class A (Bermuda) 80,500 $ 1,322,615
- ------------------------------------------------------------------------
Starwood Hotels & Resorts Worldwide, Inc. 51,180 1,840,945
========================================================================
3,163,560
========================================================================
INDUSTRIAL MACHINERY-3.01%
Kennametal Inc. 22,930 911,468
- ------------------------------------------------------------------------
SPX Corp.(a) 39,340 2,313,585
========================================================================
3,225,053
========================================================================
INSURANCE BROKERS-2.88%
Aon Corp. 128,700 3,081,078
========================================================================
IT CONSULTING & OTHER SERVICES-2.25%
Acxiom Corp.(a) 129,450 2,403,887
========================================================================
LEISURE FACILITIES-1.98%
Speedway Motorsports, Inc. 73,100 2,114,052
========================================================================
LEISURE PRODUCTS-2.15%
Brunswick Corp. 72,170 2,297,171
========================================================================
LIFE & HEALTH INSURANCE-3.92%
Nationwide Financial Services, Inc.-Class A 70,790 2,340,317
- ------------------------------------------------------------------------
Protective Life Corp. 54,700 1,851,048
========================================================================
4,191,365
========================================================================
MANAGED HEALTH CARE-5.40%
Aetna Inc. 39,590 2,675,492
- ------------------------------------------------------------------------
Anthem, Inc.(a) 41,280 3,096,000
========================================================================
5,771,492
========================================================================
MULTI-LINE INSURANCE-2.09%
American Financial Group, Inc. 84,330 2,231,372
========================================================================
MULTI-SECTOR HOLDINGS-1.95%
Leucadia National Corp. 45,200 2,083,720
========================================================================
OIL & GAS DRILLING-3.14%
Nabors Industries, Ltd. (Bermuda)(a) 40,690 1,688,635
- ------------------------------------------------------------------------
Pride International, Inc.(a) 89,610 1,670,330
========================================================================
3,358,965
========================================================================
OIL & GAS EQUIPMENT & SERVICES-1.50%
Smith International, Inc.(a) 38,760 1,609,315
========================================================================
PACKAGED FOODS & MEATS-2.20%
Cadbury Schweppes PLC-ADR (United Kingdom) 78,900 2,358,321
========================================================================
PROPERTY & CASUALTY INSURANCE-3.43%
ACE Ltd. (Cayman Islands) 77,820 3,223,304
- ------------------------------------------------------------------------
</Table>
F-1
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
PROPERTY & CASUALTY INSURANCE-(CONTINUED)
Aspen Insurance Holdings Ltd. (Bermuda)(a) 18,100 $ 449,061
========================================================================
3,672,365
========================================================================
REGIONAL BANKS-3.76%
Cullen/Frost Bankers, Inc. 47,100 1,910,847
- ------------------------------------------------------------------------
Zions Bancorp 34,470 2,114,045
========================================================================
4,024,892
========================================================================
RESTAURANTS-3.49%
CEC Entertainment Inc.(a) 46,600 2,208,374
- ------------------------------------------------------------------------
Outback Steakhouse, Inc. 34,430 1,522,150
========================================================================
3,730,524
========================================================================
SEMICONDUCTOR EQUIPMENT-1.39%
Brooks Automation, Inc.(a) 61,450 1,485,247
========================================================================
SYSTEMS SOFTWARE-4.24%
Computer Associates International, Inc. 165,900 4,535,706
========================================================================
THRIFTS & MORTGAGE FINANCE-5.61%
Federal Agricultural Mortgage Corp.-Class
C(a) 56,400 1,802,544
- ------------------------------------------------------------------------
MGIC Investment Corp. 31,400 1,787,916
- ------------------------------------------------------------------------
Radian Group Inc. 49,480 2,412,150
========================================================================
6,002,610
========================================================================
Total Common Stocks & Other Equity
Interests (Cost $85,728,699) 102,871,038
========================================================================
</Table>
<Table>
MARKET
SHARES VALUE
<Caption>
- ------------------------------------------------------------------------
MONEY MARKET FUNDS-6.49%
Liquid Assets Portfolio(b) 3,469,832 $ 3,469,832
- ------------------------------------------------------------------------
STIC Prime Portfolio(b) 3,469,832 3,469,832
========================================================================
Total Money Market Funds (Cost $6,939,664) 6,939,664
========================================================================
TOTAL INVESTMENTS-102.66% (excluding
investments purchased with cash collateral
from securities loaned) (Cost $92,668,363) 109,810,702
========================================================================
INVESTMENTS PURCHASED WITH CASH COLLATERAL
FROM SECURITIES LOANED
MONEY MARKET FUNDS-1.63%
Liquid Assets Portfolio(b)(c) 1,742,200 1,742,200
========================================================================
Total Money Market Funds (purchased with
cash collateral from securities loaned)
(Cost $1,742,200) 1,742,200
========================================================================
TOTAL INVESTMENTS-104.29% (Cost $94,410,563) 111,552,902
========================================================================
OTHER ASSETS LESS LIABILITIES-(4.29%) (4,593,729)
========================================================================
NET ASSETS-100.00% $106,959,173
________________________________________________________________________
========================================================================
</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 Note 3.
(c) The security has been segregated to satisfy the forward commitment to return
the cash collateral received in securities lending transactions upon the
borrower's return of the securities loaned. See Note 3.
See accompanying notes which are an integral part of the financial statements.
F-2
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2003
<Table>
ASSETS:
Investments, at market value (cost
$85,728,699)* $102,871,038
- -----------------------------------------------------------
Investments in affiliated money market funds
(cost $8,681,864) 8,681,864
- -----------------------------------------------------------
Receivables for:
Fund shares sold 817,957
- -----------------------------------------------------------
Dividends 93,056
- -----------------------------------------------------------
Investment for deferred compensation and
retirement plans 8,061
- -----------------------------------------------------------
Other assets 40,277
===========================================================
Total assets 112,512,253
___________________________________________________________
===========================================================
LIABILITIES:
Payables for:
Investments purchased 3,407,053
- -----------------------------------------------------------
Fund shares reacquired 226,899
- -----------------------------------------------------------
Deferred compensation and retirement plans 8,534
- -----------------------------------------------------------
Collateral upon return of securities loaned 1,742,200
- -----------------------------------------------------------
Accrued distribution fees 57,395
- -----------------------------------------------------------
Accrued transfer agent fees 55,285
- -----------------------------------------------------------
Accrued operating expenses 55,714
===========================================================
Total liabilities 5,553,080
===========================================================
Net assets applicable to shares outstanding $106,959,173
___________________________________________________________
===========================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $101,200,780
- -----------------------------------------------------------
Undistributed net investment income (loss) (7,330)
- -----------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities (11,376,616)
- -----------------------------------------------------------
Unrealized appreciation of investment
securities 17,142,339
===========================================================
$106,959,173
___________________________________________________________
===========================================================
NET ASSETS:
Class A $ 55,372,221
___________________________________________________________
===========================================================
Class B $ 38,164,921
___________________________________________________________
===========================================================
Class C $ 13,422,031
___________________________________________________________
===========================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER
SHARE, UNLIMITED NUMBER OF SHARES
AUTHORIZED:
Class A 4,908,460
___________________________________________________________
===========================================================
Class B 3,426,476
___________________________________________________________
===========================================================
Class C 1,205,785
___________________________________________________________
===========================================================
Class A:
Net asset value per share $ 11.28
- -----------------------------------------------------------
Offering price per share:
(Net asset value of $11.28 divided by
94.50%) $ 11.94
___________________________________________________________
===========================================================
Class B:
Net asset value and offering price per
share $ 11.14
___________________________________________________________
===========================================================
Class C:
Net asset value and offering price per
share $ 11.13
___________________________________________________________
===========================================================
</Table>
* At December 31, 2003, securities with an aggregate market value of $1,679,818
were on loan to brokers.
See accompanying notes which are an integral part of the financial statements.
F-3
STATEMENT OF OPERATIONS
For the year ended December 31, 2003
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $9,638) $ 536,800
- -------------------------------------------------------------------------
Dividends from affiliated money market funds* 46,089
=========================================================================
Total investment income 582,889
=========================================================================
EXPENSES:
Advisory fees 585,948
- -------------------------------------------------------------------------
Administrative services fees 50,000
- -------------------------------------------------------------------------
Custodian fees 26,105
- -------------------------------------------------------------------------
Distribution fees:
Class A 131,657
- -------------------------------------------------------------------------
Class B 266,912
- -------------------------------------------------------------------------
Class C 89,362
- -------------------------------------------------------------------------
Transfer agent fees 296,327
- -------------------------------------------------------------------------
Trustees' fees 10,013
- -------------------------------------------------------------------------
Registration and filing fees 91,271
- -------------------------------------------------------------------------
Other 91,415
=========================================================================
Total expenses 1,639,010
=========================================================================
Less: Fees waived and expense offset arrangements (88,937)
=========================================================================
Net expenses 1,550,073
=========================================================================
Net investment income (loss) (967,184)
=========================================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES:
Net realized gain (loss) from investment securities (4,054,747)
- -------------------------------------------------------------------------
Change in net unrealized appreciation of investment
securities 27,636,943
=========================================================================
Net gain from investment securities 23,582,196
=========================================================================
Net increase in net assets resulting from operations $22,615,012
_________________________________________________________________________
=========================================================================
</Table>
* Dividends from affiliated money market funds are net of fees paid to security
lending counterparties.
See accompanying notes which are an integral part of the financial statements.
F-4
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 2003 and 2002
<Table>
<Caption>
2003 2002
- ------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (967,184) $ (476,400)
- ------------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities (4,054,747) (7,321,869)
- ------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities 27,636,943 (10,493,590)
==========================================================================================
Net increase (decrease) in net assets resulting from
operations 22,615,012 (18,291,859)
==========================================================================================
Distributions to shareholders from net investment income:
Class A -- (478)
- ------------------------------------------------------------------------------------------
Class B -- (253)
- ------------------------------------------------------------------------------------------
Class C -- (97)
==========================================================================================
Decrease in net assets resulting from distributions -- (828)
==========================================================================================
Share transactions-net:
Class A 4,929,815 50,139,628
- ------------------------------------------------------------------------------------------
Class B 8,575,378 25,993,450
- ------------------------------------------------------------------------------------------
Class C 2,445,889 9,553,721
==========================================================================================
Net increase in net assets resulting from share
transactions 15,951,082 85,686,799
==========================================================================================
Net increase in net assets 38,566,094 67,394,112
==========================================================================================
NET ASSETS:
Beginning of year 68,393,079 998,967
==========================================================================================
End of year (including undistributed net investment income
(loss) of $(7,330) and $(3,770) for 2003 and 2002,
respectively) $106,959,173 $ 68,393,079
__________________________________________________________________________________________
==========================================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
F-5
NOTES TO FINANCIAL STATEMENTS
December 31, 2003
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Mid Cap Basic Value Fund (the "Fund") is a series portfolio of AIM Funds
Group (the "Trust"). The Trust is a Delaware statutory trust registered under
the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
series management investment company consisting of nine separate portfolios,
each authorized to issue an unlimited number of shares of beneficial interest.
The Fund currently offers multiple classes of shares. Matters affecting each
portfolio or class will be voted on exclusively by the shareholders of such
portfolio or class. The assets, liabilities and operations of each portfolio are
accounted for separately. Information presented in these financial statements
pertains only to the Fund.
The Fund's investment objective is long-term growth of capital. Each company
listed in the Schedule of Investments is organized in the United States of
America unless otherwise noted.
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 on the basis of prices furnished
by independent pricing services or market makers. Each security reported on
the NASDAQ National Market System is valued at the NASDAQ Official Closing
Price ("NOCP") as of the close of the customary trading session on the
valuation date or absent a NOCP, at the closing bid price. 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. Issuer specific events, market trends, bid/ask quotes of brokers
and information providers and other market data may be reviewed in the
course of making a good faith determination of a security's fair value.
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
ordinarily be reflected in the computation of the Fund's net asset value.
If a development/event is so significant such 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. Adjustments to closing prices to reflect fair value on affected
foreign securities may be provided by an independent pricing service.
Multiple factors may be considered by the independent pricing service in
determining adjustments to reflect fair value and may include information
relating to sector indices, ADRs, domestic and foreign index futures and
exchange-traded funds.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions
are accounted for on a trade date basis. Realized gains or losses on sales
are computed on the basis of specific identification of the securities
sold. Interest income is recorded on the accrual basis from settlement
date. Dividend income is recorded on the ex-dividend date. Bond premiums
and discounts are amortized and/or accreted for financial reporting
purposes.
The Fund allocates income and realized and unrealized capital gains and
losses to a class based on the relative net assets of each class.
C. 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
Subchapter M of the Internal Revenue Code necessary to qualify as a
regulated investment company and, as
F-6
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. Any capital loss carryforwards listed are
reduced for limitations, if any, to the extent required by the Internal
Revenue Code.
E. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund and which are directly attributable to that class are
charged to the operations of such class. All other expenses are allocated
among the classes based on relative net assets.
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement,
the Fund pays an advisory fee to AIM at the annual rate of 0.80% of the first $1
billion of the Fund's average daily net assets, plus 0.75% of the Fund's average
daily net assets on the next $4 billion, plus 0.70% of the Fund's average daily
net assets in excess of $5 billion. AIM has voluntarily agreed to waive fees
and/or reimburse expenses (excluding interest, taxes, fund merger and
reorganization expenses, extraordinary items, including other items designated
as such by the Board of Trustees 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 fund operating expenses of Class A shares to 1.80%.
Voluntary fee waivers or reimbursements may be modified or discontinued at any
time without further notice to investors. Further, AIM has voluntarily agreed to
waive advisory fees of the Fund in the amount of 25% of the advisory fee AIM
receives from the affiliated money market funds on investments by the Fund in
such affiliated money market funds (excluding investments made in affiliated
money market funds with cash collateral from securities loaned by the Fund). For
the year ended December 31, 2003, AIM waived fees of $87,608.
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, 2003, AIM was
paid $50,000 for such services.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay AIM Investment Services, Inc. ("AISI"), formerly known as A I M Fund
Services, Inc., a fee for providing transfer agency and shareholder services to
the Fund. During the year ended December 31, 2003, AISI retained $146,290 for
such services.
The Trust has entered into a master distribution agreement 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,
Class B 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 Class C shares. Of these amounts, up to 0.25% of the
average daily net assets of the Class A, Class B or Class C shares may be paid
to furnish continuing personal shareholder services to customers who purchase
and own shares of such classes. Any amounts not paid as a service fee under the
Plans would constitute an asset-based sales charge. NASD Rules also impose a cap
on the total sales charges, including asset-based sales charges that may be paid
by any class of shares of the Fund. Pursuant to the Plans, for the year ended
December 31, 2003, the Class A, Class B and Class C shares paid $131,657,
$266,912 and $89,362, respectively.
Front-end sales commissions and contingent deferred sales charges ("CDSC")
(collectively the "sales charges") are not recorded as expenses of the Fund.
Front-end sales commissions are deducted from proceeds from the sales of Fund
shares prior to investment in Class A shares of the Fund. CDSC are deducted from
redemption proceeds prior to remittance to the shareholder. During year ended
December 31, 2003, AIM Distributors retained $37,836 in front-end sales
commissions from the sale of Class A shares and $10,690, $92 and $2,506 from
Class A, Class B and Class C shares, respectively, for CDSC imposed upon
redemptions by shareholders.
Certain officers and trustees of the Trust are officers and directors of
AIM, AISI and/or AIM Distributors.
F-7
NOTE 3--INVESTMENTS IN AFFILIATES
The Fund is permitted pursuant to an exemptive order from the Securities and
Exchange Commission ("SEC") and approved procedures by the Board of Trustees to
invest daily available cash balances and cash collateral from securities lending
transactions in affiliated money market funds. Each day the prior day's balance
invested in the affiliated money market fund is redeemed in full and a new
purchase amount is submitted to invest the current day's available cash and/or
cash collateral received from securities lending transactions. The table below
shows the transactions in and earnings from investments in affiliated money
market funds for the period ended December 31, 2003.
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
12/31/2002 AT COST FROM SALES (DEPRECIATION) 12/31/2003 INCOME GAIN (LOSS)
- ---------------------------------------------------------------------------------------------------------------------------------
Liquid Assets Portfolio $1,643,540 $26,659,180 $(24,832,888) $ -- $3,469,832 $18,888 $ --
- ---------------------------------------------------------------------------------------------------------------------------------
STIC Prime Portfolio 1,643,540 26,659,180 (24,832,888) -- 3,469,832 18,520 --
=================================================================================================================================
Subtotal $3,287,080 $53,318,360 $(49,665,776) $ -- $6,939,664 $37,408 $ --
=================================================================================================================================
</Table>
INVESTMENTS OF CASH COLLATERAL FROM SECURITIES LENDING TRANSACTIONS:
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
12/31/2002 AT COST FROM SALES (DEPRECIATION) 12/31/2003 INCOME* GAIN (LOSS)
- ------------------------------------------------------------------------------------------------------------------------------------
Liquid Assets Portfolio $ -- $10,792,100 $(9,049,900) $ -- $1,742,200 $8,681 $ --
====================================================================================================================================
Total $3,287,080 $64,110,460 $(58,715,676) $ -- $8,681,864 $46,089 $ --
____________________________________________________________________________________________________________________________________
====================================================================================================================================
</Table>
* Dividend income is net of fees paid to security lending counterparties of
$28,873.
NOTE 4--EXPENSE OFFSET ARRANGEMENTS
Indirect expenses under expense offset arrangements are comprised of transfer
agency credits resulting from Demand Deposit Account (DDA) balances in transfer
agency clearing accounts and custodian credits resulting from periodic overnight
cash balances at the custodian. For the year ended December 31, 2003, the Fund
received reductions in transfer agent fees from AISI (an affiliate of AIM) of
$1,235 and reductions in custodian fees of $94 under expense offset
arrangements, which resulted in a reduction of the Fund's total expenses of
$1,329.
NOTE 5--TRUSTEES' FEES
Trustees' fees represent remuneration paid to each Trustee of the Trust who is
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 and INVESCO Funds in which their deferral accounts
shall be deemed to be invested.
Current Trustees are eligible to participate in a retirement plan that
provides for benefits to be paid upon retirement to Trustees over a period of
time based on the number of years of service. The Fund may have certain former
Trustees that also participate in a retirement plan and receive benefits under
such plan.
During the year ended December 31, 2003, the Fund paid legal fees of $3,702
for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the
Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 6--BORROWINGS
The Fund may participate in an interfund lending facility that AIM has
established for temporary borrowings by the AIM Funds and the INVESCO Funds. An
interfund loan will be made under this facility only if the loan rate (an
average of the rate available on bank loans and the rate available on
investments in overnight repurchase agreements) is favorable to both the lending
fund and the borrowing fund. Under certain circumstances, a loan will be secured
by collateral. To the extent that the loan is required to be secured by
collateral, the collateral is marked to market daily to ensure that the market
value is at least 102% of the outstanding principal value of the loan.
Effective June 26, 2003, the Fund became a participant in an uncommitted
unsecured revolving credit facility with State Street Bank and Trust Company
("SSB"). The Fund may borrow up to the lesser of (i) $125,000,000 or (ii) the
limits set by its prospectus for borrowings. The Fund and other funds advised by
AIM which are parties to the credit facility can borrow on a first come, first
served basis. Principal on each loan outstanding shall bear interest at the bid
rate quoted by SSB at the time of the request for the loan.
During the reporting period, the Fund was a participant in a committed
credit facility with a syndicate administered by Citibank, N.A. The Fund could
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 were
parties to the credit facility could borrow on a first come, first served basis.
The funds which were party to the credit facility were charged a commitment fee
of 0.09% on the unused balance of the committed line. The commitment fee was
allocated among the funds based on their respective average net assets for the
period. The committed credit facility expired May 20, 2003.
During the year ended December 31, 2003, the Fund did not borrow or lend
under the interfund lending facility or borrow under either the uncommitted
unsecured revolving credit facility or the committed credit facility.
F-8
Additionally the Fund is permitted to temporarily carry a negative or
overdrawn balance in its account with the custodian bank. To compensate the
custodian bank for such overdrafts, the overdrawn Fund may either (i) leave
funds in the account so the custodian can be compensated by earning the
additional interest; or (ii) compensate by paying the custodian bank. In either
case, the custodian bank will be compensated an amount equal to the Federal
Funds rate plus 100 basis points.
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 of the loaned securities determined daily. Such collateral will be
cash or debt securities issued or guaranteed by the U.S. Government or any of
its agencies. Cash collateral received in connection with these loans is
invested in short-term money market instruments or affiliated money market
funds. It is the Fund's policy to obtain additional collateral from or return
excess collateral to the borrower by the end of the next business day, following
the valuation date of the securities loaned. Therefore, the value of the
collateral held may be temporarily less than the value of the securities on
loan. Lending securities entails a risk of loss to the Fund if and to the extent
that the market value of the securities loaned were to increase and the borrower
did not increase the collateral accordingly, and the borrower fails to return
the securities. The Fund could also experience delays and costs in gaining
access to the collateral. The Fund bears the risk of any deficiency in the
amount of the collateral available for return to the borrower due to a loss on
the collateral invested.
At December 31, 2003, securities with an aggregate value of $1,679,818 were
on loan to brokers. The loans were secured by cash collateral of $1,742,200,
received by the Fund and subsequently invested in an affiliated money market
fund. For the year ended December 31, 2003, the Fund received dividends on cash
collateral net of fees paid to counterparties of $8,681 for securities lending
transactions.
NOTE 8--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
Distributions to Shareholders:
The tax character of distributions paid during the years ended December 31, 2003
and 2002 was as follows:
<Table>
<Caption>
2003 2002
- --------------------------------------------------------
Distributions paid from ordinary income $ -- $828
________________________________________________________
========================================================
</Table>
Tax Components of Net Assets:
As of December 31, 2003, the components of net assets on a tax basis were as
follows:
<Table>
Unrealized appreciation -- investments $ 15,734,086
- -----------------------------------------------------------
Temporary book/tax differences (7,330)
- -----------------------------------------------------------
Capital loss carryforward (9,895,859)
- -----------------------------------------------------------
Post-October capital loss deferral (72,504)
- -----------------------------------------------------------
Shares of beneficial interest 101,200,780
===========================================================
Total net assets $106,959,173
___________________________________________________________
===========================================================
</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.
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
trustee retirement plan expenses.
The Fund has a capital loss carryforward for tax purposes which expires as
follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD
- ----------------------------------------------------------
December 31, 2010 $3,285,438
- ----------------------------------------------------------
December 31, 2011 6,610,421
==========================================================
Total capital loss carryforward $9,895,859
__________________________________________________________
==========================================================
</Table>
NOTE 9--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities
and money market funds) purchased and sold by the Fund during year ended
December 31, 2003 was $50,253,384 and $37,038,258, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF
INVESTMENT SECURITIES ON A TAX BASIS
- -----------------------------------------------------------
Aggregate unrealized appreciation of
investment securities $17,258,527
- -----------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (1,524,441)
===========================================================
Net unrealized appreciation of investment
securities $15,734,086
___________________________________________________________
===========================================================
Cost of investments for tax purposes is $95,818,816.
</Table>
NOTE 10--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of net operating losses,
on December 31, 2003, undistributed net investment income was increased by
$963,624 and shares of beneficial interest decreased by $963,624. This
reclassification had no effect on the net assets of the Fund.
F-9
NOTE 11--SHARE INFORMATION
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 CDSC. Under some
circumstances, Class A shares are subject to CDSC. Generally, Class B shares
will automatically convert to Class A shares eight years after the end of the
calendar month of purchase.
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING
- ----------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
2003 2002
-------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------------------------------------------------------------
Sold:
Class A 3,832,986 $ 37,737,367 6,822,286 $ 67,387,599
- ----------------------------------------------------------------------------------------------------------------------
Class B 1,803,614 17,257,750 3,513,553 34,188,591
- ----------------------------------------------------------------------------------------------------------------------
Class C 886,121 8,452,954 1,447,908 13,866,491
======================================================================================================================
Automatic conversion of Class B shares to Class A shares:
Class A 156,161 1,515,851 54,117 479,487
- ----------------------------------------------------------------------------------------------------------------------
Class B (157,780) (1,515,851) (54,301) (479,487)
======================================================================================================================
Reacquired:
Class A (3,833,211) (34,323,403) (2,163,879) (17,727,458)
- ----------------------------------------------------------------------------------------------------------------------
Class B (811,030) (7,166,521) (897,580) (7,715,654)
- ----------------------------------------------------------------------------------------------------------------------
Class C (665,740) (6,007,065) (492,504) (4,312,770)
======================================================================================================================
1,211,121 $ 15,951,082 8,229,600 $ 85,686,799
______________________________________________________________________________________________________________________
======================================================================================================================
</Table>
NOTE 12--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
CLASS A
---------------------------------------------
YEAR ENDED
DECEMBER 31, DECEMBER 31, 2001
--------------------- (DATE OPERATIONS
2003 2002 COMMENCED)
- -----------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 8.23 $ 9.99 $ 10.00
- -----------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.08) (0.06)(a) 0.00
- -----------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 3.13 (1.70) (0.01)
===========================================================================================================
Total from investment operations 3.05 (1.76) (0.01)
===========================================================================================================
Less distributions from net investment income -- (0.00) --
===========================================================================================================
Net asset value, end of period $ 11.28 $ 8.23 $ 9.99
___________________________________________________________________________________________________________
===========================================================================================================
Total return(b) 37.06% (17.62)% (0.10)%
___________________________________________________________________________________________________________
===========================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $55,372 $39,130 $ 400
___________________________________________________________________________________________________________
===========================================================================================================
Ratio of expenses to average net assets:
With fee waivers 1.80%(c) 1.80% 1.80%(d)
- -----------------------------------------------------------------------------------------------------------
Without fee waivers 1.92%(c) 1.93% 199.49%(d)
===========================================================================================================
Ratio of net investment income (loss) to average net assets (1.00)%(c) (0.70)% (0.31)%(d)
___________________________________________________________________________________________________________
===========================================================================================================
Portfolio turnover rate 52% 41% --
___________________________________________________________________________________________________________
===========================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include sales charges
and is not annualized for periods less than one year.
(c) Ratios are based on average daily net assets of $37,616,169.
(d) Annualized.
F-10
NOTE 12--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS B
---------------------------------------------
YEAR ENDED
DECEMBER 31, DECEMBER 31, 2001
--------------------- (DATE OPERATIONS
2003 2002 COMMENCED)
- -----------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 8.18 $ 9.99 $ 10.00
- -----------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.13) (0.12)(a) 0.00
- -----------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 3.09 (1.69) (0.01)
===========================================================================================================
Total from investment operations 2.96 (1.81) (0.01)
===========================================================================================================
Less distributions from net investment income -- (0.00) --
===========================================================================================================
Net asset value, end of period $ 11.14 $ 8.18 $ 9.99
___________________________________________________________________________________________________________
===========================================================================================================
Total return(b) 36.19% (18.12)% (0.10)%
___________________________________________________________________________________________________________
===========================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $38,165 $21,204 $ 300
___________________________________________________________________________________________________________
===========================================================================================================
Ratio of expenses to average net assets:
With fee waivers 2.45%(c) 2.45% 2.45%(d)
- -----------------------------------------------------------------------------------------------------------
Without fee waivers 2.57%(c) 2.58% 200.14%(d)
===========================================================================================================
Ratio of net investment income (loss) to average net assets (1.65)%(c) (1.35)% (0.96)%(d)
___________________________________________________________________________________________________________
===========================================================================================================
Portfolio turnover rate 52% 41% --
___________________________________________________________________________________________________________
===========================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include sales charges
and is not annualized for periods less than one year.
(c) Ratios are based on average daily net assets of $26,691,192.
(d) Annualized.
<Table>
<Caption>
CLASS C
---------------------------------------------
YEAR ENDED
DECEMBER 31, DECEMBER 31, 2001
--------------------- (DATE OPERATIONS
2003 2002 COMMENCED)
- -----------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 8.18 $ 9.99 $ 10.00
- -----------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.12) (0.12)(a) 0.00
- -----------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 3.07 (1.69) (0.01)
===========================================================================================================
Total from investment operations 2.95 (1.81) (0.01)
===========================================================================================================
Less distributions from net investment income -- (0.00) --
===========================================================================================================
Net asset value, end of period $ 11.13 $ 8.18 $ 9.99
___________________________________________________________________________________________________________
===========================================================================================================
Total return 36.06% (18.12)% (0.10)%
___________________________________________________________________________________________________________
===========================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $13,422 $ 8,059 $ 300
___________________________________________________________________________________________________________
===========================================================================================================
Ratio of expenses to average net assets:
With fee waivers 2.45%(c) 2.45% 2.45%(d)
- -----------------------------------------------------------------------------------------------------------
Without fee waivers 2.57%(c) 2.58% 200.14%(d)
===========================================================================================================
Ratio of net investment income (loss) to average net assets (1.65)%(c) (1.35)% (0.96)%(d)
___________________________________________________________________________________________________________
===========================================================================================================
Portfolio turnover rate 52% 41% --
___________________________________________________________________________________________________________
===========================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include sales charges
and is not annualized for periods less than one year.
(c) Ratios are based on average daily net assets of $8,936,175.
(d) Annualized.
F-11
NOTE 13--LEGAL PROCEEDINGS
Your Fund's investment advisor, A I M Advisors, Inc. ("AIM"), is an indirect
wholly owned subsidiary of AMVESCAP PLC ("AMVESCAP"). Another indirect wholly
owned subsidiary of AMVESCAP, INVESCO Funds Group, Inc. ("IFG"), was formerly
the investment advisor to the INVESCO Funds. IFG continues to serve as the
investment advisor to INVESCO Variable Investment Funds, Inc. ("IVIF"). On
November 25, 2003, AIM succeeded IFG as the investment advisor to the INVESCO
Funds other than IVIF.
The mutual fund industry as a whole is currently subject to a wide range of
inquiries and litigation related to issues of "market timing" and "late
trading." Both AIM and IFG are the subject of a number of such inquiries, as
described below.
A. Regulatory Inquiries and Actions
1. IFG
On December 2, 2003 each of the Securities and Exchange Commission ("SEC") and
the Office of the Attorney General of the State of New York ("NYAG") filed civil
proceedings against IFG and Raymond R. Cunningham, in his capacity as the Chief
Executive Officer of IFG. Mr. Cunningham currently holds the positions of Chief
Operating Officer and Senior Vice President of A I M Management Group Inc., the
parent of AIM, and the position of Senior Vice President of AIM. In addition, on
December 2, 2003, the State of Colorado filed civil proceedings against IFG.
Neither the Fund nor any of the other AIM or INVESCO Funds has been named as a
defendant in any of these proceedings.
The SEC complaint alleges that IFG failed to disclose in the INVESCO Funds'
prospectuses and to the INVESCO Funds' independent directors that IFG had
entered into certain arrangements permitting market timing of the INVESCO Funds.
The SEC is seeking injunctions, including permanent injunctions from serving as
an investment advisor, officer or director of an investment company; an
accounting of all market timing as well as certain fees and compensation
received; disgorgement; civil monetary penalties; and other relief.
The NYAG and Colorado complaints make substantially similar allegations. The
NYAG is seeking injunctions, including permanent injunctions from directly or
indirectly selling or distributing shares of mutual funds; disgorgement of all
profits obtained, including fees collected, and payment of all restitution and
damages caused, directly or indirectly from the alleged illegal activities;
civil monetary penalties; and other relief. The State of Colorado is seeking
injunctions; restitution, disgorgement and other equitable relief, civil
monetary penalties; and other relief.
In addition, IFG has received inquiries in the form of subpoenas or other oral
or written requests for information from various regulators concerning market
timing activity, late trading, fair value pricing and related issues concerning
the INVESCO Funds. These regulators include the Florida Department of Financial
Services, the Commissioner of Securities for the State of Georgia, the Office of
the State Auditor for the State of West Virginia, and the Office of the
Secretary of State for West Virginia. IFG has also received more limited
inquiries concerning related matters from the United States Department of Labor,
NASD, Inc., and the SEC. IFG is providing full cooperation with respect to these
inquiries.
2. AIM
AIM has also received inquiries in the form of subpoenas or other oral or
written requests for information from various regulators concerning market
timing activity, late trading, fair value pricing, and related issues concerning
the AIM Funds. AIM has received requests for information and documents
concerning these and related matters from the SEC and the Massachusetts
Secretary of the Commonwealth. In addition, AIM has received subpoenas
concerning these and related matters from the NYAG, the United States Attorney's
Office for the District of Massachusetts, the Commissioner of Securities for the
State of Georgia, the Office of the State Auditor for the State of West
Virginia, and the Office of the Secretary of State for West Virginia. AIM has
also received more limited inquiries from the SEC and NASD, Inc. concerning
specific funds, entities and/or individuals, none of which directly bears upon
the Fund. AIM is providing full cooperation with respect to these inquiries.
3. AMVESCAP Response
AMVESCAP is seeking to resolve both the pending regulatory complaints against
IFG alleging market timing and the ongoing market timing investigations with
respect to IFG and AIM. AMVESCAP recently found, in its ongoing review of these
matters, that shareholders were not always effectively protected from the
potential adverse impact of market timing and illegal late trading through
intermediaries. These findings were based, in part, on an extensive economic
analysis by outside experts who have been retained by AMVESCAP to examine the
impact of these activities. In light of these findings, AMVESCAP has publicly
stated that any AIM or INVESCO Fund, or any shareholders thereof, harmed by
these activities will receive full restitution. AMVESCAP has informed regulators
of these findings. In addition, AMVESCAP has retained outside counsel to
undertake a comprehensive review of AIM's and IFG's policies, procedures and
practices, with the objective that they rank among the most effective in the
fund industry.
There can be no assurance that AMVESCAP will be able to reach a satisfactory
settlement with the regulators, or that any such settlement will not include
terms which would have the effect of barring either or both of IFG and AIM, or
any other investment advisor directly or indirectly owned by AMVESCAP, from
serving as an investment advisor to any registered investment company including
the Fund. The Fund has been informed by AIM that, if either of these results
occurs, AIM will seek exemptive relief from the SEC to permit it to continue to
serve as the Fund's investment advisor. There can be no assurance that such
exemptive relief will be granted. Any settlement with the regulators could also
include terms which would bar Mr. Cunningham from serving as an officer or
director of any registered investment company.
B. Private Actions
In addition to the complaints described above, multiple lawsuits, including
purported class action and shareholder derivative suits, have been filed against
various parties (including, depending on the lawsuit, certain INVESCO Funds,
certain AIM Funds, IFG, AIM, A I M Management Group Inc., the parent of AIM,
AMVESCAP, certain related entities and certain of their officers, including Mr.
Cunningham). The allegations in the majority of the lawsuits are substantially
similar to the allegations in the regulatory complaints against IFG described
above. Certain other lawsuits allege that certain AIM and INVESCO Funds
inadequately employed fair value pricing. Such lawsuits allege a variety of
theories of recovery, including but not limited to: (i) violation of various
provisions of the Federal and state securities laws; (ii) violation of various
provisions of the Employee Retirement Income Security Act
F-12
NOTE 13--LEGAL PROCEEDINGS (CONTINUED)
("ERISA"); (iii) breach of fiduciary duty; and (iv) breach of contract. The
lawsuits have been filed in both Federal and state courts and seek such remedies
as compensatory damages; restitution; rescission; accounting for wrongfully
gotten gains, profits and compensation; injunctive relief; disgorgement;
equitable relief; various corrective measures under ERISA; rescission of certain
Funds' advisory agreements with AIM; declaration that the advisory agreement is
unenforceable or void; refund of advisory fees; interest; and attorneys' and
experts' fees.
IFG has removed certain of the state court proceedings to Federal District
Court. At a hearing before the Judicial Panel on Multidistrict Litigation
concerning the most efficient way to manage the numerous lawsuits alleging
market timing in mutual funds throughout the industry, IFG and AIM supported
transfer of all cases pending against them to one district for consolidated
proceedings. The Panel has not issued a ruling.
Additional lawsuits or regulatory actions arising out of these circumstances
and presenting similar allegations and requests for relief may be filed against
the Fund, IFG, AIM, AMVESCAP and related entities and individuals in the future.
As a result of these developments, investors in the AIM and INVESCO Funds
might react by redeeming their investments. This might require the Funds to sell
investments to provide for sufficient liquidity and could also have an adverse
effect on the investment performance of the Funds.
At the present time, management of AIM and the Fund is unable to estimate the
impact, if any, that the outcome of the matters described above may have on the
Fund or AIM.
F-13
REPORT OF INDEPENDENT AUDITORS
To the Board of Trustees and Shareholders
of AIM Mid Cap Basic Value Fund
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the AIM Mid Cap Basic Value Fund
(one of the funds constituting AIM Funds Group; hereafter referred to as the
"Fund") at December 31, 2003, the results of its operations for the year then
ended, the changes in its net assets for each of the two years in the period
then ended and the financial highlights for each of the periods indicated, in
conformity with accounting principles generally accepted in the United States of
America. These financial statements and financial highlights (hereafter referred
to as "financial statements") are the responsibility of the Fund's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these financial statements in
accordance with 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, 2003 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
PRICEWATERHOUSECOOPERS LLP
February 20, 2004
Houston, Texas
F-14
PROXY RESULTS (UNAUDITED)
A Special Meeting of Shareholders of AIM Mid Cap Basic Value Fund, a portfolio
of AIM Funds Group, a Delaware statutory trust, was held on October 21, 2003.
The meeting was held for the following purpose:
(1)* To elect sixteen individuals to the Board, each of whom will serve until
his or her successor is elected and qualified: Bob R. Baker, Frank S.
Bayley, James T. Bunch, Bruce L. Crockett, Albert R. Dowden, Edward K.
Dunn, Jr., Jack M. Fields, Carl Frischling, Robert H. Graham, Gerald J.
Lewis, Prema Mathai-Davis, Lewis F. Pennock, Ruth H. Quigley, Louis S.
Sklar, Larry Soll, Ph D. and Mark H. Williamson.
The results of the voting on the above matter were as follows:
<Table>
<Caption>
WITHHOLDING
TRUSTEES/MATTER VOTES FOR AUTHORITY
- ---------------------------------------------------------------------------------
(1)* Bob R. Baker................................. 822,704,205 11,194,804
Frank S. Bayley.............................. 822,781,451 11,117,558
James T. Bunch............................... 822,886,061 11,012,948
Bruce L. Crockett............................ 822,942,379 10,956,630
Albert R. Dowden............................. 822,923,043 10,975,966
Edward K. Dunn, Jr........................... 822,752,667 11,146,342
Jack M. Fields............................... 823,013,560 10,885,449
Carl Frischling.............................. 822,602,646 11,296,363
Robert H. Graham............................. 822,881,635 11,017,374
Gerald J. Lewis.............................. 822,460,720 11,438,289
Prema Mathai-Davis........................... 822,715,053 11,183,956
Lewis F. Pennock............................. 822,839,481 11,059,528
Ruth H. Quigley.............................. 822,446,309 11,452,700
Louis S. Sklar............................... 822,882,710 11,016,299
Larry Soll, Ph.D............................. 822,748,856 11,150,153
Mark H. Williamson........................... 822,801,778 11,097,231
</Table>
* Proposal required approval by a combined vote of all the portfolios of AIM
Funds Group.
F-15
OTHER INFORMATION
TRUSTEES AND OFFICERS
As of January 1, 2004
The address of each trustee and officer of AIM Funds Group (the "Trust"), is 11
Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee oversees 104
portfolios in the AIM and INVESCO Funds complex, except for Messrs. Baker,
Bunch, Lewis and Soll who oversee 96 portfolios and Mr. Williamson who oversees
117 portfolios in the AIM and INVESCO Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
<Table>
<Caption>
NAME, YEAR OF BIRTH AND TRUSTEE AND/
POSITION(S) HELD WITH THE OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- ------------------------------------------------------------------------------------------------------------------------
INTERESTED PERSONS
- ------------------------------------------------------------------------------------------------------------------------
Robert H. Graham(1) -- 1946 1992 Director and Chairman, A I M Management Group None
Trustee, Chairman and Inc. (financial services holding company);
President and Director and Vice Chairman, AMVESCAP PLC
and Chairman of AMVESCAP PLC -- AIM Division
(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), AIM Investment
Services, Inc., (registered transfer agent),
and Fund Management Company (registered
broker dealer); and Chief Executive Officer,
AMVESCAP PLC -- Managed Products
- ------------------------------------------------------------------------------------------------------------------------
Mark H. Williamson(2) -- 1951 2003 Director, President and Chief Executive None
Trustee and Executive Vice Officer, A I M Management Group Inc.
President (financial services holding company);
Director, Chairman and President, A I M
Advisors, Inc. (registered investment
advisor); Director, A I M Capital Management,
Inc. (registered investment advisor) and
A I M Distributors, Inc. (registered broker
dealer); Director and Chairman, AIM
Investment Services, Inc. (registered
transfer agent), and Fund Management Company
(registered broker dealer); and Chief
Executive Officer, AMVESCAP PLC -- AIM
Division (parent of AIM and a global
investment management firm)
Formerly: Director, Chairman, President and
Chief Executive Officer, INVESCO Funds Group,
Inc. and INVESCO Distributors, Inc.; Chief
Executive Officer, AMVESCAP PLC -- Managed
Products; Chairman and Chief Executive
Officer of NationsBanc Advisors, Inc.; and
Chairman of NationsBanc Investments, Inc.
- ------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- ------------------------------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 2003 Consultant None
Trustee
Formerly: President and Chief Executive
Officer, AMC Cancer Research Center; and
Chairman and Chief Executive Officer, First
Columbia Financial Corporation
- ------------------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2001 Of Counsel, law firm of Baker & McKenzie Badgley Funds, Inc.
Trustee (registered investment
company)
- ------------------------------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 2003 Co-President and Founder, Green, Manning & None
Trustee Bunch Ltd., (investment banking firm); and
Director, Policy Studies, Inc. and Van Gilder
Insurance Corporation
Formerly: General Counsel and Director,
Boettcher & Co.; and Chairman and Managing
Partner, law firm of Davis, Graham & Stubbs
- ------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett -- 1944 1987 Chairman, Crockett Technology Associates ACE Limited (insurance
Trustee (technology consulting company) company); and
Captaris, Inc.
(unified messaging
provider)
- ------------------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2000 Director of a number of public and private Cortland Trust, Inc.
Trustee business corporations, including the Boss (Chairman) (registered
Group Ltd. (private investment and investment company);
management) and Magellan Insurance Company Annuity and Life Re
(Holdings), Ltd.
Formerly: Director, President and Chief (insurance company)
Executive Officer, Volvo Group North America,
Inc.; Senior Vice President, AB Volvo; and
director of various affiliated Volvo
companies
- ------------------------------------------------------------------------------------------------------------------------
Edward K. Dunn, Jr. -- 1935 1998 Formerly: Chairman, Mercantile Mortgage None
Trustee Corp.; President and Chief Operating Officer,
Mercantile-Safe Deposit & Trust Co.; and
President, Mercantile Bankshares Corp.
- ------------------------------------------------------------------------------------------------------------------------
Jack M. Fields -- 1952 1997 Chief Executive Officer, Twenty First Century Administaff
Trustee Group, Inc. (government affairs company) and
Texana Timber LP
- ------------------------------------------------------------------------------------------------------------------------
</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.
TRUSTEES AND OFFICERS (CONTINUED)
As of January 1, 2004
The address of each trustee and officer of AIM Funds Group (the "Trust"), is 11
Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee oversees 104
portfolios in the AIM and INVESCO Funds complex, except for Messrs. Baker,
Bunch, Lewis and Soll who oversee 96 portfolios and Mr. Williamson who oversees
117 portfolios in the AIM and INVESCO Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
<Table>
<Caption>
NAME, YEAR OF BIRTH AND TRUSTEE AND/ PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST OR OFFICER SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- -----------------------------------------------------------------------------------------------------------------------------
Carl Frischling -- 1937 1993 Partner, law firm of Kramer Levin Naftalis Cortland Trust, Inc.
Trustee and Frankel LLP (registered investment
company)
- -----------------------------------------------------------------------------------------------------------------------------
Gerald J. Lewis -- 1933 2003 Chairman, Lawsuit Resolution Services (San General Chemical
Trustee Diego, California) Group, Inc.,
Wheelabrator
Formerly: Associate Justice of the California Technologies, Inc.
Court of Appeals (waste management
company), Fisher
Scientific, Inc.,
Henley Manufacturing,
Inc. (laboratory
supplies), and
California Coastal
Properties, Inc.
- -----------------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA of None
Trustee the USA
- -----------------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 1992 Partner, law firm of Pennock & Cooper None
Trustee
- -----------------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2001 Retired None
Trustee
- -----------------------------------------------------------------------------------------------------------------------------
Louis S. Sklar -- 1939 1993 Executive Vice President, Development and None
Trustee Operations Hines Interests Limited
Partnership (real estate development company)
- -----------------------------------------------------------------------------------------------------------------------------
Larry Soll, Ph.D. -- 1942 2003 Retired None
Trustee
- -----------------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- -----------------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 2003 Director, Senior Vice President, Secretary N/A
Senior Vice President and Chief and General Counsel, A I M Management Group
Legal Officer Inc. (financial services holding company) and
A I M Advisors, Inc.; Vice President, A I M
Capital Management, Inc., A I M Distributors,
Inc. and AIM Investment Services, Inc.; and
Director, Vice President and General Counsel,
Fund Management Company
Formerly: Senior Vice President and General
Counsel, Liberty Financial Companies, Inc.;
and Senior Vice President and General
Counsel, Liberty Funds Group, LLC
- -----------------------------------------------------------------------------------------------------------------------------
Robert G. Alley -- 1948 1992 Managing Director, Chief Fixed Income Officer N/A
Vice President and Senior Investment Officer, A I M Capital
Management, Inc.; and Vice President, A I M
Advisors, Inc.
- -----------------------------------------------------------------------------------------------------------------------------
Stuart W. Coco -- 1955 1992 Managing Director and Chief Research N/A
Vice President Officer -- Fixed Income, 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, N/A
Vice President A I M Advisors, Inc. and A I M Capital
Management, Inc.; and Vice President, AIM
Investment Services, Inc.
- -----------------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, A I M
Vice President and Treasurer Advisors, Inc.; Senior Vice President, AIM
Investment Services, Inc.; and Vice
President, A I M Distributors, Inc.
- -----------------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 1992 Managing Director and Chief Management N/A
Vice President Officer, A I M 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 N/A
Vice President President, Chief Executive Officer and Chief
Investment Officer, A I M Capital Management,
Inc.
- -----------------------------------------------------------------------------------------------------------------------------
</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 LLP
Suite 100 11 Greenway Plaza 11 Greenway Plaza 1201 Louisiana, Suite 2900
Houston, TX 77046-1173 Suite 100 Suite 100 Houston, TX 77002-5678
Houston, TX 77046-1173 Houston, TX 77046-1173
COUNSEL TO THE FUND COUNSEL TO THE TRUSTEES TRANSFER AGENT CUSTODIAN
Ballard Spahr Kramer, Levin, Naftalis & AIM Investment 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 19103-7599 New York, NY 10022-3852 Boston, MA 02110
</Table>
<Table>
DOMESTIC EQUITY INTERNATIONAL/GLOBAL EQUITY FIXED INCOME
AIM Aggressive Growth Fund AIM Asia Pacific Growth Fund TAXABLE
AIM Balanced Fund* AIM Developing Markets Fund
AIM Basic Balanced Fund* AIM European Growth Fund AIM Floating Rate Fund
AIM Basic Value Fund AIM European Small Company Fund AIM High Yield Fund
AIM Blue Chip Fund AIM Global Aggressive Growth Fund AIM Income Fund
AIM Capital Development Fund AIM Global Growth Fund AIM Intermediate Government Fund
AIM Charter Fund AIM Global Trends Fund AIM Limited Maturity Treasury Fund
AIM Constellation Fund AIM Global Value Fund(5) AIM Money Market Fund
AIM Dent Demographic Trends Fund AIM International Emerging Growth Fund AIM Short Term Bond Fund
AIM Diversified Dividend Fund(1) AIM International Growth Fund AIM Total Return Bond Fund
AIM Emerging Growth Fund AIM Trimark Fund INVESCO U.S. Government Money Fund
AIM Large Cap Basic Value Fund INVESCO International Core Equity Fund(6)
AIM Large Cap Growth Fund TAX-FREE
AIM Libra Fund SECTOR EQUITY
AIM Mid Cap Basic Value Fund AIM High Income Municipal Fund
AIM Mid Cap Core Equity Fund(2) AIM Global Health Care Fund AIM Municipal Bond Fund
AIM Mid Cap Growth Fund AIM Real Estate Fund AIM Tax-Exempt Cash Fund
AIM Opportunities I Fund INVESCO Advantage Health Sciences Fund AIM Tax-Free Intermediate Fund
AIM Opportunities II Fund INVESCO Energy Fund
AIM Opportunities III Fund INVESCO Financial Services Fund
AIM Premier Equity Fund INVESCO Gold & Precious Metals Fund
AIM Select Equity Fund INVESCO Health Sciences Fund
AIM Small Cap Equity Fund(3) INVESCO Leisure Fund
AIM Small Cap Growth Fund(4) INVESCO Multi-Sector Fund
AIM Trimark Endeavor Fund INVESCO Technology Fund
AM Trimark Small Companies Fund INVESCO Utilities Fund
AIM Weingarten Fund
INVESCO Core Equity Fund
INVESCO Dynamics Fund
INVESCO Mid-Cap Growth Fund
INVESCO Small Company Growth Fund
INVESCO S&P 500 Index Fund
INVESCO Total Return Fund*
</Table>
* Domestic equity and income fund
(1) Effective May 2, 2003, AIM Large Cap Core Equity Fund was renamed AIM
Diversified Dividend Fund. (2) As of the close of business on February 27, 2004,
AIM Mid Cap Core Equity Fund is available to new investors on a limited basis.
For information on who may continue to invest in AIM Mid Cap Core Equity Fund,
please contact your financial advisor. (3) AIM Small Cap Equity Fund was closed
to most investors on December 19, 2003. For information on who may continue to
invest in AIM Small Cap Equity Fund, please contact your financial advisor. (4)
AIM Small Cap Growth Fund was closed to most investors on March 18, 2002. For
information on who may continue to invest in AIM Small Cap Growth Fund, please
contact your financial advisor. (5) Effective April 30, 2003, AIM Worldwide
Spectrum Fund was renamed AIM Global Value Fund. (6) Effective November 24,
2003, INVESCO International Blue Chip Value Fund was renamed INVESCO
International Core Equity Fund.
For more complete information about any AIM or INVESCO fund, including sales
charges and expenses, ask your financial advisor for a prospectus. Please read
the prospectus carefully and consider the investment objectives, risks, and
charges and expenses of the investment carefully before investing. If used after
April, 2004, this brochure must be accompanied by a fund Performance &
Commentary or by an AIM Quarterly Performance Review for the most recent
quarter-end. Mutual funds distributed by A I M Distributors, Inc.
A I M Management Group Inc. has provided leadership in the investment management
industry since 1976 and manages $149 billion in assets for approximately 11
million shareholders, including individual investors, corporate clients and
financial institutions. AIM is a subsidiary of AMVESCAP PLC, one of the world's
largest independent financial services companies with $371 billion in assets
under management. Data as of December 31, 2003.
AIMinvestments.com MCBV-AR-1
<Table>
YOUR GOALS. OUR SOLUTIONS.--Servicemark--
- -------------------------------------------------------------------------------------
Mutual Retirement Annuities College Separately Offshore Alternative Cash [AIM INVESTMENTS LOGO APPEARS HERE]
Funds Products Savings Managed Products Investments Management
Plans Accounts
</Table>
AIM PREMIER EQUITY FUND
Annual Report to Shareholders o December 31, 2003
[COVER IMAGE]
YOUR GOALS. OUR SOLUTIONS. [AIM INVESTMENTS LOGO APPEARS HERE]
--Servicemark-- --Servicemark--
====================================================================
AIM PREMIER EQUITY FUND SEEKS LONG-TERM GROWTH OF CAPITAL.
INCOME IS A SECONDARY OBJECTIVE.
====================================================================
o Unless otherwise stated, information presented is as of 12/31/03
and is based on total net assets.
ABOUT SHARE CLASSES
<Table>
o Effective 9/30/03, Class B shares are o Due to significant market volatility, Industry classifications used in this
not available as an investment for results of an investment made today may report are generally according to the
retirement plans maintained pursuant to differ substantially from the historical Global Industry Classification Standard,
Section 401 of the Internal Revenue performance shown. Call your financial which was developed by and is the
Code, including 401(k) plans, money advisor for more current performance. exclusive property and a service mark of
purchase pension plans and profit Morgan Stanley Capital International
sharing plans. Plans that have existing ABOUT INDEXES USED IN THIS REPORT Inc. and Standard & Poor's.
accounts invested in Class B shares will
continue to be allowed to make o The unmanaged Standard & Poor's A description of the policies and
additional purchases. Composite Index of 500 Stocks (the S&P procedures that the Fund uses to
500--Registered Trademark--) is an index determine how to vote proxies relating
o Class R shares are available only to of common stocks frequently used as a to portfolio securities is available
certain retirement plans. Please see the general measure of U.S. stock market without charge, upon request, by calling
prospectus for more information. They performance. 800-959-4246, or on the AIM Web site,
are sold at net asset value, that is, AIMinvestments.com.
without up-front sales charges. o The unmanaged Lipper Large-Cap Core
Equity Fund Index represents an average
PRINCIPAL RISKS OF INVESTING IN THE FUND of the performance of the 30 largest
largecapitalization core equity funds
o International investing presents tracked by Lipper, Inc., an independent
certain risks not associated with mutual fund performance monitor.
investing solely in the United States.
These include risks relating to o A direct investment cannot be made in
fluctuations in the value of the U.S. an index. Unless otherwise indicated,
dollar relative to the values of other index results include reinvested
currencies, the custody arrangements dividends, and they do not reflect sales
made for the fund's foreign holdings, charges. Performance of an index of
differences in accounting, political funds reflects fund expenses;
risks and the lesser degree of public performance of a market index does not.
information required to be provided by
non-U.S. companies.
</Table>
<Table>
===================================================
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE THIS REPORT MAY BE DISTRIBUTED ONLY TO SHAREHOLDERS OR TO PERSONS
=================================================== WHO HAVE RECEIVED A CURRENT PROSPECTUS OF THE FUND. PLEASE READ
THE PROSPECTUS CAREFULLY AND CONSIDER THE INVESTMENT OBJECTIVES,
RISKS, AND CHARGES AND EXPENSES OF THE INVESTMENT CAREFULLY
BEFORE INVESTING.
</Table>
AIMinvestments.com
TO OUR SHARE HOLDERS
DEAR FELLOW SHAREHOLDER IN THE AIM FAMILY OF
FUNDS--Registered Trademark--:
[PHOTO OF The fiscal year ended December 31, 2003, was a welcome
ROBERT H. change from the bear market of the previous three years.
GRAHAM] Major stock market indexes here and abroad delivered
positive performance, with double-digit returns more the
ROBERT H. GRAHAM rule than the exception. As is historically the case, bond
market returns were more modest, but nonetheless positive as
well. The U.S. economy appears to have turned a corner, with
solid growth in gross domestic product. Overseas,
particularly in Europe, economic performance was not so
robust but appeared to pick up during the second half of the
year.
U.S. investors seem to have regained their confidence,
putting $152.77 billion in new money into stock mutual funds
during 2003 and $31.40 billion into bond funds. By contrast,
money market funds, considered a safe haven because of their emphasis on
stability of net asset value, suffered large net outflows during 2003.
The durability of these trends is, of course, unpredictable, but the economy
does appear to have the wind at its back in terms of fiscal, monetary and tax
stimulus, and corporate earnings have been strong. Nevertheless, we caution all
our shareholders against thinking that 2004 will be a repeat of 2003. We simply
do not know.
What should investors do? They should do what we have always urged: Keep
their eyes on their long-term goals, keep their portfolios diversified, and work
with their financial advisors to tailor their investments to their risk
tolerance and investment objectives. We cannot overemphasize the importance of
professional guidance when it comes to selecting investments.
For information on your fund's performance and management during the fiscal
year, please see the management discussion that begins on the following page.
VISIT OUR WEB SITE
As you are aware, the mutual fund industry, including AIM Investments, has been
the subject of allegations and investigations of late surrounding the issues of
market timing and late trading in funds. We understand how unsettling this may
be for many of our shareholders. We encourage you to visit AIMinvestments.com
often to monitor developments. We will continue to post updates on these issues
as information becomes available.
The Securities and Exchange Commission, which regulates our industry, has
already proposed new rules and regulations, and is planning to propose several
more, that address the issues of market timing and late trading, among others.
We welcome these efforts, as does the industry trade group, the Investment
Company Institute. We believe comprehensive rule making is necessary and is the
best way to establish new industry responsibilities designed to protect
shareholders. We support practical rule changes and structural modifications
that are fair, enforceable and, most importantly, beneficial for investors.
Should you visit our Web site, we invite you to explore the other material
available there, including general investing information, performance updates on
our funds, and market and economic commentary from our financial experts.
As always, AIM is committed to building solutions for your investment goals,
and we thank you for your continued participation in AIM Investments. If you
have any questions, you can contact one of our Client Service representatives at
800-959-4246.
Sincerely,
/s/ ROBERT H. GRAHAM
Robert H. Graham
Chairman and President
February 9, 2004
2
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
<Table>
AIM PREMIER EQUITY FUND analysts changed from being generalists
POSTS DOUBLE-DIGIT RETURNS to focusing on specific sectors and
industries to identify stocks for the
AIM Premier Equity Fund Class A shares 2003. As of the close of the year, portfolio.
returned 24.90% at net asset value for approximately 64% of the companies in
the fiscal year ended December 31, 2003. the S&P 500 Index had reported Virtually all sectors of the S&P 500
If sales charges were included, third-quarter earnings that exceeded Index made positive contributions to the
performance would be lower. (Results for analysts' expectations while fund's performance during the fiscal
other share classes are shown in the approximately 20.5% had reported year. The consumer discretionary and
table on page 3). By comparison, the S&P earnings that met those estimates. The telecommunications services sectors were
500--Registered Trademark-- Index job market, while improving, continued the strongest contributors. Within the
returned 28.67% for the year, and the to be weak, as the nation's unemployment consumer discretionary sector, our
Lipper Large- Cap Core Fund Index rate stood at 5.7% at the close of the overweight position in retail and media
returned 24.80%. year. stocks helped drive strong fund
performance.
MARKET CONDITIONS All sectors of the S&P 500 Index
recorded gains for the fiscal year. Consumer strength remained solid
Amid a backdrop of generally improving Information technology, consumer throughout the year, improving earnings
economic conditions, the S&P 500 Index discretionary and materials were the and sentiment in the retail sector.
declined at the beginning of 2003, top-performing sectors while Media companies benefited from the
dropping to its lowest level of the year telecommunication services, consumer resumption of ad spending. Our
on March 11. The index then rallied, staples and health care were the underweight position in regional Bell
posting a cumulative total return of weakest-performing sectors. operating companies and overweight
40.86% from its low through the end of position in wireless services companies
the reporting period. Small- and mid-cap stocks generally helped performance in
outperformed large-cap stocks for the telecommunications.
During this rally, the United States year. The performance of growth and
and its allies took military action value stocks was similar, although Stock selection in the financials and
against Iraq and toppled the regime of mid-cap growth stocks generally information technology sectors generally
Saddam Hussein. The nation's gross outperformed their value counterparts. hindered the fund's performance during
domestic product, generally considered the period. Within both sectors the fund
the broadest measure of economic YOUR FUND owned many companies that contributed
activity, expanded at an annualized rate positively to the fund's performance.
of 3.1% in the second quarter, 8.2% in During the past year, AIM added managers However, because of the fund's large-cap
the third quarter, and 4.0% in the with specific sector expertise to build focus, the fund did not own several
fourth quarter of on the tactical changes it made early in small companies that resulted in better
the third quarter of 2002. At that time, performance for the fund's benchmark.
managers and
Within technology, we had less
exposure to the most economically
sensitive companies
</Table>
<Table>
====================================================================================================================================
PORTFOLIO COMPOSITION BY SECTOR TOP 10 EQUITY HOLDINGS* as of 12/31/03 TOP 10 INDUSTRIES* as of 12/31/03
12/31/02-12/31/03
1. Pfizer, Inc. 4.0% 1. Pharmaceuticals 8.2%
(PIE CHART)
2. Citigroup Inc. 4.0 2. Industrial Conglomerates 5.9
FINANCIALS 20.43%
3. Microsoft Corp. 3.6 3. Systems Software 5.4
INFORMATION TECHNOLOGY 19.30%
4. General Electric Co. 3.6 4. Integrated Oil & Gas 4.8
HEALTH CARE 13.03%
5. Exxon Mobil Corp. 2.9 5. Other Diversified Financial Services 4.0
CONSUMER DISCRETIONARY 12.64%
6. American International Group, Inc. 2.5 6. Diversified Banks 3.8
CASH & OTHER 34.60%
7. Fannie Mae. 2.3 7. Computer Hardware 3.7
8. Proctor & Gamble Co. 2.1 8. Household Products 3.4
9. Intel Corp. 2.1 9. Semiconductors 3.3
10. Bank of America Corp. 2.0 10. Investment Banking & Brokerage 3.3
* Excludes money market fund holdings.
The fund's holdings are subject to change, and there is no assurance that the fund will continue to hold any particular security.
====================================================================================================================================
</Table>
3
<Table>
than the fund's benchmark, and we missed Detracting from the fund's ROBERT A. SHELTON
the performance opportunity. Our performance was HCA Inc., one of the Mr. Shelton, CFA, is lead
requirement for long-term consistent nation's top hospital operators, which [PHOTO OF portfolio manager of AIM
growth precludes our focusing purely on experienced an unexpected shortfall in ROBERT A. Premier Equity Fund. Mr.
economically sensitive stocks such as patient volume and an increase in bad SHELTON Shelton joined AIM in
many of those in the technology sector. debt during the first quarter of 2003. 1995 as an investment
Thus, the underperformance of less Freddie Mac, a shareholder-owned, officer and a portfolio
economically sensitive companies governmentsponsored entity that analyst for equity
dampened the fund's performance in purchases, securitizes and invests in securities and was promoted to portfolio
comparison to funds with a greater focus home mortgages, also detracted from manager in 1997. He has been in the
on companies whose performance is more performance. Restating its earnings, investment business since 1991. Mr.
closely tied to the economy. Freddie Mac uncovered accounting Shelton received a B.S. in business
irregularities and employee misconduct administration from Washington & Lee
During the year, we added materials resulting in numerous lawsuits being University.
sector stocks to the fund's portfolio filed against the firm. Subsequently,
and significantly boosted holdings in Freddie Mac restructured its business ABEL GARCIA
industrials and information technology. and fired those executives responsible [PHOTO OF Mr. Garcia joined AIM in
As expectations became too high in the for the misconduct. ABEL GARCIA] 2000. He began his
consumer discretionary sector, we investment career in 1973
significantly decreased the fund's IN CLOSING as an analyst and then a
holdings in the sector. portfolio manager. Mr.
The fund's management team continues to Garcia has a B.B.A. from
Among the portfolio's top-performing work diligently to meet the fund's St. Mary's University and
equities was Citigroup Inc., which in objective of seeking long-term capital an M.B.A. from The Wharton School at the
2003 overtook Japan's Mizuho Financial growth by investing in stocks of University of Pennsylvania.
to become the world's largest financial companies that are undervalued relative
services firm. In September, the company to the stock market as a whole, and that KELLIE VEAZEY
reported third-quarter earnings of $4.69 can provide growth with income a [PHOTO OF Ms. Veazey, CFA, joined
billion, a 27% increase over the prior secondary objective. Our investment KELLIE AIM in 1995 after working
year and a company record. Another discipline focuses on investing in VEAZEY] as an equity trader and a
strong contributor was Best Buy Co., large-cap companies that we believe have mutual fund accountant.
Inc., the nation's leading consumer the ability to provide consistent She was promoted to her
electronics retailer, which announced a long-term growth. current position on the
42% increase in third-quarter earnings. Premier Equity team after
We sold the stock to secure profits for See important fund and index serving three years as an equity trader.
the portfolio when we thought sales disclosures inside front cover. Ms. Veazey earned her B.A. in finance
estimates became unrealistically high in and real estate and an M.B.A. in finance
November and December. from Texas Tech University.
TOTAL NUMBER OF HOLDINGS* 96
FUND VS. INDEXES TOTAL NET ASSETS $9.17 BILLION MEGGAN M. WALSH
[PHOTO OF Ms. Walsh, CFA, has been
Total returns, 12/31/02-12/31/03, MEGGAN M. in the investment
excluding sales charges WALSH] business since 1987. She
joined AIM in 1991 as a
If sales charges were included, trader of short-term
performance would be lower. taxable fixed income
securities, and in 1992 was promoted to
Class A Shares 24.90% vice president and portfolio manager in
Class B Shares 23.76 the long-term fixed income area. In 1998
Class C Shares 23.90 Ms. Walsh assumed portfolio management
Class R Shares 24.53 duties in AIM's equities department. In
S&P 500 Index 28.67 2000 she earned a promotion to senior
(Broad Market and Style-Specific Index) portfolio manager. Prior to joining AIM,
Lipper Large-Cap Core Index 24.80 Ms. Walsh managed money market
(Peer Group Index) securities and conducted financial
analysis. Ms. Walsh received a
Source: Lipper, Inc. bachelor's degree in finance from the
University of Maryland and an M.B.A.
from Loyola University.
MICHAEL YELLEN
[PHOTO OF Mr. Yellen came to AIM in
MICHAEL 1998 after working as an
YELLEN] investment analyst for
health care industries.
He was promoted to
portfolio manager in 1996
and had primary
responsibility for the GT Applied
Science Fund and the GT Healthcare Fund,
both offshore funds, until assuming his
present responsibilities with AIM. He
began his career in 1991 as a senior
securities analyst. Mr. Yellen holds a
B.A. from Stanford University.
Assisted by the Premier Equity Team
</Table>
4
FUND PERFORMANCE
RESULTS OF A $10,000 INVESTMENT
5/1/84-12/31/03
Index data from 4/30/84
<Table>
<Caption>
DATE AIM PREMIER EQUITY S&P 500 LIPPER LARGE-CAP
FUND CLASS A SHARES INDEX CORE FUND INDEX
5/1/1984 9450 10000 10000
12/31/1984 10384 10786 10960
12/31/1985 12741 14208 14204
12/31/1986 13862 16860 16335
12/31/1987 14689 17745 16824
12/31/1988 17715 20684 19189
12/31/1989 23303 27227 24665
12/31/1990 23743 26380 23935
[MOUNTAIN CHART] 12/31/1991 34058 34400 31427
12/31/1992 39643 37017 33846
12/31/1993 47057 40740 37709
12/31/1994 48595 41275 37302
12/31/1995 65543 56767 49148
12/31/1996 75054 69792 58899
12/31/1997 93033 93069 76112
12/31/1998 123499 119686 96612
12/31/1999 160496 144859 115306
12/31/2000 136476 131675 106809
12/31/2001 118755 116037 93101
12/31/2002 82052 90402 73332
12/31/03 102498 116317 91522
Source: Lipper, Inc.
</Table>
Past performance cannot guarantee comparable future results.
Your fund's total return includes sales charges, expenses and management fees.
The performance of the fund's share classes will differ due to different sales
charge structures and class expenses.
Performance shown in the chart and table does not reflect deduction of taxes
a shareholder would pay on fund distributions or sale of fund shares.
Performance of the indexes does not reflect the effects of taxes.
In evaluating this chart, please note that the chart uses a logarithmic scal
along the vertical axis (the value scale). This means that each scale increment
always represents the same percent change in price; in a linear chart each scal
increment always represents the same absolute change in price. In this example,
the scale increment between $5,000 and $10,000 is the same as that between
$10,000 and $20,000. In a linear chart, the latter scale increment would be
twice as large. The benefit of using a logarithmic scale is that it better
illustrates performance during the fund's early years before reinvested
distributions and compounding create the potential for the original investment
to grow to very large numbers. Had the chart used a linear scale along its
vertical axis, you would not be able to see as clearly the movements in the
value of the fund and the indexes during the fund's early years. AIM uses a
logarithmic scale in financial reports of funds that have more than five years
of performance history.
<Table>
AVERAGE ANNUAL TOTAL RETURNS *Class R shares were first offered on The fund's performance figures are
As of 12/31/03, including sales charges June 3, 2002. Returns prior to that date historical, and they reflect fund
CLASS A SHARES are hypothetical results based on Class expenses, the reinvestment of
Inception (5/1/84) 12.56% A results since December 31, 1993 at net distributions, and changes in net asset
10 Years 7.49 asset value, adjusted to reflect Class R value. Performance data quoted represent
5 Years -4.75 12b-1 fees. Class R share returns do not past performance, and the investment
1 Year 17.99 include a 0.75% contingent deferred return and principal value of an
sales charge that may be imposed on a investment will fluctuate so that an an
CLASS B SHARES total redemption of retirement plan investor's shares, when redeemed, may be
Inception (10/18/93) 7.19 assets within the first year. worth more or less than their original
10 Years 7.41 cost.
5 Years -4.73 Current performance may be lower or
1 Year 18.76 higher than the performance data quoted. Class A share performance reflects
Past performance cannot guarantee the maximum 5.50% sales charge, and
CLASS C SHARES comparable future results. Due to Class B and Class C share performance
Inception (8/4/97) 0.78 significant market volatility, results reflects the applicable contingent
5 Years -4.40 of an investment made today may differ deferred sales charge (CDSC) for the
1 Year 22.90 substantially from the historical period involved. The CDSC on Class B
performance shown. Please visit shares declines from 5% beginning at the
CLASS R SHARES* AIMinvestments.com for the most current time of purchase to 0% at the beginning
10 Years 7.82 month-end performance. of the seventh year. The CDSC on Class C
5 Years -3.91 shares is 1% for the first year after
1 Year 24.53 purchase. The performance of the fund's
share classes will differ due to
different sales charge structures and
class expenses.
</Table>
SUPPLEMENT TO ANNUAL REPORT DATED 12/31/03
AIM PREMIER EQUITY FUND
<Table>
INSTITUTIONAL CLASS SHARES AVERAGE ANNUAL TOTAL RETURNS Please note that past performance is
For periods ended 12/31/03 not indicative of future results. More
The following information has been recent returns may be more or less than
prepared to provide Institutional Inception (3/15/02) -6.37% those shown. All returns assume
Class shareholders with a performance 1 Year 25.43 reinvestment of distributions at net
overview specific to their holdings. asset value. Investment return and
Institutional Class shares are offered principal value will fluctuate so your
exclusively to institutional investors, shares, when redeemed, may be worth
including defined contribution plans more or less than their original cost.
that meet certain criteria. Performance See full report for information on
of Institutional Class shares will comparative benchmarks. If you have
differ from performance of Class A questions, please consult your fund
shares due to differing sales charges prospectus or call 800-451-4246. A I M
and class expenses. Distributors, Inc.
</Table>
FOR INSTITUTIONAL INVESTOR USE ONLY
This material is prepared for institutional investor use only and may not be
quoted, reproduced or shown to members of the public, nor used in written form
as sales literature for public use.
YOUR GOALS. OUR SOLUTIONS.
--Servicemark--
AIMinvestments.com PEQ-INS-1 [AIM INVESTMENTS LOGO APPEARS HERE]
--Servicemark--
FINANCIALS
SCHEDULE OF INVESTMENTS
December 31, 2003
<Table>
<Caption>
MARKET
SHARES VALUE
- ---------------------------------------------------------------------------
COMMON STOCKS & OTHER EQUITY INTERESTS-96.98%
ADVERTISING-1.71%
Omnicom Group Inc. 1,789,800 $ 156,303,234
===========================================================================
AEROSPACE & DEFENSE-1.44%
Lockheed Martin Corp. 1,477,200 75,928,080
- ---------------------------------------------------------------------------
United Technologies Corp. 588,900 55,810,053
===========================================================================
131,738,133
===========================================================================
AIR FREIGHT & LOGISTICS-0.33%
FedEx Corp. 448,000 30,240,000
===========================================================================
AIRLINES-0.66%
Southwest Airlines Co. 3,730,300 60,207,042
===========================================================================
ALUMINUM-0.31%
Alcoa Inc. 751,000 28,538,000
===========================================================================
APPAREL RETAIL-0.52%
Gap, Inc. (The) 2,049,600 47,571,216
===========================================================================
APPLICATION SOFTWARE-1.30%
BEA Systems, Inc.(a) 3,184,600 39,170,580
- ---------------------------------------------------------------------------
SAP A.G.-ADR (Germany) 1,931,000 80,252,360
===========================================================================
119,422,940
===========================================================================
ASSET MANAGEMENT & CUSTODY BANKS-1.42%
Bank of New York Co., Inc. (The) 3,928,400 130,108,608
===========================================================================
BIOTECHNOLOGY-1.56%
Amgen Inc.(a) 2,319,600 143,351,280
===========================================================================
BREWERS-1.00%
Anheuser-Busch Cos., Inc. 1,734,000 91,347,120
===========================================================================
BROADCASTING & CABLE TV-3.05%
Clear Channel Communications, Inc. 992,300 46,469,409
- ---------------------------------------------------------------------------
Comcast Corp.-Class A(a) 752,032 24,719,292
- ---------------------------------------------------------------------------
Comcast Corp.-Special Class A(a) 4,568,800 142,912,064
- ---------------------------------------------------------------------------
Cox Communications, Inc.-Class A(a) 1,900,200 65,461,890
===========================================================================
279,562,655
===========================================================================
BUILDING PRODUCTS-0.57%
American Standard Cos. Inc.(a) 519,650 52,328,755
===========================================================================
COMMUNICATIONS EQUIPMENT-2.92%
Cisco Systems, Inc.(a) 7,443,600 180,805,044
- ---------------------------------------------------------------------------
Nokia Oyj-ADR (Finland) 5,129,900 87,208,300
===========================================================================
268,013,344
===========================================================================
</Table>
<Table>
- ---------------------------------------------------------------------------
<Caption>
MARKET
SHARES VALUE
COMPUTER HARDWARE-3.69%
Dell Inc.(a) 5,399,500 $ 183,367,020
- ---------------------------------------------------------------------------
International Business Machines Corp. 1,671,200 154,886,816
===========================================================================
338,253,836
===========================================================================
CONSUMER FINANCE-1.28%
American Express Co. 1,650,000 79,579,500
- ---------------------------------------------------------------------------
SLM Corp. 1,007,700 37,970,136
===========================================================================
117,549,636
===========================================================================
DATA PROCESSING & OUTSOURCED SERVICES-1.20%
Affiliated Computer Services, Inc.-Class A(a) 1,307,600 71,211,896
- ---------------------------------------------------------------------------
Paychex, Inc. 1,046,100 38,914,920
===========================================================================
110,126,816
===========================================================================
DEPARTMENT STORES-0.49%
Federated Department Stores, Inc. 952,800 44,905,464
===========================================================================
DIVERSIFIED BANKS-3.79%
Bank of America Corp. 2,306,100 185,479,623
- ---------------------------------------------------------------------------
U.S. Bancorp 1,479,800 44,068,444
- ---------------------------------------------------------------------------
Wells Fargo & Co. 2,007,100 118,198,119
===========================================================================
347,746,186
===========================================================================
DIVERSIFIED CAPITAL MARKETS-0.71%
J.P. Morgan Chase & Co. 1,761,500 64,699,895
===========================================================================
DIVERSIFIED CHEMICALS-0.91%
Dow Chemical Co. (The) 787,000 32,715,590
- ---------------------------------------------------------------------------
E. I. du Pont de Nemours & Co. 1,100,000 50,479,000
===========================================================================
83,194,590
===========================================================================
DIVERSIFIED COMMERCIAL SERVICES-1.36%
Cendant Corp.(a) 4,403,900 98,074,853
- ---------------------------------------------------------------------------
Cintas Corp. 534,700 26,804,511
===========================================================================
124,879,364
===========================================================================
DRUG RETAIL-0.48%
Walgreen Co. 1,212,900 44,125,302
===========================================================================
ENVIRONMENTAL SERVICES-1.00%
Waste Management, Inc. 3,094,000 91,582,400
===========================================================================
FOOTWEAR-1.02%
NIKE, Inc.-Class B 1,358,800 93,023,448
===========================================================================
GENERAL MERCHANDISE STORES-1.73%
Target Corp. 4,124,900 158,396,160
===========================================================================
</Table>
F-1
<Table>
<Caption>
MARKET
SHARES VALUE
- ---------------------------------------------------------------------------
HEALTH CARE EQUIPMENT-0.97%
Guidant Corp. 649,200 $ 39,081,840
- ---------------------------------------------------------------------------
St. Jude Medical, Inc.(a) 817,800 50,172,030
===========================================================================
89,253,870
===========================================================================
HEALTH CARE FACILITIES-0.66%
HCA Inc. 1,400,800 60,178,368
===========================================================================
HOME IMPROVEMENT RETAIL-0.84%
Home Depot, Inc. (The) 2,173,900 77,151,711
===========================================================================
HOTELS, RESORTS & CRUISE LINES-0.54%
Starwood Hotels & Resorts Worldwide, Inc. 1,384,700 49,807,659
===========================================================================
HOUSEHOLD PRODUCTS-3.38%
Clorox Co. (The) 1,426,900 69,290,264
- ---------------------------------------------------------------------------
Colgate-Palmolive Co. 928,400 46,466,420
- ---------------------------------------------------------------------------
Procter & Gamble Co. (The) 1,945,800 194,346,504
===========================================================================
310,103,188
===========================================================================
HYPERMARKETS & SUPER CENTERS-2.06%
Wal-Mart de Mexico S.A. de C.V.-Series V
(Mexico) 17,488,800 49,881,235
- ---------------------------------------------------------------------------
Wal-Mart Stores, Inc. 2,619,100 138,943,255
===========================================================================
188,824,490
===========================================================================
INDUSTRIAL CONGLOMERATES-5.94%
3M Co. 997,000 84,774,910
- ---------------------------------------------------------------------------
General Electric Co. 10,731,700 332,468,066
- ---------------------------------------------------------------------------
Tyco International Ltd. (Bermuda) 4,815,900 127,621,350
===========================================================================
544,864,326
===========================================================================
INDUSTRIAL MACHINERY-2.60%
Danaher Corp. 1,768,700 162,278,225
- ---------------------------------------------------------------------------
Dover Corp. 691,000 27,467,250
- ---------------------------------------------------------------------------
Ingersoll-Rand Co.-Class A (Bermuda) 720,000 48,873,600
===========================================================================
238,619,075
===========================================================================
INTEGRATED OIL & GAS-4.77%
BP PLC-ADR (United Kingdom) 1,972,200 97,328,070
- ---------------------------------------------------------------------------
ConocoPhillips 1,156,600 75,838,262
- ---------------------------------------------------------------------------
Exxon Mobil Corp. 6,430,700 263,658,700
===========================================================================
436,825,032
===========================================================================
INVESTMENT BANKING & BROKERAGE-3.28%
Merrill Lynch & Co., Inc. 2,321,300 136,144,245
- ---------------------------------------------------------------------------
Morgan Stanley 2,846,400 164,721,168
===========================================================================
300,865,413
===========================================================================
</Table>
<Table>
- ---------------------------------------------------------------------------
<Caption>
MARKET
SHARES VALUE
IT CONSULTING & OTHER SERVICES-0.63%
Accenture Ltd.-Class A (Bermuda)(a) 2,208,000 $ 58,114,560
===========================================================================
MANAGED HEALTH CARE-1.60%
Anthem, Inc.(a) 940,100 70,507,500
- ---------------------------------------------------------------------------
UnitedHealth Group Inc. 1,310,400 76,239,072
===========================================================================
146,746,572
===========================================================================
MOVIES & ENTERTAINMENT-1.13%
Viacom Inc.-Class B 2,332,300 103,507,474
===========================================================================
MULTI-LINE INSURANCE-2.52%
American International Group, Inc. 3,490,400 231,343,712
===========================================================================
OIL & GAS DRILLING-0.29%
GlobalSantaFe Corp. (Cayman Islands) 1,067,000 26,493,610
===========================================================================
OIL & GAS EQUIPMENT & SERVICES-1.06%
BJ Services Co.(a) 707,800 25,410,020
- ---------------------------------------------------------------------------
Halliburton Co. 1,753,300 45,585,800
- ---------------------------------------------------------------------------
Schlumberger Ltd. (Netherlands) 485,200 26,550,144
===========================================================================
97,545,964
===========================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES-3.97%
Citigroup Inc. 7,491,000 363,613,140
===========================================================================
PHARMACEUTICALS-8.24%
Allergan, Inc. 764,000 58,682,840
- ---------------------------------------------------------------------------
Johnson & Johnson 2,204,700 113,894,802
- ---------------------------------------------------------------------------
Lilly (Eli) & Co. 541,500 38,083,695
- ---------------------------------------------------------------------------
Merck & Co. Inc. 996,700 46,047,540
- ---------------------------------------------------------------------------
Pfizer Inc. 10,433,100 368,601,423
- ---------------------------------------------------------------------------
Teva Pharmaceutical Industries Ltd.-ADR
(Israel) 551,200 31,258,552
- ---------------------------------------------------------------------------
Wyeth 2,331,100 98,955,195
===========================================================================
755,524,047
===========================================================================
PROPERTY & CASUALTY INSURANCE-0.64%
Chubb Corp. (The) 866,500 59,008,650
===========================================================================
RESTAURANTS-1.08%
McDonald's Corp. 1,723,300 42,789,539
- ---------------------------------------------------------------------------
Yum! Brands, Inc.(a) 1,622,300 55,807,120
===========================================================================
98,596,659
===========================================================================
SEMICONDUCTOR EQUIPMENT-0.81%
Applied Materials, Inc.(a) 3,320,300 74,540,735
===========================================================================
</Table>
F-2
<Table>
<Caption>
MARKET
SHARES VALUE
- ---------------------------------------------------------------------------
SEMICONDUCTORS-3.35%
Analog Devices, Inc. 2,519,000 $ 114,992,350
- ---------------------------------------------------------------------------
Intel Corp. 5,977,000 192,459,400
===========================================================================
307,451,750
===========================================================================
SOFT DRINKS-2.19%
Coca-Cola Co. (The) 2,289,900 116,212,425
- ---------------------------------------------------------------------------
PepsiCo, Inc. 1,817,700 84,741,174
===========================================================================
200,953,599
===========================================================================
SPECIALTY STORES-0.53%
Staples, Inc.(a) 1,782,600 48,664,980
===========================================================================
SYSTEMS SOFTWARE-5.40%
Computer Associates International, Inc. 2,386,100 65,235,974
- ---------------------------------------------------------------------------
Microsoft Corp. 12,128,800 334,027,152
- ---------------------------------------------------------------------------
Oracle Corp.(a) 2,931,300 38,693,160
- ---------------------------------------------------------------------------
VERITAS Software Corp.(a) 1,536,100 57,081,476
===========================================================================
495,037,762
===========================================================================
THRIFTS & MORTGAGE FINANCE-2.82%
Fannie Mae 2,796,900 209,935,314
- ---------------------------------------------------------------------------
Freddie Mac 834,900 48,691,368
===========================================================================
258,626,682
===========================================================================
WIRELESS TELECOMMUNICATION SERVICES-1.23%
Nextel Communications, Inc.-Class A(a) 2,155,200 60,474,912
- ---------------------------------------------------------------------------
</Table>
<Table>
- ---------------------------------------------------------------------------
<Caption>
MARKET
SHARES VALUE
WIRELESS TELECOMMUNICATION SERVICES-(CONTINUED)
Vodafone Group PLC (United Kingdom) 21,113,210 $ 52,211,226
===========================================================================
112,686,138
===========================================================================
Total Common Stocks & Other Equity
Interests (Cost $7,723,102,821) 8,892,164,590
===========================================================================
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
- ---------------------------------------------------------------------------
U.S. TREASURY BILLS-0.32%
0.87%, 3/18/04 (Cost $29,744,866)(b) $29,800,000(c) $ 29,741,890
===========================================================================
<Caption>
SHARES
MONEY MARKET FUNDS-3.27%
Liquid Assets Portfolio(d) 149,855,268 149,855,268
- ---------------------------------------------------------------------------
STIC Prime Portfolio(d) 149,855,268 149,855,268
===========================================================================
Total Money Market Funds (Cost
$299,710,536) 299,710,536
===========================================================================
TOTAL INVESTMENTS-100.57% (excluding
investments purchased with cash collateral
from securities loaned) (Cost
$8,052,558,223) 9,221,617,016
===========================================================================
INVESTMENTS PURCHASED WITH CASH COLLATERAL
FROM SECURITIES LOANED
MONEY MARKET FUNDS-1.31%
Liquid Assets Portfolio(d)(e) 119,778,490 119,778,490
===========================================================================
Total Money Market Funds (purchased with
cash collateral from securities loaned)
(Cost $119,778,490) 119,778,490
===========================================================================
TOTAL INVESTMENTS-101.88% (Cost
$8,172,336,713) 9,341,395,506
===========================================================================
OTHER ASSETS LESS LIABILITIES-(1.88%) (172,445,780)
===========================================================================
NET ASSETS-100.00% $9,168,949,726
___________________________________________________________________________
===========================================================================
</Table>
Investment Abbreviations:
<Table>
ADR - American Depositary Receipt
</Table>
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) Security traded on a discount basis. The interest rate shown represents the
discount rate at the time of purchase by the Fund.
(c) A portion of the principal balance was pledged as collateral to cover margin
requirements for open futures contracts. See Note 1 section G and Note 9.
(d) The money market fund and the Fund are affiliated by having the same
investment advisor. See Note 3
(e) The security has been segregated to satisfy the forward commitment to return
the cash collateral received in securities lending transactions upon the
borrower's return of the securities loaned. See Note 3.
See accompanying notes which are an integral part of the financial statements.
F-3
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2003
<Table>
ASSETS:
Investments, at market value (cost
$7,752,847,687)* $ 8,921,906,480
- ------------------------------------------------------------
Investments in affiliated money market
funds (cost $419,489,026) 419,489,026
- ------------------------------------------------------------
Receivables for:
Variation margin 616,250
- ------------------------------------------------------------
Fund shares sold 2,056,520
- ------------------------------------------------------------
Dividends 7,347,461
- ------------------------------------------------------------
Investment for deferred compensation and
retirement plans 545,602
- ------------------------------------------------------------
Other assets 555,079
============================================================
Total assets 9,352,516,418
____________________________________________________________
============================================================
LIABILITIES:
Payables for:
Fund shares reacquired 51,684,653
- ------------------------------------------------------------
Deferred compensation and retirement
plans 1,140,857
- ------------------------------------------------------------
Collateral upon return of securities
loaned 119,778,490
- ------------------------------------------------------------
Accrued distribution fees 4,384,225
- ------------------------------------------------------------
Accrued transfer agent fees 5,649,228
- ------------------------------------------------------------
Accrued operating expenses 929,239
============================================================
Total liabilities 183,566,692
============================================================
Net assets applicable to shares outstanding $ 9,168,949,726
____________________________________________________________
============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $12,715,830,414
- ------------------------------------------------------------
Undistributed net investment income (loss) (990,003)
- ------------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities, foreign
currencies, foreign currency contracts,
futures contracts and option contracts (4,725,989,892)
- ------------------------------------------------------------
Unrealized appreciation of investment
securities, foreign currencies, foreign
currency contracts and futures contracts 1,180,099,207
============================================================
$ 9,168,949,726
____________________________________________________________
============================================================
NET ASSETS:
Class A $ 5,116,443,760
____________________________________________________________
============================================================
Class B $ 3,616,395,032
____________________________________________________________
============================================================
Class C $ 433,332,073
____________________________________________________________
============================================================
Class R $ 651,427
____________________________________________________________
============================================================
Institutional Class $ 2,127,434
____________________________________________________________
============================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER
SHARE, UNLIMITED NUMBER OF SHARES
AUTHORIZED:
Class A 545,512,843
____________________________________________________________
============================================================
Class B 413,122,277
____________________________________________________________
============================================================
Class C 49,471,462
____________________________________________________________
============================================================
Class R 69,738
____________________________________________________________
============================================================
Institutional Class 224,569
____________________________________________________________
============================================================
Class A:
Net asset value per share $ 9.38
- ------------------------------------------------------------
Offering price per share:
(Net asset value of $9.38 divided
by 94.50%) $ 9.93
____________________________________________________________
============================================================
Class B:
Net asset value and offering price per
share $ 8.75
____________________________________________________________
============================================================
Class C:
Net asset value and offering price per
share $ 8.76
____________________________________________________________
============================================================
Class R:
Net asset value and offering price per
share $ 9.34
____________________________________________________________
============================================================
Institutional Class:
Net asset value and offering price per
share $ 9.47
____________________________________________________________
============================================================
</Table>
* At December 31, 2003, securities with an aggregate market value of
$116,256,265 were on loan to brokers.
See accompanying notes which are an integral part of the financial statements.
F-4
STATEMENT OF OPERATIONS
For the year ended December 31, 2003
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $384,236) $ 112,060,220
- ----------------------------------------------------------------------------
Dividends from affiliated money market funds* 7,735,893
- ----------------------------------------------------------------------------
Interest 552,453
============================================================================
Total investment income 120,348,566
============================================================================
EXPENSES:
Advisory fees 56,790,898
- ----------------------------------------------------------------------------
Administrative services fees 761,336
- ----------------------------------------------------------------------------
Custodian fees 517,480
- ----------------------------------------------------------------------------
Distribution fees:
Class A 11,843,149
- ----------------------------------------------------------------------------
Class B 38,803,582
- ----------------------------------------------------------------------------
Class C 4,242,684
- ----------------------------------------------------------------------------
Class R 2,329
- ----------------------------------------------------------------------------
Transfer agent fees (Class A, B, C, & R) 31,497,701
- ----------------------------------------------------------------------------
Transfer agent fees -- Institutional Class 1,118
- ----------------------------------------------------------------------------
Trustees' fees 139,410
- ----------------------------------------------------------------------------
Other 2,807,219
============================================================================
Total expenses 147,406,906
============================================================================
Less: Fees waived and expense offset arrangements (1,322,457)
- ----------------------------------------------------------------------------
Net expenses 146,084,449
============================================================================
Net investment income (loss) (25,735,883)
============================================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES, FOREIGN CURRENCIES, FOREIGN CURRENCY
CONTRACTS, FUTURES CONTRACTS AND OPTION CONTRACTS:
Net realized gain (loss) from:
Investment securities (585,972,855)
- ----------------------------------------------------------------------------
Foreign currencies (123,194)
- ----------------------------------------------------------------------------
Foreign currency contracts (3,466,091)
- ----------------------------------------------------------------------------
Futures contracts 69,449,042
- ----------------------------------------------------------------------------
Option contracts written 480,126
============================================================================
(519,632,972)
============================================================================
Change in net unrealized appreciation of:
Investment securities 2,484,939,325
- ----------------------------------------------------------------------------
Foreign currencies 17,615
- ----------------------------------------------------------------------------
Foreign currency contracts 80,695
- ----------------------------------------------------------------------------
Futures contracts 20,750,367
============================================================================
2,505,788,002
============================================================================
Net gain from investment securities, foreign currencies,
foreign currency contracts, futures contracts and option
contracts 1,986,155,030
============================================================================
Net increase in net assets resulting from operations $1,960,419,147
____________________________________________________________________________
============================================================================
</Table>
* Dividends from affiliated money market funds are net of fees paid to security
lending counterparties.
See accompanying notes which are an integral part of the financial statements.
F-5
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 2003 and 2002
<Table>
<Caption>
2003 2002
- ------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (25,735,883) $ (64,174,804)
- ------------------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities,
foreign currencies, foreign currency contracts, futures
contracts and option contracts (519,632,972) (2,370,879,580)
- ------------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities, foreign currencies, foreign
currency contracts and futures contracts 2,505,788,002 (2,871,180,046)
================================================================================================
Net increase (decrease) in net assets resulting from
operations 1,960,419,147 (5,306,234,430)
================================================================================================
Share transactions-net:
Class A (586,536,341) (1,392,867,197)
- ------------------------------------------------------------------------------------------------
Class B (1,467,119,888) (2,339,535,311)
- ------------------------------------------------------------------------------------------------
Class C (101,720,007) (232,888,880)
- ------------------------------------------------------------------------------------------------
Class R 318,566 200,138
- ------------------------------------------------------------------------------------------------
Institutional Class (625,385) 2,649,533
================================================================================================
Net increase (decrease) in net assets resulting from
share transactions (2,155,683,055) (3,962,441,717)
================================================================================================
Net increase (decrease) in net assets (195,263,908) (9,268,676,147)
================================================================================================
NET ASSETS:
Beginning of year 9,364,213,634 18,632,889,781
================================================================================================
End of year (including undistributed net investment income
(loss) of $(990,003) and $(911,328) for 2003 and 2002,
respectively) $ 9,168,949,726 $ 9,364,213,634
________________________________________________________________________________________________
================================================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
F-6
NOTES TO FINANCIAL STATEMENTS
December 31, 2003
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Premier Equity Fund (the "Fund") is a series portfolio of AIM Funds Group
(the "Trust"). The Trust is a Delaware statutory trust registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
series management investment company consisting of nine separate portfolios,
each authorized to issue an unlimited number of shares of beneficial interest.
The Fund currently offers multiple classes of shares. Matters affecting each
portfolio or class will be voted on exclusively by the shareholders of such
portfolio or class. The assets, liabilities and operations of each portfolio are
accounted for separately. Information presented in these financial statements
pertains only to the Fund.
The Fund's primary investment objective is to achieve long-term growth of
capital. Income is a secondary objective. Each company listed in the Schedule of
Investments is organized in the United States of America unless otherwise noted.
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 on the basis of prices furnished
by independent pricing services or market makers. Each security reported on
the NASDAQ National Market System is valued at the NASDAQ Official Closing
Price ("NOCP") as of the close of the customary trading session on the
valuation date or absent a NOCP, at the closing bid price. 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. Issuer specific events, market trends, bid/ask quotes of brokers
and information providers and other market data may be reviewed in the
course of making a good faith determination of a security's fair value.
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
ordinarily be reflected in the computation of the Fund's net asset value.
If a development/event is so significant such 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. Adjustments to closing prices to reflect fair value on affected
foreign securities may be provided by an independent pricing service.
Multiple factors may be considered by the independent pricing service in
determining adjustments to reflect fair value and may include information
relating to sector indices, ADRs, domestic and foreign index futures and
exchange-traded funds.
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.
The Fund allocates income and realized and unrealized capital gains and
losses to a class based on the relative net assets of each class.
C. 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
Subchapter M of the Internal Revenue Code necessary to qualify as a
regulated investment company and, as such, will not be subject to federal
income taxes on otherwise
F-7
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. Any capital loss carryforwards listed
are reduced for limitations, if any, to the extent required by the Internal
Revenue Code.
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. The combined results of changes in foreign exchange rates
and the fluctuation of market prices on investments are included with the
net realized and unrealized gain or loss from investments in the Statement
of Operations. Reported net realized foreign currency gains or losses arise
from, (i) sales of foreign currencies, (ii) currency gains or losses
realized between the trade and settlement dates on securities transactions,
and (iii) the difference between the amounts of dividends, interest, and
foreign withholding taxes recorded on the Fund's books and the U.S. dollar
equivalent of the amounts actually received or paid. Net unrealized foreign
currency gains and losses arise from changes in the fair values of assets
and liabilities, other than investments in securities at fiscal period end,
resulting from changes in exchange rates.
F. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to attempt
to minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency
contract for the purchase or sale of a security denominated in a foreign
currency in order to "lock in" the U.S. dollar price of that security. The
Fund could be exposed to risk if counterparties to the contracts are unable
to meet the terms of their contracts or if the value of the foreign
currency changes unfavorably.
G. FUTURES CONTRACTS -- The Fund may purchase or sell futures contracts as a
hedge against changes in market conditions. Initial margin deposits
required upon entering into futures contracts are satisfied by the
segregation of specific securities as collateral for the account of the
broker (the Fund's agent in acquiring the futures position). During the
period the futures contracts are open, changes in the value of the
contracts are recognized as unrealized gains or losses by "marking to
market" on a daily basis to reflect the market value of the contracts at
the end of each day's trading. Variation margin payments are made or
received depending upon whether unrealized gains or losses are incurred.
When the contracts are closed, the Fund recognizes a realized gain or loss
equal to the difference between the proceeds from, or cost of, the closing
transaction and the Fund's basis in the contract. If the Fund were unable
to liquidate a futures contract and/or enter into an offsetting closing
transaction, the fund would continue to be subject to market risk with
respect to the value of contracts and continue to be required to maintain
the margin deposits on the futures contract.
H. COVERED CALL OPTIONS -- The Fund may write call options, on a covered
basis; that is, the Fund will own the underlying security. When the Fund
writes a covered call option, an amount equal to the premium received by
the Fund is recorded as an asset and an equivalent liability. The amount of
the liability is subsequently "marked-to-market" to reflect the current
market value of the option written. The current market value of a written
option is the mean between the last bid and asked prices on that day. If a
written call option expires on the stipulated expiration date, or if the
Fund enters into a closing purchase transaction, the Fund realizes a gain
(or a loss if the closing purchase transaction exceeds the premium received
when the option was written) without regard to any unrealized gain or loss
on the underlying security, and the liability related to such option is
extinguished. If a written option is exercised, the Fund realizes a gain or
a loss from the sale of the underlying security and the proceeds of the
sale are increased by the premium originally received. A risk in writing a
call option is that the Fund gives up the opportunity for profit if the
market price of the security increases and the option is exercised.
I. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund are charged to the operations of such class. Transfer
agency fees and expenses and other shareholder recordkeeping fees and
expenses attributable to the Institutional Class are charged to such class.
Transfer agency fees and expenses relating to all other classes are
allocated among those classes based on relative net assets. All other
expenses are allocated among the classes based on relative net assets.
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement,
the Fund pays an advisory fee to AIM at the annual rate of 0.80% of the first
$150 million of the Fund's average daily net assets, plus 0.625% of the Fund's
average daily net assets in excess of $150 million. AIM has voluntarily agreed
to waive advisory fees payable by the Fund to AIM at the annual rate of 0.025%
for each $5 billion increment in net assets over $5 billion, up to a maximum
waiver of 0.175% on net assets in excess of $35 billion. Further, AIM has
voluntarily agreed to waive advisory fees of the Fund in the amount of 25% of
the advisory fee AIM receives from the affiliated money market funds in which
the Fund has invested (excluding investments made in affiliated money market
funds with cash collateral from securities loaned by the Fund). Voluntary fee
waivers or reimbursements may be modified or discontinued with approval of the
Board of Trustees without further notice to investors. For the year ended
December 31, 2003, AIM waived fees of $1,170,110.
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, 2003, AIM was
paid $761,336 for such services.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay AIM Investment Services, Inc. ("AISI"), formerly known as
F-8
A I M Fund Services, Inc., a fee for providing transfer agency and shareholder
services to the Fund. For the Institutional Class, the transfer agent has
contractually agreed to reimburse class specific transfer agent fees to the
extent necessary to limit transfer agent fees to 0.10% of the average net
assets. During the year ended December 31, 2003, AISI retained $13,352,135 for
such services and had no class specific transfer agent fee reimbursements.
The Trust has entered into master distribution agreements with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Class A, Class B, Class C, Class R and the Institutional Class shares of the
Fund. The Trust has adopted plans pursuant to Rule 12b-1 under the 1940 Act with
respect to the Fund's Class A, Class B, Class C and Class R shares (collectively
the "Plans"). The Fund, pursuant to the Plans, pays AIM Distributors
compensation at the annual rate of 0.25% of the Fund's average daily net assets
of Class A shares, 1.00% of the average daily net assets of Class B and Class C
shares and 0.50% of the average daily net assets of Class R shares. Of these
amounts, AIM Distributors may pay a service fee up to 0.25% of the average daily
net assets of the Class A, Class B, Class C or Class R shares to selected
dealers and financial institutions who furnish continuing personal shareholder
services to their customers who purchase and own shares of such classes. Any
amounts not paid as a service fee under the Plans would constitute an
asset-based sales charge. NASD Rules also impose a cap on the total sales
charges, including asset-based sales charges that may be paid by any class of
shares of the Fund. Pursuant to the Plans, for the year ended December 31, 2003,
the Class A, Class B, Class C and Class R shares paid $11,843,149, $38,803,582,
$4,242,684, and $2,329, respectively.
Front-end sales commissions and contingent deferred sales charges ("CDSC")
(collectively the "sales charges") are not recorded as expenses of the Fund.
Front-end sales commissions are deducted from proceeds from the sales of Fund
shares prior to investment in Class A shares of the Fund. CDSC are deducted from
redemption proceeds prior to remittance to the shareholder. During year ended
December 31, 2003, AIM Distributors retained $467,280 in front-end sales
commissions from the sale of Class A shares and $59,617, $1,396, $22,796 and $0
from Class A, Class B, Class C and Class R shares, respectively, for CDSC
imposed upon redemptions by shareholders.
Certain officers and trustees of the Trust are officers and directors of
AIM, AISI and/or AIM Distributors.
NOTE 3--INVESTMENTS IN AFFILIATES
The Fund is permitted pursuant to an exemptive order from the Securities and
Exchange Commission ("SEC") and approved procedures by the Board of Trustees to
invest daily available cash balances and cash collateral from securities lending
transactions in affiliated money market funds. Each day the prior day's balance
invested in the affiliated money market fund is redeemed in full and a new
purchase amount is submitted to invest the current day's available cash and/or
cash collateral received from securities lending transactions. The table below
shows the transactions in and earnings from investments in affiliated money
market funds for the period December 31, 2003.
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
12/31/2002 AT COST FROM SALES (DEPRECIATION) 12/31/2003 INCOME GAIN (LOSS)
- ------------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio $371,645,740 $ 914,484,665 $(1,136,275,137) $ -- $149,855,268 $3,886,345 $ --
- ------------------------------------------------------------------------------------------------------------------------------------
STIC Prime Portfolio 371,645,740 914,484,665 (1,136,275,137) -- 149,855,268 3,753,745 --
====================================================================================================================================
Subtotal $743,291,480 $1,828,969,330 $(2,272,550,274) $ -- $299,710,536 $7,640,090 $ --
____________________________________________________________________________________________________________________________________
====================================================================================================================================
</Table>
INVESTMENTS OF CASH COLLATERAL FORM SECURITIES LENDING TRANSACTIONS:
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
12/31/2002 AT COST FROM SALES (DEPRECIATION) 12/31/2003 INCOME* GAIN (LOSS)
- ----------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio $135,612,100 $ 885,508,130 $ (901,341,740) $ -- $119,778,490 $ 95,803 $ --
==================================================================================================================================
Total $878,903,580 $2,714,477,460 $(3,173,892,014) $ -- $419,489,026 $7,735,893 $ --
__________________________________________________________________________________________________________________________________
==================================================================================================================================
</Table>
* Dividend income is net of fees paid to security lending counterparties of
$913,362.
NOTE 4--EXPENSE OFFSET ARRANGEMENTS
Indirect expenses under expense offset arrangements are comprised of transfer
agency credits resulting from Demand Deposit Account (DDA) balances in transfer
agency clearing accounts and custodian credits resulting from periodic overnight
cash balances at the custodian.
For the year ended December 31, 2003, the Fund received reductions in
transfer agency fees from AISI (an affiliate of AIM) of $148,646 and reductions
in custodian fees of $3,701 under expense offset arrangements which resulted in
a reduction of the Fund's total expenses of $152,347.
F-9
NOTE 5--TRUSTEES' FEES
Trustees' fees represent remuneration paid to each Trustee of the Trust who is
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 and INVESCO Funds in which their deferral accounts
shall be deemed to be invested.
Current Trustees are eligible to participate in a retirement plan that
provides for benefits to be paid upon retirement to Trustees over a period of
time based on the number of years of service. The Fund may have certain former
Trustees that also participate in a retirement plan and receive benefits under
such plan.
During the year ended December 31, 2003, the Fund paid legal fees of $28,458
for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the
Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 6--BORROWINGS
The Fund may participate in an interfund lending facility that AIM has
established for temporary borrowings by the AIM Funds and the INVESCO Funds. An
interfund loan will be made under this facility only if the loan rate (an
average of the rate available on bank loans and the rate available on
investments in overnight repurchase agreements) is favorable to both the lending
fund and the borrowing fund. Under certain circumstances, a loan will be secured
by collateral. To the extent that the loan is required to be secured by
collateral, the collateral is marked to market daily to ensure that the market
value is at least 102% of the outstanding principal value of the loan.
Effective June 26, 2003, the Fund became a participant in an uncommitted
unsecured revolving credit facility with State Street Bank and Trust Company
("SSB"). The Fund may borrow up to the lesser of (i) $125,000,000 or (ii) the
limits set by its prospectus for borrowings. The Fund and other funds advised by
AIM which are parties to the credit facility can borrow on a first come, first
served basis. Principal on each loan outstanding shall bear interest at the bid
rate quoted by SSB at the time of the request for the loan.
During the reporting period, the Fund was a participant in a committed
credit facility with a syndicate administered by Citibank, N.A. The Fund could
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 were
parties to the credit facility could borrow on a first come, first served basis.
The funds which were party to the credit facility were charged a commitment fee
of 0.09% on the unused balance of the committed line. The commitment fee was
allocated among the funds based on their respective average net assets for the
period. The committed credit facility expired May 20, 2003.
During the year ended December 31, 2003, the Fund did not borrow or lend
under the interfund lending facility or borrow under either the uncommitted
unsecured revolving credit facility or the committed credit facility.
Additionally the Fund is permitted to temporarily carry a negative or
overdrawn balance in its account with the custodian bank. To compensate the
custodian bank for such overdrafts, the overdrawn Fund may either (i) leave
funds in the account so the custodian can be compensated by earning the
additional interest; or (ii) compensate by paying the custodian bank. In either
case, the custodian bank will be compensated an amount equal to the Federal
Funds rate plus 100 basis points.
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 of the loaned securities determined daily. Such collateral will be
cash or debt securities issued or guaranteed by the U.S. Government or any of
its agencies. Cash collateral received in connection with to these loans is
invested in short-term money market instruments or affiliated money market
funds. It is the Fund's policy to obtain additional collateral from or return
excess collateral to the borrower by the end of the next business day, following
the valuation date of the securities loaned. Therefore, the value of the
collateral held may be temporarily less than the value of the securities on
loan. Lending securities entails a risk of loss to the Fund if and to the extent
that the market value of the securities loaned were to increase and the borrower
did not increase the collateral accordingly, and the borrower fails to return
the securities. The fund could also experience delays and costs in gaining
access to the collateral. The Fund bears the risk of any deficiency in the
amount of the collateral available for return to the borrower due to a loss on
the collateral invested.
At December 31, 2003, securities with an aggregate value of $116,256,265
were on loan to brokers. The loans were secured by cash collateral of
$119,778,490 received by the Fund and subsequently invested in an affiliated
money market fund. For the year ended December 31, 2003, the Fund received
dividends on cash collateral net of fees paid to counterparties of $95,803 for
securities lending transactions.
NOTE 8--OPTION CONTRACTS WRITTEN
<Table>
<Caption>
TRANSACTIONS DURING THE PERIOD
- ------------------------------------------------------------
CALL OPTION CONTRACTS
------------------------
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
- ------------------------------------------------------------
Beginning of year -- $ --
- ------------------------------------------------------------
Written 17,550 2,618,650
- ------------------------------------------------------------
Closed (7,650) (1,400,216)
- ------------------------------------------------------------
Exercised (9,900) (1,218,434)
============================================================
End of year -- $ --
____________________________________________________________
============================================================
</Table>
NOTE 9--FUTURES CONTRACTS
On December 31, 2003, $15,117,000 principal amount of U.S. Treasury obligations
were pledged as collateral to cover margin requirements for open futures
contracts.
<Table>
<Caption>
OPEN FUTURES CONTRACTS AT PERIOD END
- ----------------------------------------------------------------------------
NO. OF MONTH/ MARKET UNREALIZED
CONTRACT CONTRACTS COMMITMENT VALUE APPRECIATION
- ----------------------------------------------------------------------------
S&P 500 850 Mar-04/Long $236,002,500 $11,022,800
____________________________________________________________________________
============================================================================
</Table>
F-10
NOTE 10--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
Distributions to Shareholders:
There were no ordinary income or long-term capital gain distributions paid
during the years ended December 31, 2003 and December 31, 2002.
Tax Components of Net Assets:
As of December 31, 2003, the components of net assets on a tax basis were as
follows:
<Table>
Unrealized appreciation -- investments $ 1,156,703,704
- ------------------------------------------------------------
Temporary book/tax differences (990,003)
- ------------------------------------------------------------
Capital loss carryforward (4,702,594,389)
- ------------------------------------------------------------
Capital (par value and additional
paid-in) 12,715,830,414
============================================================
Total net assets $ 9,168,949,726
____________________________________________________________
============================================================
</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 the tax recognition of unrealized gains or losses on certain
future contracts. The tax-basis unrealized appreciation on investments amount
includes appreciation on foreign currencies of $17,615.
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
trustee retirement plan expenses.
The Fund has a capital loss carryforward for tax purposes which expires as
follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD
- ------------------------------------------------------------
December 31, 2009 1,690,224,044
- ------------------------------------------------------------
December 31, 2010 2,279,293,105
- ------------------------------------------------------------
December 31, 2011 733,077,240
============================================================
Total capital loss carryforward $4,702,594,389
____________________________________________________________
============================================================
</Table>
NOTE 11--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities
and money market funds) purchased and sold by the Fund during the year ended
December 31, 2003 was $3,082,813,926 and $4,798,350,277, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF
INVESTMENT SECURITIES ON A TAX BASIS
- ------------------------------------------------------------
Aggregate unrealized appreciation of
investment securities $1,533,187,610
- ------------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (376,501,521)
============================================================
Net unrealized appreciation of investment
securities $1,156,686,089
____________________________________________________________
============================================================
Cost of investments for tax purposes is $8,184,709,417.
</Table>
NOTE 12--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of capital loss
carryforwards, merger transactions, net operating losses and foreign currency
transactions on December 31, 2003, undistributed net investment income was
increased by $25,657,208, undistributed net realized gains decreased by
$22,601,785 and shares of beneficial interest decreased by $3,055,423. This
reclassification had no effect on the net assets of the Fund.
F-11
NOTE 13--SHARE INFORMATION
The Fund currently offers five different classes of shares: Class A shares,
Class B shares, Class C shares, Class R shares and the Institutional Class
shares. Class A shares are sold with a front-end sales charge. Class B shares
and Class C shares are sold with CDSC. Class R shares and the Institutional
Class shares are sold at net asset value. Under some circumstances, Class A
shares and Class R shares are subject to CDSC. Generally, Class B shares will
automatically convert to Class A shares eight years after the end of the
calendar month of purchase.
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING
- --------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------
2003 2002
------------------------------- -------------------------------
SHARES AMOUNT SHARES AMOUNT
- --------------------------------------------------------------------------------------------------------------------------------
Sold:
Class A 39,598,262 $ 320,765,623 73,118,435 $ 657,092,554
- --------------------------------------------------------------------------------------------------------------------------------
Class B 13,786,253 105,078,641 22,610,679 195,949,105
- --------------------------------------------------------------------------------------------------------------------------------
Class C 3,249,627 24,835,033 5,748,410 50,204,828
- --------------------------------------------------------------------------------------------------------------------------------
Class R* 89,985 704,135 29,155 211,650
- --------------------------------------------------------------------------------------------------------------------------------
Institutional Class** -- -- 345,082 3,005,669
================================================================================================================================
Issued in connection with acquisitions:***
Class A 2,782,677 24,469,013 -- --
- --------------------------------------------------------------------------------------------------------------------------------
Class B 3,838,877 31,511,253 -- --
- --------------------------------------------------------------------------------------------------------------------------------
Class C 1,461,575 11,994,377 -- --
================================================================================================================================
Automatic conversion of Class B shares to Class A shares:
Class A 77,425,211 643,745,569 37,066,076 329,215,215
- --------------------------------------------------------------------------------------------------------------------------------
Class B (82,660,881) (643,745,569) (39,184,836) (329,215,215)
================================================================================================================================
Reacquired:
Class A (192,041,009) (1,575,516,546) (274,622,366) (2,379,174,966)
- --------------------------------------------------------------------------------------------------------------------------------
Class B (126,732,034) (959,964,213) (270,457,065) (2,206,269,201)
- --------------------------------------------------------------------------------------------------------------------------------
Class C (18,159,353) (138,549,417) (34,348,509) (283,093,708)
- --------------------------------------------------------------------------------------------------------------------------------
Class R* (47,869) (385,569) (1,533) (11,512)
- --------------------------------------------------------------------------------------------------------------------------------
Institutional Class** (74,164) (625,385) (46,349) (356,136)
================================================================================================================================
(277,482,843) $(2,155,683,055) (479,742,821) $(3,962,441,717)
________________________________________________________________________________________________________________________________
================================================================================================================================
</Table>
* Class R shares commenced sales on June 3, 2002.
** Institutional Class shares commenced sales on March 15, 2002.
*** As of the opening of business on November 24, 2003, the Fund acquired all of
the net assets of AIM Premier Equity II Fund pursuant to a plan of
reorganization approved by AIM Premier Equity II Fund shareholders on
October 28, 2003. The acquisition was accomplished by a tax-free exchange of
8,083,129 shares of the Fund for 12,162,356 shares of AIM Premier Equity II
Fund outstanding as of the opening of business November 24, 2003. AIM
Premier Equity II Fund net assets at that date of $67,974,643 including
$5,277,895 of unrealized depreciation, were combined with those of the Fund.
The aggregate net assets of the Fund immediately before the acquisition were
$8,817,104,791.
F-12
NOTE 14--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
CLASS A
---------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------------
2003 2002 2001 2000(a) 1999(a)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 7.51 $ 10.87 $ 12.51 $ 16.28 $ 13.40
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.01(b) (0.01)(b) 0.00 (0.04)(b) (0.01)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) 1.86 (3.35) (1.63) (2.42) 3.97
=================================================================================================================================
Total from investment operations 1.87 (3.36) (1.63) (2.46) 3.96
=================================================================================================================================
Less distributions from net realized gains -- -- (0.01) (1.31) (1.08)
=================================================================================================================================
Net asset value, end of period $ 9.38 $ 7.51 $ 10.87 $ 12.51 $ 16.28
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(c) 24.90% (30.91)% (12.99)% (14.95)% 29.95%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $5,116,444 $4,642,361 $8,502,699 $ 11,223,504 $12,640,073
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets:
With fee waivers 1.26%(d) 1.17% 1.08% 1.00% 1.00%
- ---------------------------------------------------------------------------------------------------------------------------------
Without fee waivers 1.27%(d) 1.19% 1.12% 1.04% 1.02%
=================================================================================================================================
Ratio of net investment income (loss) to
average net assets 0.07%(d) (0.08)% (0.03)% (0.11)% (0.09)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate 37% 36% 38% 67% 66%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Per share information and shares have been restated to reflect a 3 for 1
stock split, effected in the form of a 200% stock dividend on November
10, 2000.
(b) Calculated using average shares outstanding.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and does not include sales
charges.
(d) Ratios are based on average daily net assets of 4,737,259,713.
F-13
NOTE 14--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS B
---------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------------
2003 2002 2001 2000(a) 1999(a)
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 7.07 $ 10.30 $ 11.94 $ 15.73 $ 13.08
- -----------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.05)(b) (0.07)(b) (0.09) (0.31)(b) (0.13)(b)
- -----------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) 1.73 (3.16) (1.54) (2.17) 3.86
=============================================================================================================================
Total from investment operations 1.68 (3.23) (1.63) (2.48) 3.73
=============================================================================================================================
Less distributions from net realized gains -- -- (0.01) (1.31) (1.08)
=============================================================================================================================
Net asset value, end of period $ 8.75 $ 7.07 $ 10.30 $ 11.94 $ 15.73
_____________________________________________________________________________________________________________________________
=============================================================================================================================
Total return(c) 23.76% (31.36)% (13.61)% (15.65)% 28.94%
_____________________________________________________________________________________________________________________________
=============================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $3,616,395 $4,274,489 $9,186,980 $12,491,366 $ 14,338,087
_____________________________________________________________________________________________________________________________
=============================================================================================================================
Ratio of expenses to average net assets:
With fee waivers 2.01%(d) 1.92% 1.84% 1.77% 1.79%
- -----------------------------------------------------------------------------------------------------------------------------
Without fee waivers 2.02%(d) 1.94% 1.88% 1.81% 1.81%
=============================================================================================================================
Ratio of net investment income (loss) to
average net assets (0.68)%(d) (0.84)% (0.79)% (0.89)% (0.88)%
_____________________________________________________________________________________________________________________________
=============================================================================================================================
Portfolio turnover rate 37% 36% 38% 67% 66%
_____________________________________________________________________________________________________________________________
=============================================================================================================================
</Table>
(a) Per share information and shares have been restated to reflect a 3 for 1
stock split, effected in the form of a 200% stock dividend on November
10, 2000.
(b) Calculated using average shares outstanding.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and does not include sales
charges.
(d) Ratios are based on average daily net assets of $3,880,358,150.
<Table>
<Caption>
CLASS C
----------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------
2003 2002 2001 2000(a) 1999(a)
- ------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 7.07 $ 10.31 $ 11.95 $ 15.74 $ 13.09
- ------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.05)(b) (0.07)(b) (0.09) (0.31)(b) (0.13)(b)
- ------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) 1.74 (3.17) (1.54) (2.17) 3.86
==================================================================================================================
Total from investment operations 1.69 (3.24) (1.63) (2.48) 3.73
==================================================================================================================
Less distributions from net realized gains -- -- (0.01) (1.31) (1.08)
==================================================================================================================
Net asset value, end of period $ 8.76 $ 7.07 $ 10.31 $ 11.95 $ 15.74
__________________________________________________________________________________________________________________
==================================================================================================================
Total return(c) 23.90% (31.43)% (13.60)% (15.62)% 28.92%
__________________________________________________________________________________________________________________
==================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $433,332 $444,901 $943,211 $1,262,192 $860,859
__________________________________________________________________________________________________________________
==================================================================================================================
Ratio of expenses to average net assets:
With fee waivers 2.01%(d) 1.92% 1.84% 1.77% 1.79%
- ------------------------------------------------------------------------------------------------------------------
Without fee waivers 2.02%(d) 1.94% 1.88% 1.81% 1.81%
==================================================================================================================
Ratio of net investment income (loss) to
average net assets (0.68)%(d) (0.84)% (0.79)% (0.88)% (0.88)%
__________________________________________________________________________________________________________________
==================================================================================================================
Portfolio turnover rate 37% 36% 38% 67% 66%
__________________________________________________________________________________________________________________
==================================================================================================================
</Table>
(a) Per share information and shares have been restated to reflect a 3 for 1
stock split, effected in the form of a 200% stock dividend on November
10, 2000.
(b) Calculated using average shares outstanding.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and does not include sales
charges.
(d) Ratios are based on average daily net assets of $424,268,449.
F-14
NOTE 14--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS R
--------------------------------
JUNE 3, 2002
(DATE SALES
YEAR ENDED COMMENCED) TO
DECEMBER 31, DECEMBER 31,
2003 2002
- ----------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 7.50 $ 9.16
- ----------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.01)(a) (0.02)(a)
- ----------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 1.85 (1.64)
==============================================================================================
Total from investment operations 1.84 (1.66)
==============================================================================================
Net asset value, end of period $ 9.34 $ 7.50
______________________________________________________________________________________________
==============================================================================================
Total return(b) 24.53% (18.12)%
______________________________________________________________________________________________
==============================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 651 $ 207
______________________________________________________________________________________________
==============================================================================================
Ratio of expenses to average net assets:
With fee waivers 1.51%(c) 1.48%(d)
- ----------------------------------------------------------------------------------------------
Without fee waivers 1.52%(c) 1.50%(d)
==============================================================================================
Ratio of net investment income (loss) to average net assets (0.18)%(c) (0.40)%(d)
______________________________________________________________________________________________
==============================================================================================
Portfolio turnover rate(e) 37% 36%
______________________________________________________________________________________________
==============================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include sales charges
and is not annualized for periods less than one year.
(c) Ratios are based on average daily net assets of $465,853.
(d) Annualized.
(e) Not annualized for periods less than one year.
F-15
NOTE 14--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
INSTITUTIONAL CLASS
---------------------------------
MARCH 15, 2002
(DATE SALES
YEAR ENDED COMMENCED) TO
DECEMBER 31, DECEMBER 31,
2003 2002
- -----------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 7.55 $ 10.66
- -----------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.05(a) 0.03(a)
- -----------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 1.87 (3.14)
===============================================================================================
Total from investment operations 1.92 (3.11)
===============================================================================================
Net asset value, end of period $ 9.47 $ 7.55
_______________________________________________________________________________________________
===============================================================================================
Total return(b) 25.43% (29.17)%
_______________________________________________________________________________________________
===============================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $2,127 $ 2,255
_______________________________________________________________________________________________
===============================================================================================
Ratio of expenses to average net assets:
With fee waivers 0.71%(c) 0.66%(d)
- -----------------------------------------------------------------------------------------------
Without fee waivers 0.72%(c) 0.68%(d)
===============================================================================================
Ratio of net investment income to average net assets 0.62%(c) 0.42%(d)
_______________________________________________________________________________________________
===============================================================================================
Portfolio turnover rate(e) 37% 36%
_______________________________________________________________________________________________
===============================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and is not annualized for
periods less than one year.
(c) Ratios are based on average daily net assets of $2,191,456.
(d) Annualized.
(e) Not annualized for periods less than one year.
NOTE 15--LEGAL PROCEEDINGS
Your Fund's investment advisor, A I M Advisors, Inc. ("AIM"), is an indirect
wholly owned subsidiary of AMVESCAP PLC ("AMVESCAP"). Another indirect wholly
owned subsidiary of AMVESCAP, INVESCO Funds Group, Inc. ("IFG"), was formerly
the investment advisor to the INVESCO Funds. IFG continues to serve as the
investment advisor to INVESCO Variable Investment Funds, Inc. ("IVIF"). On
November 25, 2003, AIM succeeded IFG as the investment advisor to the INVESCO
Funds other than IVIF.
The mutual fund industry as a whole is currently subject to a wide range of
inquiries and litigation related to issues of "market timing" and "late
trading." Both AIM and IFG are the subject of a number of such inquiries, as
described below.
A. Regulatory Inquiries and Actions
1. IFG
On December 2, 2003 each of the Securities and Exchange Commission ("SEC") and
the Office of the Attorney General of the State of New York ("NYAG") filed civil
proceedings against IFG and Raymond R. Cunningham, in his capacity as the Chief
Executive Officer of IFG. Mr. Cunningham currently holds the positions of Chief
Operating Officer and Senior Vice President of A I M Management Group Inc., the
parent of AIM, and the position of Senior Vice President of AIM. In addition, on
December 2, 2003, the State of Colorado filed civil proceedings against IFG.
Neither the Fund nor any of the other AIM or INVESCO Funds has been named as a
defendant in any of these proceedings.
The SEC complaint alleges that IFG failed to disclose in the INVESCO Funds'
prospectuses and to the INVESCO Funds' independent directors that IFG had
entered into certain arrangements permitting market timing of the INVESCO Funds.
The SEC is seeking injunctions, including permanent injunctions from serving as
an investment advisor, officer or director of an investment company; an
accounting of all market timing as well as certain fees and compensation
received; disgorgement; civil monetary penalties; and other relief.
The NYAG and Colorado complaints make substantially similar allegations. The
NYAG is seeking injunctions, including permanent injunctions from directly or
indirectly selling or distributing shares of mutual funds; disgorgement of all
profits obtained, including fees collected, and payment of all restitution and
damages caused, directly or indirectly from the alleged illegal activities;
civil monetary penalties; and other relief. The State of Colorado is seeking
injunctions; restitution, disgorgement and other equitable relief, civil
monetary penalties; and other relief.
In addition, IFG has received inquiries in the form of subpoenas or other oral
or written requests for information from various regulators concerning market
timing activity, late trading, fair value pricing and related issues concerning
the INVESCO Funds. These regulators include the Florida Department of Financial
Services, the Commissioner of Securities for the State of Georgia, the Office of
the State Auditor for the State of West Virginia, and the Office
F-16
NOTE 15--LEGAL PROCEEDINGS (CONTINUED)
of the Secretary of State for West Virginia. IFG has also received more limited
inquiries concerning related matters from the United States Department of Labor,
NASD, Inc., and the SEC. IFG is providing full cooperation with respect to these
inquiries.
2. AIM
AIM has also received inquiries in the form of subpoenas or other oral or
written requests for information from various regulators concerning market
timing activity, late trading, fair value pricing, and related issues concerning
the AIM Funds. AIM has received requests for information and documents
concerning these and related matters from the SEC and the Massachusetts
Secretary of the Commonwealth. In addition, AIM has received subpoenas
concerning these and related matters from the NYAG, the United States Attorney's
Office for the District of Massachusetts, the Commissioner of Securities for the
State of Georgia, the Office of the State Auditor for the State of West
Virginia, and the Office of the Secretary of State for West Virginia. AIM has
also received more limited inquiries from the SEC and NASD, Inc. concerning
specific funds, entities and/or individuals, none of which directly bears upon
the Fund. AIM is providing full cooperation with respect to these inquiries.
3. AMVESCAP Response
AMVESCAP is seeking to resolve both the pending regulatory complaints against
IFG alleging market timing and the ongoing market timing investigations with
respect to IFG and AIM. AMVESCAP recently found, in its ongoing review of these
matters, that shareholders were not always effectively protected from the
potential adverse impact of market timing and illegal late trading through
intermediaries. These findings were based, in part, on an extensive economic
analysis by outside experts who have been retained by AMVESCAP to examine the
impact of these activities. In light of these findings, AMVESCAP has publicly
stated that any AIM or INVESCO Fund, or any shareholders thereof, harmed by
these activities will receive full restitution. AMVESCAP has informed regulators
of these findings. In addition, AMVESCAP has retained outside counsel to
undertake a comprehensive review of AIM's and IFG's policies, procedures and
practices, with the objective that they rank among the most effective in the
fund industry.
There can be no assurance that AMVESCAP will be able to reach a satisfactory
settlement with the regulators, or that any such settlement will not include
terms which would have the effect of barring either or both of IFG and AIM, or
any other investment advisor directly or indirectly owned by AMVESCAP, from
serving as an investment advisor to any registered investment company including
the Fund. The Fund has been informed by AIM that, if either of these results
occurs, AIM will seek exemptive relief from the SEC to permit it to continue to
serve as the Fund's investment advisor. There can be no assurance that such
exemptive relief will be granted. Any settlement with the regulators could also
include terms which would bar Mr. Cunningham from serving as an officer or
director of any registered investment company.
B. Private Actions
In addition to the complaints described above, multiple lawsuits, including
purported class action and shareholder derivative suits, have been filed against
various parties (including, depending on the lawsuit, certain INVESCO Funds,
certain AIM Funds, IFG, AIM, A I M Management Group Inc., the parent of AIM,
AMVESCAP, certain related entities and certain of their officers, including Mr.
Cunningham). The allegations in the majority of the lawsuits are substantially
similar to the allegations in the regulatory complaints against IFG described
above. Certain other lawsuits allege that certain AIM and INVESCO Funds
inadequately employed fair value pricing. Such lawsuits allege a variety of
theories of recovery, including but not limited to: (i) violation of various
provisions of the Federal and state securities laws; (ii) violation of various
provisions of the Employee Retirement Income Security Act ("ERISA"); (iii)
breach of fiduciary duty; and (iv) breach of contract. The lawsuits have been
filed in both Federal and state courts and seek such remedies as compensatory
damages; restitution; rescission; accounting for wrongfully gotten gains,
profits and compensation; injunctive relief; disgorgement; equitable relief;
various corrective measures under ERISA; rescission of certain Funds' advisory
agreements with AIM; declaration that the advisory agreement is unenforceable or
void; refund of advisory fees; interest; and attorneys' and experts' fees.
IFG has removed certain of the state court proceedings to Federal District
Court. At a hearing before the Judicial Panel on Multidistrict Litigation
concerning the most efficient way to manage the numerous lawsuits alleging
market timing in mutual funds throughout the industry, IFG and AIM supported
transfer of all cases pending against them to one district for consolidated
proceedings. The Panel has not issued a ruling.
Additional lawsuits or regulatory actions arising out of these circumstances
and presenting similar allegations and requests for relief may be filed against
the Fund, IFG, AIM, AMVESCAP and related entities and individuals in the future.
As a result of these developments, investors in the AIM and INVESCO Funds
might react by redeeming their investments. This might require the Funds to sell
investments to provide for sufficient liquidity and could also have an adverse
effect on the investment performance of the Funds.
At the present time, management of AIM and the Fund is unable to estimate the
impact, if any, that the outcome of the matters described above may have on the
Fund or AIM.
F-17
REPORT OF INDEPENDENT AUDITORS
To the Board of Trustees and Shareholders
of AIM Premier Equity Fund
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the AIM Premier Equity Fund (one of
the funds constituting AIM Funds Group; hereafter referred to as the "Fund") at
December 31, 2003, the results of its operations for the year then ended, the
changes in its net assets for each of the two years in the period then ended and
the financial highlights for each of the periods indicated in the four years
then ended, in conformity with accounting principles generally accepted in the
United States of America. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Fund's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with auditing standards generally accepted in
the United States of America, which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 2003 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion. The financial highlights for each of the periods ended on or before
December 31, 1999 were audited by other independent auditors whose report dated
February 14, 2000, expressed an unqualified opinion thereon.
PRICEWATERHOUSECOOPERS LLP
February 20, 2004
Houston, Texas
F-18
PROXY RESULTS (UNAUDITED)
A Special Meeting of Shareholders of AIM Premier Equity Fund, a portfolio of AIM
Funds Group, a Delaware statutory trust, was held on October 21, 2003. The
meeting was held for the following purpose:
(1)* To elect sixteen individuals to the Board, each of whom will serve until
his or her successor is elected and qualified: Bob R. Baker, Frank S.
Bayley, James T. Bunch, Bruce L. Crockett, Albert R. Dowden, Edward K.
Dunn, Jr., Jack M. Fields, Carl Frischling, Robert H. Graham, Gerald J.
Lewis, Prema Mathai-Davis, Lewis F. Pennock, Ruth H. Quigley, Louis S.
Sklar, Larry Soll, Ph D. and Mark H. Williamson.
The results of the voting on the above matter were as follows:
<Table>
<Caption>
WITHHOLDING
TRUSTEES/MATTER VOTES FOR AUTHORITY
- ---------------------------------------------------------------------------------
(1)* Bob R. Baker................................. 822,704,205 11,194,804
Frank S. Bayley.............................. 822,781,451 11,117,558
James T. Bunch............................... 822,886,061 11,012,948
Bruce L. Crockett............................ 822,942,379 10,956,630
Albert R. Dowden............................. 822,923,043 10,975,966
Edward K. Dunn, Jr........................... 822,752,667 11,146,342
Jack M. Fields............................... 823,013,560 10,885,449
Carl Frischling.............................. 822,602,646 11,296,363
Robert H. Graham............................. 822,881,635 11,017,374
Gerald J. Lewis.............................. 822,460,720 11,438,289
Prema Mathai-Davis........................... 822,715,053 11,183,956
Lewis F. Pennock............................. 822,839,481 11,059,528
Ruth H. Quigley.............................. 822,446,309 11,452,700
Louis S. Sklar............................... 822,882,710 11,016,299
Larry Soll, Ph.D............................. 822,748,856 11,150,153
Mark H. Williamson........................... 822,801,778 11,097,231
</Table>
* Proposal required approval by a combined vote of all the portfolios of AIM
Funds Group.
OTHER INFORMATION
TRUSTEES AND OFFICERS
As of January 1, 2004
The address of each trustee and officer of AIM Funds Group (the "Trust"), is 11
Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee oversees 104
portfolios in the AIM and INVESCO Funds complex, except for Messrs. Baker,
Bunch, Lewis and Soll who oversee 96 portfolios and Mr. Williamson who oversees
117 portfolios in the AIM and INVESCO Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
<Table>
<Caption>
NAME, YEAR OF BIRTH AND TRUSTEE AND/
POSITION(S) HELD WITH THE OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- -------------------------------------------------------------------------------------------------------------------------------
INTERESTED PERSONS
- -------------------------------------------------------------------------------------------------------------------------------
Robert H. Graham(1) -- 1946 1992 Director and Chairman, A I M Management Group Inc. None
Trustee, Chairman and (financial services holding company); and Director
President and Vice Chairman, AMVESCAP PLC and Chairman of
AMVESCAP PLC -- AIM Division (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), AIM Investment Services, Inc.,
(registered transfer agent), and Fund Management
Company (registered broker dealer); and Chief
Executive Officer, AMVESCAP PLC -- Managed
Products
- -------------------------------------------------------------------------------------------------------------------------------
Mark H. Williamson(2) -- 1951 2003 Director, President and Chief Executive Officer, None
Trustee and Executive Vice A I M Management Group Inc. (financial services
President holding company); Director, Chairman and
President, A I M Advisors, Inc. (registered
investment advisor); Director, A I M Capital
Management, Inc. (registered investment advisor)
and A I M Distributors, Inc. (registered broker
dealer); Director and Chairman, AIM Investment
Services, Inc. (registered transfer agent), and
Fund Management Company (registered broker
dealer); and Chief Executive Officer, AMVESCAP
PLC -- AIM Division (parent of AIM and a global
investment management firm)
Formerly: Director, Chairman, President and Chief
Executive Officer, INVESCO Funds Group, Inc. and
INVESCO Distributors, Inc.; Chief Executive
Officer, AMVESCAP PLC -- Managed Products;
Chairman and Chief Executive Officer of
NationsBanc Advisors, Inc.; and Chairman of
NationsBanc Investments, Inc.
- -------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- -------------------------------------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 2003 Consultant None
Trustee
Formerly: President and Chief Executive Officer,
AMC Cancer Research Center; and Chairman and Chief
Executive Officer, First Columbia Financial
Corporation
- -------------------------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2001 Of Counsel, law firm of Baker & McKenzie Badgley Funds, Inc.
Trustee (registered investment
company)
- -------------------------------------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 2003 Co-President and Founder, Green, Manning & Bunch None
Trustee Ltd., (investment banking firm); and Director,
Policy Studies, Inc. and Van Gilder Insurance
Corporation
Formerly: General Counsel and Director, Boettcher
& Co.; and Chairman and Managing Partner, law firm
of Davis, Graham & Stubbs
- -------------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett -- 1944 1987 Chairman, Crockett Technology Associates ACE Limited (insurance
Trustee (technology consulting company) company); and
Captaris, Inc.
(unified messaging
provider)
- -------------------------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2000 Director of a number of public and private Cortland Trust, Inc.
Trustee business corporations, including the Boss Group (Chairman) (registered
Ltd. (private investment and management) and investment company);
Magellan Insurance Company Annuity and Life Re
(Holdings), Ltd.
Formerly: Director, President and Chief Executive (insurance company)
Officer, Volvo Group North America, Inc.; Senior
Vice President, AB Volvo; and director of various
affiliated Volvo companies
- -------------------------------------------------------------------------------------------------------------------------------
Edward K. Dunn, Jr. -- 1935 1998 Formerly: Chairman, Mercantile Mortgage Corp.; None
Trustee President and Chief Operating Officer,
Mercantile-Safe Deposit & Trust Co.; and
President, Mercantile Bankshares Corp.
- -------------------------------------------------------------------------------------------------------------------------------
Jack M. Fields -- 1952 1997 Chief Executive Officer, Twenty First Century Administaff
Trustee Group, Inc. (government affairs company) and
Texana Timber LP
- -------------------------------------------------------------------------------------------------------------------------------
</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.
Trustees and Officers (continued)
As of January 1, 2004
The address of each trustee and officer of AIM Funds Group (the "Trust"), is 11
Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee oversees 104
portfolios in the AIM and INVESCO Funds complex, except for Messrs. Baker,
Bunch, Lewis and Soll who oversee 96 portfolios and Mr. Williamson who oversees
117 portfolios in the AIM and INVESCO Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
<Table>
<Caption>
NAME, YEAR OF BIRTH AND TRUSTEE AND/ PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST OR OFFICER SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- ----------------------------------------------------------------------------------------------------------------------------------
Carl Frischling -- 1937 1993 Partner, law firm of Kramer Levin Naftalis and Cortland Trust, Inc.
Trustee Frankel LLP (registered investment
company)
- ----------------------------------------------------------------------------------------------------------------------------------
Gerald J. Lewis -- 1933 2003 Chairman, Lawsuit Resolution Services (San Diego, General Chemical
Trustee California) Group, Inc.,
Wheelabrator
Formerly: Associate Justice of the California Technologies, Inc.
Court of Appeals (waste management
company), Fisher
Scientific, Inc.,
Henley Manufacturing,
Inc. (laboratory
supplies), and
California Coastal
Properties, Inc.
- ----------------------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA of the USA None
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 None
Trustee Operations Hines Interests Limited Partnership
(real estate development company)
- ----------------------------------------------------------------------------------------------------------------------------------
Larry Soll, Ph.D. -- 1942 2003 Retired None
Trustee
- ----------------------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- ----------------------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 2003 Director, Senior Vice President, Secretary and N/A
Senior Vice President and Chief General Counsel, A I M Management Group Inc.
Legal Officer (financial services holding company) and A I M
Advisors, Inc.; Vice President, A I M Capital
Management, Inc., A I M Distributors, Inc. and AIM
Investment Services, Inc.; and Director, Vice
President and General Counsel, Fund Management
Company
Formerly: Senior Vice President and General
Counsel, Liberty Financial Companies, Inc.; and
Senior Vice President and General Counsel, Liberty
Funds Group, LLC
- ----------------------------------------------------------------------------------------------------------------------------------
Robert G. Alley -- 1948 1992 Managing Director, Chief Fixed Income Officer and N/A
Vice President Senior Investment Officer, A I M Capital
Management, Inc.; and Vice President, A I M
Advisors, Inc.
- ----------------------------------------------------------------------------------------------------------------------------------
Stuart W. Coco -- 1955 1992 Managing Director and Chief Research N/A
Vice President Officer -- Fixed Income, 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, AIM Investment Services, Inc.
- ----------------------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, A I M Advisors, N/A
Vice President and Treasurer Inc.; Senior Vice President, AIM Investment
Services, Inc.; and Vice President, A I M
Distributors, Inc.
- ----------------------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 1992 Managing Director and Chief Management Officer, N/A
Vice President A I M 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 N/A
Vice President President, Chief Executive Officer and Chief
Investment Officer, A I M Capital Management, Inc.
- ----------------------------------------------------------------------------------------------------------------------------------
</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 LLP
Suite 100 11 Greenway Plaza 11 Greenway Plaza 1201 Louisiana, Suite 2900
Houston, TX 77046-1173 Suite 100 Suite 100 Houston, TX 77002-5678
Houston, TX 77046-1173 Houston, TX 77046-1173
COUNSEL TO THE FUND COUNSEL TO THE TRUSTEES TRANSFER AGENT CUSTODIAN
Ballard Spahr Kramer, Levin, Naftalis & AIM Investment 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 19103-7599 New York, NY 10022-3852 Boston, MA 02110
</Table>
<Table>
DOMESTIC EQUITY INTERNATIONAL/GLOBAL EQUITY FIXED INCOME
AIM Aggressive Growth Fund AIM Asia Pacific Growth Fund TAXABLE
AIM Balanced Fund* AIM Developing Markets Fund
AIM Basic Balanced Fund* AIM European Growth Fund AIM Floating Rate Fund
AIM Basic Value Fund AIM European Small Company Fund AIM High Yield Fund
AIM Blue Chip Fund AIM Global Aggressive Growth Fund AIM Income Fund
AIM Capital Development Fund AIM Global Growth Fund AIM Intermediate Government Fund
AIM Charter Fund AIM Global Trends Fund AIM Limited Maturity Treasury Fund
AIM Constellation Fund AIM Global Value Fund(5) AIM Money Market Fund
AIM Dent Demographic Trends Fund AIM International Emerging Growth Fund AIM Short Term Bond Fund
AIM Diversified Dividend Fund(1) AIM International Growth Fund AIM Total Return Bond Fund
AIM Emerging Growth Fund AIM Trimark Fund INVESCO U.S. Government Money Fund
AIM Large Cap Basic Value Fund INVESCO International Core Equity Fund(6)
AIM Large Cap Growth Fund TAX-FREE
AIM Libra Fund SECTOR EQUITY
AIM Mid Cap Basic Value Fund AIM High Income Municipal Fund
AIM Mid Cap Core Equity Fund(2) AIM Global Health Care Fund AIM Municipal Bond Fund
AIM Mid Cap Growth Fund AIM Real Estate Fund AIM Tax-Exempt Cash Fund
AIM Opportunities I Fund INVESCO Advantage Health Sciences Fund AIM Tax-Free Intermediate Fund
AIM Opportunities II Fund INVESCO Energy Fund
AIM Opportunities III Fund INVESCO Financial Services Fund
AIM Premier Equity Fund INVESCO Gold & Precious Metals Fund
AIM Select Equity Fund INVESCO Health Sciences Fund
AIM Small Cap Equity Fund(3) INVESCO Leisure Fund
AIM Small Cap Growth Fund(4) INVESCO Multi-Sector Fund
AIM Trimark Endeavor Fund INVESCO Technology Fund
AM Trimark Small Companies Fund INVESCO Utilities Fund
AIM Weingarten Fund
INVESCO Core Equity Fund
INVESCO Dynamics Fund
INVESCO Mid-Cap Growth Fund
INVESCO Small Company Growth Fund
INVESCO S&P 500 Index Fund
INVESCO Total Return Fund*
</Table>
* Domestic equity and income fund
(1) Effective May 2, 2003, AIM Large Cap Core Equity Fund was renamed AIM
Diversified Dividend Fund. (2) As of the close of business on February 27, 2004,
AIM Mid Cap Core Equity Fund is available to new investors on a limited basis.
For information on who may continue to invest in AIM Mid Cap Core Equity Fund,
please contact your financial advisor. (3) AIM Small Cap Equity Fund was closed
to most investors on December 19, 2003. For information on who may continue to
invest in AIM Small Cap Equity Fund, please contact your financial advisor. (4)
AIM Small Cap Growth Fund was closed to most investors on March 18, 2002. For
information on who may continue to invest in AIM Small Cap Growth Fund, please
contact your financial advisor. (5) Effective April 30, 2003, AIM Worldwide
Spectrum Fund was renamed AIM Global Value Fund. (6) Effective November 24,
2003, INVESCO International Blue Chip Value Fund was renamed INVESCO
International Core Equity Fund.
For more complete information about any AIM or INVESCO fund, including sales
charges and expenses, ask your financial advisor for a prospectus. Please read
the prospectus carefully and consider the investment objectives, risks, and
charges and expenses of the investment carefully before investing. If used after
April, 2004, this brochure must be accompanied by a fund Performance &
Commentary or by an AIM Quarterly Performance Review for the most recent
quarter-end. Mutual funds distributed by
A I M Distributors, Inc. A I M Management Group Inc. has provided leadership in
the investment management industry since 1976 and manages $149 billion in assets
for approximately 11 million shareholders, including individual investors,
corporate clients and financial institutions. AIM is a subsidiary of AMVESCAP
PLC, one of the world's largest independent financial services companies with
$371 billion in assets under management. Data as of December 31, 2003.
AIMinvestments.com PEQ-AR-1
<Table>
YOUR GOALS. OUR SOLUTIONS.--Servicemark--
- --------------------------------------------------------------------------------------------
Mutual Retirement Annuities College Separately Offshore Alternative Cash [AIM INVESTMENTS LOGO APPEARS HERE]
Funds Products Savings Managed Products Investments Management
Plans Accounts
</Table>
AIM SELECT EQUITY FUND
Annual Report to Shareholders o December 31, 2003
[COVER IMAGE]
YOUR GOALS. OUR SOLUTIONS. [AIM INVESTMENTS LOGO APPEARS HERE]
--Servicemark-- --Servicemark--
====================================================================
AIM SELECT EQUITY FUND SEEKS TO ACHIEVE LONG-TERM GROWTH OF CAPITAL.
====================================================================
o Unless otherwise stated, information presented is as of 12/31/03 and is based
on total net assets.
ABOUT SHARE CLASSES
<Table>
o Effective 9/30/03, Class B shares are o International investing presents o A direct investment cannot be made in
not available as an investment for certain risks not associated with an index. Unless otherwise indicated,
retirement plans maintained pursuant to investing solely in the United States. index results include reinvested
Section 401 of the Internal Revenue Code, These include risks relating to dividends, and they do not reflect sales
including 401(k) plans, money purchase fluctuations in the value of the U.S. charges. Performance of an index of funds
pension plans and profit sharing plans. dollar relative to the values of other reflects fund expenses; performance of a
Plans that have existing accounts currencies, the custody arrangements made market index does not.
invested in Class B shares will continue for the fund's foreign holdings,
to be allowed to make additional differences in accounting, political Industry classifications used in this
purchases. risks and the lesser degree of public report are generally according to the
information required to be provided by Global Industry Classification Standard,
PRINCIPAL RISKS OF INVESTING IN THE FUND non-U.S. companies. which was developed by and is the
exclusive property and a service mark of
o A significant portion of the fund's ABOUT INDEXES USED IN THIS REPORT Morgan Stanley Capital International Inc.
returns during certain periods was and Standard & Poor's.
attributable to its investments in o The unmanaged Standard & Poor's
initial public offerings (IPOs). These Composite Index of 500 Stocks (the S&P A description of the policies and
investments had a magnified impact when 500--Registered Trademark-- Index) is an procedures that the Fund uses to
the fund's asset base was relatively index of common stocks frequently used as determine how to vote proxies relating to
small. As the fund's assets grow, the a general measure of U.S. stock market portfolio securities is available without
impact of IPO investments will decline, performance. charge, upon request, by calling
which may reduce the effect of IPO 800-959-4246, or on the AIM Web site,
investments on the fund's total return. o The unmanaged Russell 3000--Registered AIMinvestments.com.
For additional information regarding the Trademark-- Index is an index of common
impact of IPO investments on the fund's stocks that measures performance of the
performance, please see the fund's largest 3,000 U.S. companies based on
prospectus. market capitalization
o Investing in small and mid-size o The unmanaged Lipper Multi-Cap Core
companies involves risks not associated Equity Fund Index represents an average
with investing in more established of the performance of the 30 largest
companies. Also, small companies may have multi-capitalization core funds tracked
business risk, significant stock price by Lipper, Inc., an independent mutual
fluctuations and illiquidity. fund performance monitor.
</Table>
<Table>
=====================================================
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE THIS REPORT MAY BE DISTRIBUTED ONLY TO SHAREHOLDERS OR TO PERSONS
===================================================== WHO HAVE RECEIVED A CURRENT PROSPECTUS OF THE FUND. PLEASE READ
THE PROSPECTUS CAREFULLY AND CONSIDER THE INVESTMENT OBJECTIVES,
RISKS, AND CHARGES AND EXPENSES OF THE INVESTMENT CAREFULLY
BEFORE INVESTING.
</Table>
AIMinvestments.com
TO OUR SHAREHOLDERS
DEAR FELLOW SHAREHOLDER IN THE AIM FAMILY OF
FUNDS--Registered Trademark--:
[PHOTO OF The fiscal year ended December 31, 2003, was a welcome
ROBERT H. change from the bear market of the previous three years.
GRAHAM] Major stock market indexes here and abroad delivered
positive performance, with double-digit returns more the
ROBERT H. GRAHAM rule than the exception. As is historically the case, bond
market returns were more modest, but nonetheless positive as
well. The U.S. economy appears to have turned a corner, with
solid growth in gross domestic product. Overseas,
particularly in Europe, economic performance was not so
robust but appeared to pick up during the second half of the
year.
U.S. investors seem to have regained their confidence,
putting $152.77 billion in new money into stock mutual funds
during 2003 and $31.40 billion into bond funds. By contrast,
money market funds, considered a safe haven because of their emphasis on
stability of net asset value, suffered large net outflows during 2003.
The durability of these trends is, of course, unpredictable, but the economy
does appear to have the wind at its back in terms of fiscal, monetary and tax
stimulus, and corporate earnings have been strong. Nevertheless, we caution all
our shareholders against thinking that 2004 will be a repeat of 2003. We simply
do not know.
What should investors do? They should do what we have always urged: Keep
their eyes on their long-term goals, keep their portfolios diversified, and work
with their financial advisors to tailor their investments to their risk
tolerance and investment objectives. We cannot overemphasize the importance of
professional guidance when it comes to selecting investments.
For information on your fund's performance and management during the fiscal
year, please see the management discussion that begins on the following page.
VISIT OUR WEB SITE
As you are aware, the mutual fund industry, including AIM Investments, has been
the subject of allegations and investigations of late surrounding the issues of
market timing and late trading in funds. We understand how unsettling this may
be for many of our shareholders. We encourage you to visit AIMinvestments.com
often to monitor developments. We will continue to post updates on these issues
as information becomes available.
The Securities and Exchange Commission, which regulates our industry, has
already proposed new rules and regulations, and is planning to propose several
more, that address the issues of market timing and late trading, among others.
We welcome these efforts, as does the industry trade group, the Investment
Company Institute. We believe comprehensive rule making is necessary and is the
best way to establish new industry responsibilities designed to protect
shareholders. We support practical rule changes and structural modifications
that are fair, enforceable and, most importantly, beneficial for investors.
Should you visit our Web site, we invite you to explore the other material
available there, including general investing information, performance updates on
our funds, and market and economic commentary from our financial experts.
As always, AIM is committed to building solutions for your investment goals,
and we thank you for your continued participation in AIM Investments. If you
have any questions, you can contact one of our Client Service representatives at
800-959-4246.
Sincerely,
/s/ ROBERT H. GRAHAM
Robert H. Graham
Chairman and President
February 9, 2004
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
<Table>
FUND STRATEGIES AND IMPROVING which proved to be an advantage to the
ECONOMY BENEFIT FUND fund. We positioned the fund with
overweight positions in three sectors
For the fund's fiscal year ended December All sectors of the index recorded generally considered more economically
31, 2003, AIM Select Equity Fund's Class gains for the fiscal year. Information sensitive than other sectors--information
A shares returned 29.49% at net asset technology, materials and consumer technology, industrials, and consumer
value. (If sales charges were included, discretionary were the top-performing discretionary. These sectors are thought
performance would be lower.) Performance sectors while telecommunications to be more economically sensitive because
of the fund's other share classes is services, consumer staples and health the amount of money that businesses and
shown in the Fund vs. Indexes table care were the weakest-performing sectors. consumers have to spend can drastically
below. The fund's broad-based index, the affect the return of these sectors. The
S&P 500 Index, returned 28.67% for the Small-and mid-cap stocks generally improving economy and the fund's
same period, while the Russell 3000 Index outperformed large-cap stocks for the overweight positions in these sectors
returned 31.06%, and the Lipper Multi-Cap year. The performance of growth and value contributed to the fund's performance.
Core Fund Index returned 31.31%. Factors stocks was similar, although mid-cap
that contributed to the fund's slight growth stocks generally outperformed The health care sector is considered a
outperformance over the S&P 500 Index their value counterparts. less economically sensitive sector
included the fund's greater exposure to because it does not benefit as directly
small- and mid-cap stocks and its The nation's gross domestic product, from an improving economy as other
overweight positions in several sectors generally considered the broadest measure sectors. In addition, investors tend to
that provided strong performance. of economic activity, expanded at an move out of less economically sensitive
annualized rate of 1.4% in the first holdings when growth of capital can be
MARKET CONDITIONS quarter, 3.1% in the second quarter, 8.2% achieved more quickly in other sectors.
in the third quarter, and 4.0% in the However, health care was one of our top
The S&P 500 Index declined at the fourth quarter of 2003. performers, and it was the S&P 500
beginning of 2003, dropping to its lowest Index's third-worst performer. In
level on March 11. The index then rallied However, the job market, while general, the fund's health care sector
through the end of the reporting period. improving, continued to be weak, as the stocks far exceeded the return of the
nation's unemployment rate stood at 5.7% health care stocks in both the S&P 500
As of the close of the year, at the close of the year. Index and the Russell 3000 Index.
approximately 64% of the companies in the
S&P 500 Index had reported third-quarter YOUR FUND During much of the year, the fund was
earnings that exceeded analysts' only minimally invested in the
expectations, while approximately 20% had Throughout the year, the fund was telecommunications services sector. This
reported earnings that met those positioned to take advantage of an was of benefit to the fund, as it was the
estimates. economic recovery, worst-performing sector in both of the
aforementioned indexes.
</Table>
<Table>
===================================================================================================================================
TOP 10 EQUITY HOLDINGS* TOP 10 INDUSTRIES* FUND VS. INDEXES
1. Citigroup Inc. 1.9% 1. Data Processing &
Outsourced Services 5.4% Total returns, 12/31/02-12/31/03,
2. Computer Associates excluding sales charges. If sales charges
International, Inc. 1.7 2. Systems Software 4.7 were included, performance would be
lower.
3. Fannie Mae 1.3 3. Health Care Equipment 4.3
Class A Shares 29.49%
4. Bard (C.R.), Inc. 1.2 4. Thrifts & Mortgage Finance 3.9
Class B Shares 28.55
5. Ceridian Corp. 1.2 5. Specialty Stores 3.4
Class C Shares 28.60
6. IMS Health Inc. 1.2 6. Diversified Commercial Services 3.1
S&P 500 Index (Broad Market Index) 28.67
7. Intel Corp. 1.2 7. Communications Equipment 2.8
Russell 3000 Index
8. Fisher Scientific International 8. Semiconductors 2.7 (Style-Specific Index) 31.06
Inc. 1.1
9. Health Care Services 2.7 Lipper Multi-Cap Core Fund Index
9. Cendant Corp. 1.1 (Peer Group Index) 31.31
10. Oil & Gas Exploration
10. Microsoft Corp. 1.1 & Production 2.6 Source: Lipper, Inc.
*Excludes money market fund holdings.
The fund's holdings are subject to change, and there is no assurance that the fund will continue to hold any particular security.
===================================================================================================================================
</Table>
2
<Table>
Throughout the year, we maintained Computer Associates, one of the IN CLOSING
investments in three groups, according world's largest business software
to investment discipline: growth, growth development companies, contributed most We believe that the strategies outlined
at a reasonable price, and value. As to portfolio performance. For the in the fund's prospectus, which we
stated in the fund's prospectus, "The quarter ended September 30, 2003, the maintained throughout 2003, provided
fund anticipates allocating a company reported an 8% increase in total diversification in market-capitalization
significant portion of its assets, revenue over the same quarter of the and investment disciplines. We are
generally in approximately equal previous year. pleased that these strategies and the
amounts, among these investment improving economy benefited the fund.
disciplines." The fund benefited from Intel, the world's largest maker of
this diversification of style, because semiconductors, reported earnings of See important fund and index
within the months between the end of $1.7 billion, or 25 cents per share for disclosures inside front cover.
April and the beginning of October 2003, the quarter ended September 30, 2003.
there were three months in which value This compared to earnings of 10 cents PHILIP FERGUSON
stocks generally outpaced growth stocks per share for the same quarter of the [PHOTO OF Phil Ferguson is
and three months in which growth stocks previous year. PHILIP co-manager of AIM Select
generally performed better than value FERGUSON] Equity Fund. Mr. Ferguson
stocks. Stocks that detracted from fund joined AIM in 2000 and
performance included UNUMProvident and brings over 30 years of
Another area in which we maintained Mercury Computer Systems. UNUMProvident investment experience to
the fund's diversification was through is the largest disability insurance his position. Mr. Ferguson
the market capitalization of the company in the United States. In April holds a B.B.A. in finance from Texas
companies in which we invested. As of 2003, the company reported a significant Christian University, a certificate in
December 31, 2003, the fund's portfolio first-quarter loss, after having had a international law from City of London
was characterized by Lipper, Inc., an net income of $128.5 million the College, and a doctorate of
independent mutual fund performance previous quarter. The company attributed jurisprudence from The University of
monitor, as containing 40.0% large-cap this loss to investment losses, a Texas Law School.
stocks, 31.2% mid-cap stocks, and 28.8% write-down resulting from a change in
small-cap stocks. accounting procedures, and lower claim ARROW For More Information Visit
recovery rates in their group long-term BUTTON AIMinvestments.com
There was also diversification within income protection policies. IMAGE
the group of stocks that were the fund's
top-five contributors for the year. Two Mercury Computer Systems makes Duy Nguyen
were in the information technology real-time digital signal processing [PHOTO OF Duy Nguyen, Chartered
sector, and there was one each in the systems for the defense and medical DUY NGUYEN] Financial Analyst, is
financials, consumer discretionary and imaging markets. In its earnings co-manager of AIM Select
health care sectors. The two stocks report issued in April 2003, Equity Fund. Mr. Nguyen
making the largest contribution to Mercury reported an 18% decrease in joined AIM in May 2000.
fund performance were Computer medical imaging revenues for the first Prior to joining AIM, he
Associates and Intel. nine months of the fiscal year compared served as assistant vice
to the first nine months of the previous president and quantitative equity
TOTAL NUMBER OF HOLDINGS* 194 year. The company attributed the analyst for Van Kampen American Capital,
TOTAL NET ASSETS $520.7 MILLION decrease to reductions in its CT-related as well as vice president and director
revenues caused by the introduction of of quantitative services of FactSet
*Excludes money market fund holdings. CT models that did not contain the Research Systems, Inc. Mr. Nguyen earned
company's products. The fund no longer a B.B.A. at The University of Texas.
owns either of these stocks.
Assisted by various domestic equity teams
representing AIM's growth, value and GARP
disciplines.
</Table>
3
FUND PERFORMANCE
RESULTS OF A $10,000 INVESTMENT
12/31/93-12/31/03
<Table>
<Caption>
DATE AIM SELECT EQUITY FUND S&P 500 RUSSELL 3000 LIPPER MULTI-CAP
CLASS A SHARES INDEX INDEX CORE FUND INDEX
12/31/98 21715 29378 27315 23650
3/31/99 23241 30841 28243 24235
6/30/99 24713 33011 30420 26164
9/30/99 23547 30955 28417 24515
12/31/99 30726 35557 33025 28561
3/31/00 36931 36371 34533 30671
6/30/00 35692 35405 33339 29708
[MOUNTAIN CHART] 9/30/00 37713 35062 33586 29869
12/31/00 30177 32321 30561 27608
3/31/01 22289 28491 26847 24449
6/30/01 24794 30158 28694 26193
9/30/01 19503 25733 24212 21730
12/31/01 22435 28482 27060 24637
3/31/02 22554 28561 27322 24615
6/30/02 19017 24737 23746 21544
9/30/02 14820 20466 19654 18134
12/31/02 15796 22190 21231 19281
3/31/03 15124 21491 20585 18689
6/30/03 17553 24798 23928 21825
9/30/03 18346 25454 24748 22626
12/31/03 20470 28551 27824 25318
Source: Lipper, Inc.
</Table>
Past performance cannot guarantee comparable future results.
Your fund's total return includes sales charges, expenses and management fees.
Performance shown in the chart and table does not reflect deduction of taxes a
shareholder would pay on fund distributions or sale of fund shares. Performance
of the indexes does not reflect the effects of taxes.
In evaluating this chart, please note that the chart uses a logarithmic scale
along the vertical axis (the value scale). This means that each scale increment
always represents the same percent change in price; in a linear chart each scale
increment always represents the same absolute change in price. In this example,
the scale increment between $5,000 and $10,000 is the same as that between
$10,000 and $20,000. In a linear chart, the latter scale increment would be
twice as large. The benefit of using a logarithmic scale is that it better
illustrates performance during the fund's early years before reinvested
distributions and compounding create the potential for the original investment
to grow to very large numbers. Had the chart used a linear scale along its
vertical axis, you would not be able to see as clearly the movements in the
value of the fund and the indexes during the fund's early years. AIM uses a
logarithmic scale in financial reports of funds that have more than five years
of performance history.
<Table>
AVERAGE ANNUAL TOTAL RETURNS Current performance may be lower or Class A share performance reflects
Including sales charges higher than the performance data quoted. the maximum 5.50% sales charge, and
CLASS A SHARES Past performance cannot guarantee Class B and Class C share performance
Inception (12/4/67) 8.37% comparable future results. Due to reflects the applicable contingent
10 Years 7.43 significant market volatility, results deferred sales charge (CDSC) for the
5 Years -2.30 of an investment made today may differ period involved. The CDSC on Class B
1 Year 22.34 substantially from the historical shares declines from 5% beginning at the
performance shown. Please visit time of purchase to 0% at the beginning
CLASS B SHARES AIMinvestments.com for the most current of the seventh year. The CDSC on Class C
Inception (9/1/93) 6.99% month-end performance. shares is 1% for the first year after
10 Years 7.31 purchase. The performance of the fund's
5 Years -2.27 The fund's performance figures are share classes will differ due to
1 Year 23.55 historical, and they reflect fund different sales charge structures and
expenses, the reinvestment of class expenses.
CLASS C SHARES distributions, and changes in net asset
Inception (8/4/97) 1.48 value. Performance data quoted
5 Years -1.95 represents past performance, and the
1 Year 27.60 investment return and principal value of
an investment will fluctuate so that an
investor's shares, when redeemed, may be
worth more or less than their original
cost.
</Table>
FINANCIALS
SCHEDULE OF INVESTMENTS
December 31, 2003
<Table>
<Caption>
MARKET
SHARES VALUE
- -----------------------------------------------------------------------
COMMON STOCKS & OTHER EQUITY INTERESTS-97.33%
ADVERTISING-2.06%
Interpublic Group of Cos., Inc. (The)(a) 345,100 $ 5,383,560
- -----------------------------------------------------------------------
Omnicom Group Inc. 43,300 3,781,389
- -----------------------------------------------------------------------
R.H. Donnelley Corp.(a) 39,100 1,557,744
=======================================================================
10,722,693
=======================================================================
AEROSPACE & DEFENSE-0.93%
Engineered Support Systems, Inc. 56,250 3,097,125
- -----------------------------------------------------------------------
United Technologies Corp. 18,300 1,734,291
=======================================================================
4,831,416
=======================================================================
APPAREL RETAIL-2.13%
Abercrombie & Fitch Co.-Class A(a) 86,100 2,127,531
- -----------------------------------------------------------------------
Gap, Inc. (The) 210,000 4,874,100
- -----------------------------------------------------------------------
Men's Wearhouse, Inc. (The)(a) 56,400 1,410,564
- -----------------------------------------------------------------------
Pacific Sunwear of California, Inc.(a) 46,100 973,632
- -----------------------------------------------------------------------
TJX Cos., Inc. (The) 76,200 1,680,210
=======================================================================
11,066,037
=======================================================================
APPAREL, ACCESSORIES & LUXURY GOODS-0.78%
Coach, Inc.(a) 64,000 2,416,000
- -----------------------------------------------------------------------
V. F. Corp. 37,800 1,634,472
=======================================================================
4,050,472
=======================================================================
APPLICATION SOFTWARE-0.68%
Amdocs Ltd. (United Kingdom)(a) 60,900 1,369,032
- -----------------------------------------------------------------------
Business Objects S.A. (France)(a) 33,000 1,144,110
- -----------------------------------------------------------------------
SAP A.G.-ADR (Germany) 25,200 1,047,312
=======================================================================
3,560,454
=======================================================================
ASSET MANAGEMENT & CUSTODY BANKS-1.67%
Affiliated Managers Group, Inc.(a) 56,100 3,903,999
- -----------------------------------------------------------------------
Bank of New York Co., Inc. (The) 89,300 2,957,616
- -----------------------------------------------------------------------
MCG Capital Corp. 93,700 1,827,150
=======================================================================
8,688,765
=======================================================================
AUTO PARTS & EQUIPMENT-0.51%
American Axle & Manufacturing Holdings,
Inc.(a) 65,100 2,631,342
=======================================================================
BIOTECHNOLOGY-1.03%
Gilead Sciences, Inc.(a) 25,200 1,465,128
- -----------------------------------------------------------------------
Invitrogen Corp.(a) 56,000 3,920,000
=======================================================================
5,385,128
=======================================================================
</Table>
<Table>
- -----------------------------------------------------------------------
<Caption>
MARKET
SHARES VALUE
BUILDING PRODUCTS-2.32%
American Standard Cos. Inc.(a) 56,700 $ 5,709,690
- -----------------------------------------------------------------------
Griffon Corp.(a) 109,200 2,212,392
- -----------------------------------------------------------------------
Masco Corp. 152,300 4,174,543
=======================================================================
12,096,625
=======================================================================
CASINOS & GAMING-1.45%
International Game Technology 61,300 2,188,410
- -----------------------------------------------------------------------
Penn National Gaming, Inc.(a) 44,000 1,015,520
- -----------------------------------------------------------------------
Scientific Games Corp.-Class A(a) 132,200 2,248,722
- -----------------------------------------------------------------------
Shuffle Master, Inc.(a) 60,200 2,084,124
=======================================================================
7,536,776
=======================================================================
COMMUNICATIONS EQUIPMENT-2.75%
Cisco Systems, Inc.(a) 112,000 2,720,480
- -----------------------------------------------------------------------
Inter-Tel, Inc. 49,400 1,234,012
- -----------------------------------------------------------------------
Juniper Networks, Inc.(a) 82,000 1,531,760
- -----------------------------------------------------------------------
Motorola, Inc. 218,300 3,071,481
- -----------------------------------------------------------------------
Plantronics, Inc.(a) 57,100 1,864,315
- -----------------------------------------------------------------------
QLogic Corp.(a) 40,200 2,074,320
- -----------------------------------------------------------------------
UTStarcom, Inc.(a) 48,600 1,801,602
=======================================================================
14,297,970
=======================================================================
COMPUTER & ELECTRONICS RETAIL-0.52%
Best Buy Co., Inc. 30,000 1,567,200
- -----------------------------------------------------------------------
GameStop Corp.-Class A(a) 75,600 1,164,996
=======================================================================
2,732,196
=======================================================================
COMPUTER HARDWARE-1.68%
Dell Inc.(a) 166,600 5,657,736
- -----------------------------------------------------------------------
Diebold, Inc. 43,900 2,364,893
- -----------------------------------------------------------------------
Neoware Systems, Inc.(a) 52,800 723,360
=======================================================================
8,745,989
=======================================================================
COMPUTER STORAGE & PERIPHERALS-0.94%
EMC Corp.(a) 109,900 1,419,908
- -----------------------------------------------------------------------
Network Appliance, Inc.(a) 51,500 1,057,295
- -----------------------------------------------------------------------
SanDisk Corp.(a) 22,200 1,357,308
- -----------------------------------------------------------------------
Synaptics Inc.(a) 70,000 1,048,600
=======================================================================
4,883,111
=======================================================================
CONSTRUCTION & ENGINEERING-0.24%
Chicago Bridge & Iron Co. N.V.-New York
Shares (Netherlands) 43,700 1,262,930
=======================================================================
</Table>
F-1
<Table>
<Caption>
MARKET
SHARES VALUE
- -----------------------------------------------------------------------
CONSUMER ELECTRONICS-0.31%
Koninklijke (Royal) Philips Electronics
N.V.-New York Shares (Netherlands) 56,007 $ 1,629,244
=======================================================================
CONSUMER FINANCE-1.94%
American Express Co. 74,800 3,607,604
- -----------------------------------------------------------------------
MBNA Corp. 194,100 4,823,385
- -----------------------------------------------------------------------
Nelnet, Inc.-Class A(a) 74,800 1,675,520
=======================================================================
10,106,509
=======================================================================
DATA PROCESSING & OUTSOURCED SERVICES-5.43%
Alliance Data Systems Corp.(a) 87,700 2,427,536
- -----------------------------------------------------------------------
BISYS Group, Inc. (The)(a) 81,500 1,212,720
- -----------------------------------------------------------------------
Ceridian Corp.(a) 296,100 6,200,334
- -----------------------------------------------------------------------
Certegy Inc. 71,500 2,345,200
- -----------------------------------------------------------------------
DST Systems, Inc.(a) 30,100 1,256,976
- -----------------------------------------------------------------------
First Data Corp. 92,300 3,792,607
- -----------------------------------------------------------------------
Fiserv, Inc.(a) 59,000 2,331,090
- -----------------------------------------------------------------------
Intrado Inc.(a) 63,400 1,391,630
- -----------------------------------------------------------------------
Paychex, Inc. 54,800 2,038,560
- -----------------------------------------------------------------------
SunGard Data Systems Inc.(a) 191,000 5,292,610
=======================================================================
28,289,263
=======================================================================
DIVERSIFIED BANKS-1.47%
Bank One Corp. 106,600 4,859,894
- -----------------------------------------------------------------------
U.S. Bancorp 94,100 2,802,298
=======================================================================
7,662,192
=======================================================================
DIVERSIFIED CAPITAL MARKETS-0.59%
J.P. Morgan Chase & Co. 83,800 3,077,974
=======================================================================
DIVERSIFIED CHEMICALS-0.30%
Engelhard Corp. 52,900 1,584,355
=======================================================================
DIVERSIFIED COMMERCIAL SERVICES-3.13%
Apollo Group, Inc.-Class A(a) 27,900 1,897,200
- -----------------------------------------------------------------------
Cendant Corp.(a) 263,700 5,872,599
- -----------------------------------------------------------------------
Corinthian Colleges, Inc.(a) 28,700 1,594,572
- -----------------------------------------------------------------------
Equifax Inc. 48,400 1,185,800
- -----------------------------------------------------------------------
H&R Block, Inc. 26,600 1,472,842
- -----------------------------------------------------------------------
University of Phoenix Online(a) 22,200 1,530,246
- -----------------------------------------------------------------------
Viad Corp. 109,400 2,735,000
=======================================================================
16,288,259
=======================================================================
ELECTRICAL COMPONENTS & EQUIPMENT-0.47%
Rockwell Automation, Inc. 68,700 2,445,720
=======================================================================
</Table>
<Table>
- -----------------------------------------------------------------------
<Caption>
MARKET
SHARES VALUE
ELECTRONIC EQUIPMENT MANUFACTURERS-1.93%
Amphenol Corp.-Class A(a) 39,300 $ 2,512,449
- -----------------------------------------------------------------------
Mettler-Toledo International Inc.(a) 36,700 1,549,107
- -----------------------------------------------------------------------
Varian Inc.(a) 43,600 1,819,428
- -----------------------------------------------------------------------
Waters Corp.(a) 125,600 4,164,896
=======================================================================
10,045,880
=======================================================================
EMPLOYMENT SERVICES-0.34%
Robert Half International Inc.(a) 76,600 1,787,844
=======================================================================
ENVIRONMENTAL SERVICES-1.15%
Republic Services, Inc. 74,800 1,917,124
- -----------------------------------------------------------------------
Waste Management, Inc. 138,000 4,084,800
=======================================================================
6,001,924
=======================================================================
FOOD DISTRIBUTORS-0.55%
Sysco Corp. 76,700 2,855,541
=======================================================================
FOOD RETAIL-1.80%
Kroger Co. (The)(a) 299,600 5,545,596
- -----------------------------------------------------------------------
Safeway Inc.(a) 175,300 3,840,823
=======================================================================
9,386,419
=======================================================================
FOOTWEAR-0.44%
Reebok International Ltd. 58,200 2,288,424
=======================================================================
GENERAL MERCHANDISE STORES-0.75%
Dollar General Corp. 53,400 1,120,866
- -----------------------------------------------------------------------
Target Corp. 72,000 2,764,800
=======================================================================
3,885,666
=======================================================================
HEALTH CARE DISTRIBUTORS-0.85%
Cardinal Health, Inc. 30,800 1,883,728
- -----------------------------------------------------------------------
McKesson Corp. 79,000 2,540,640
=======================================================================
4,424,368
=======================================================================
HEALTH CARE EQUIPMENT-4.27%
Apogent Technologies Inc.(a) 34,400 792,576
- -----------------------------------------------------------------------
Bard (C.R.), Inc. 76,600 6,223,750
- -----------------------------------------------------------------------
Baxter International Inc. 34,700 1,059,044
- -----------------------------------------------------------------------
Biomet, Inc. 141,000 5,133,810
- -----------------------------------------------------------------------
Boston Scientific Corp.(a) 58,500 2,150,460
- -----------------------------------------------------------------------
Cytyc Corp.(a) 175,100 2,409,376
- -----------------------------------------------------------------------
Wilson Greatbatch Technologies, Inc.(a) 39,600 1,673,892
- -----------------------------------------------------------------------
Zimmer Holdings, Inc.(a) 39,800 2,801,920
=======================================================================
22,244,828
=======================================================================
HEALTH CARE FACILITIES-1.30%
HCA Inc. 63,500 2,727,960
- -----------------------------------------------------------------------
Universal Health Services, Inc.-Class B 44,300 2,379,796
- -----------------------------------------------------------------------
</Table>
F-2
<Table>
<Caption>
MARKET
SHARES VALUE
- -----------------------------------------------------------------------
HEALTH CARE FACILITIES-(CONTINUED)
VCA Antech, Inc.(a) 54,300 $ 1,682,214
=======================================================================
6,789,970
=======================================================================
HEALTH CARE SERVICES-2.65%
Caremark Rx, Inc.(a) 66,500 1,684,445
- -----------------------------------------------------------------------
eResearch Technology, Inc.(a) 53,100 1,349,802
- -----------------------------------------------------------------------
Express Scripts, Inc.(a) 44,600 2,962,778
- -----------------------------------------------------------------------
ICON PLC-ADR (Ireland)(a) 38,400 1,674,240
- -----------------------------------------------------------------------
IMS Health Inc. 245,600 6,105,616
=======================================================================
13,776,881
=======================================================================
HEALTH CARE SUPPLIES-1.90%
Bausch & Lomb Inc. 43,200 2,242,080
- -----------------------------------------------------------------------
Coopers Cos., Inc. (The) 37,000 1,743,810
- -----------------------------------------------------------------------
Fisher Scientific International Inc.(a) 142,900 5,911,773
=======================================================================
9,897,663
=======================================================================
HOME IMPROVEMENT RETAIL-0.24%
Home Depot, Inc. (The) 34,900 1,238,601
=======================================================================
HOMEBUILDING-0.24%
M.D.C. Holdings, Inc. 19,300 1,244,850
=======================================================================
HOTELS, RESORTS & CRUISE LINES-0.34%
Starwood Hotels & Resorts Worldwide, Inc. 49,900 1,794,903
=======================================================================
HOUSEHOLD PRODUCTS-0.80%
Procter & Gamble Co. (The) 41,600 4,155,008
=======================================================================
HOUSEWARES & SPECIALTIES-0.30%
Yankee Candle Co., Inc. (The)(a) 57,200 1,563,276
=======================================================================
INDUSTRIAL CONGLOMERATES-1.53%
3M Co. 32,000 2,720,960
- -----------------------------------------------------------------------
Tyco International Ltd. (Bermuda) 197,100 5,223,150
=======================================================================
7,944,110
=======================================================================
INDUSTRIAL MACHINERY-1.65%
Dover Corp. 38,800 1,542,300
- -----------------------------------------------------------------------
Graco Inc. 58,100 2,329,810
- -----------------------------------------------------------------------
Pentair, Inc. 34,800 1,590,360
- -----------------------------------------------------------------------
SPX Corp.(a) 52,900 3,111,049
=======================================================================
8,573,519
=======================================================================
INSURANCE BROKERS-0.80%
Aon Corp. 174,000 4,165,560
=======================================================================
INTEGRATED OIL & GAS-0.31%
Exxon Mobil Corp. 39,100 1,603,100
=======================================================================
</Table>
<Table>
- -----------------------------------------------------------------------
<Caption>
MARKET
SHARES VALUE
INTERNET RETAIL-0.25%
Amazon.com, Inc.(a) 24,900 $ 1,310,736
=======================================================================
INTERNET SOFTWARE & SERVICES-0.56%
United Online, Inc.(a) 89,000 1,494,310
- -----------------------------------------------------------------------
Yahoo! Inc.(a) 30,900 1,395,753
=======================================================================
2,890,063
=======================================================================
INVESTMENT BANKING & BROKERAGE-1.97%
Charles Schwab Corp. (The) 137,300 1,625,632
- -----------------------------------------------------------------------
Merrill Lynch & Co., Inc. 57,300 3,360,645
- -----------------------------------------------------------------------
Morgan Stanley 90,700 5,248,809
=======================================================================
10,235,086
=======================================================================
LEISURE FACILITIES-0.23%
Speedway Motorsports, Inc. 42,200 1,220,424
=======================================================================
LEISURE PRODUCTS-0.61%
Brunswick Corp. 69,300 2,205,819
- -----------------------------------------------------------------------
Marvel Enterprises, Inc.(a) 33,000 960,630
=======================================================================
3,166,449
=======================================================================
LIFE & HEALTH INSURANCE-0.71%
Nationwide Financial Services, Inc.-Class A 38,900 1,286,034
- -----------------------------------------------------------------------
Prudential Financial, Inc. 57,900 2,418,483
=======================================================================
3,704,517
=======================================================================
MANAGED HEALTH CARE-1.40%
Aetna Inc. 44,800 3,027,584
- -----------------------------------------------------------------------
UnitedHealth Group Inc. 73,200 4,258,776
=======================================================================
7,286,360
=======================================================================
MOVIES & ENTERTAINMENT-0.46%
Walt Disney Co. (The) 103,700 2,419,321
=======================================================================
MULTI-LINE INSURANCE-0.29%
American Financial Group, Inc. 57,400 1,518,804
=======================================================================
MULTI-SECTOR HOLDINGS-0.22%
Leucadia National Corp. 24,700 1,138,670
=======================================================================
OIL & GAS DRILLING-1.76%
Pride International, Inc.(a) 263,400 4,909,776
- -----------------------------------------------------------------------
Transocean Ltd. (Cayman Islands)(a) 177,000 4,249,770
=======================================================================
9,159,546
=======================================================================
OIL & GAS EQUIPMENT & SERVICES-1.69%
FMC Technologies, Inc.(a) 165,200 3,849,160
- -----------------------------------------------------------------------
Halliburton Co. 41,900 1,089,400
- -----------------------------------------------------------------------
Schlumberger Ltd. (Netherlands) 70,500 3,857,760
=======================================================================
8,796,320
=======================================================================
</Table>
F-3
<Table>
<Caption>
MARKET
SHARES VALUE
- -----------------------------------------------------------------------
OIL & GAS EXPLORATION & PRODUCTION-2.55%
Chesapeake Energy Corp. 76,600 $ 1,040,228
- -----------------------------------------------------------------------
Comstock Resources, Inc.(a) 68,000 1,312,400
- -----------------------------------------------------------------------
Evergreen Resources, Inc.(a) 56,600 1,840,066
- -----------------------------------------------------------------------
Spinnaker Exploration Co.(a) 40,100 1,294,027
- -----------------------------------------------------------------------
Ultra Petroleum Corp. (Canada)(a) 152,300 3,749,626
- -----------------------------------------------------------------------
XTO Energy, Inc. 142,400 4,029,920
=======================================================================
13,266,267
=======================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES-1.89%
Citigroup Inc. 202,600 9,834,204
=======================================================================
PACKAGED FOODS & MEATS-0.88%
Flowers Foods, Inc. 58,200 1,501,560
- -----------------------------------------------------------------------
Kraft Foods Inc.-Class A 95,900 3,089,898
=======================================================================
4,591,458
=======================================================================
PHARMACEUTICALS-1.52%
Medicis Pharmaceutical Corp.-Class A 55,500 3,957,150
- -----------------------------------------------------------------------
Taro Pharmaceutical Industries Ltd.
(Israel)(a) 26,300 1,696,350
- -----------------------------------------------------------------------
Wyeth 53,000 2,249,850
=======================================================================
7,903,350
=======================================================================
PROPERTY & CASUALTY INSURANCE-1.03%
ACE Ltd. (Cayman Islands) 129,800 5,376,316
=======================================================================
REAL ESTATE-0.27%
Friedman, Billings, Ramsey Group, Inc.-Class
A 61,600 1,421,728
=======================================================================
REGIONAL BANKS-0.95%
East West Bancorp, Inc. 59,300 3,183,224
- -----------------------------------------------------------------------
TCF Financial Corp. 34,800 1,786,980
=======================================================================
4,970,204
=======================================================================
RESTAURANTS-1.87%
CBRL Group, Inc. 84,600 3,236,796
- -----------------------------------------------------------------------
CEC Entertainment Inc.(a) 60,000 2,843,400
- -----------------------------------------------------------------------
Ruby Tuesday, Inc. 82,500 2,350,425
- -----------------------------------------------------------------------
Yum! Brands, Inc.(a) 38,100 1,310,640
=======================================================================
9,741,261
=======================================================================
SEMICONDUCTOR EQUIPMENT-0.32%
Brooks Automation, Inc.(a) 69,000 1,667,730
=======================================================================
SEMICONDUCTORS-2.72%
Altera Corp.(a) 64,000 1,452,800
- -----------------------------------------------------------------------
Integrated Circuit Systems, Inc.(a) 42,600 1,213,674
- -----------------------------------------------------------------------
Intel Corp. 187,300 6,031,060
- -----------------------------------------------------------------------
</Table>
<Table>
- -----------------------------------------------------------------------
<Caption>
MARKET
SHARES VALUE
SEMICONDUCTORS-(CONTINUED)
Linear Technology Corp. 63,300 $ 2,663,031
- -----------------------------------------------------------------------
Marvell Technology Group Ltd. (Bermuda)(a) 31,400 1,191,002
- -----------------------------------------------------------------------
Microchip Technology Inc. 48,000 1,601,280
=======================================================================
14,152,847
=======================================================================
SOFT DRINKS-1.09%
PepsiCo, Inc. 122,000 5,687,640
=======================================================================
SPECIALTY STORES-3.38%
AutoNation, Inc.(a) 208,700 3,833,819
- -----------------------------------------------------------------------
Bed Bath & Beyond Inc.(a) 32,000 1,387,200
- -----------------------------------------------------------------------
Claire's Stores, Inc. 68,000 1,281,120
- -----------------------------------------------------------------------
Regis Corp. 67,800 2,679,456
- -----------------------------------------------------------------------
Rent-A-Center, Inc.(a) 55,750 1,665,810
- -----------------------------------------------------------------------
Select Comfort Corp.(a) 76,000 1,881,760
- -----------------------------------------------------------------------
Staples, Inc.(a) 142,700 3,895,710
- -----------------------------------------------------------------------
Tractor Supply Co.(a) 24,600 956,694
=======================================================================
17,581,569
=======================================================================
STEEL-0.22%
GrafTech International Ltd.(a) 85,800 1,158,300
=======================================================================
SYSTEMS SOFTWARE-4.73%
Adobe Systems Inc. 35,300 1,387,290
- -----------------------------------------------------------------------
Computer Associates International, Inc. 332,000 9,076,880
- -----------------------------------------------------------------------
Microsoft Corp. 212,000 5,838,480
- -----------------------------------------------------------------------
Oracle Corp.(a) 342,300 4,518,360
- -----------------------------------------------------------------------
Symantec Corp.(a) 63,000 2,182,950
- -----------------------------------------------------------------------
VERITAS Software Corp.(a) 43,900 1,631,324
=======================================================================
24,635,284
=======================================================================
TECHNOLOGY DISTRIBUTORS-1.78%
CDW Corp. 57,600 3,326,976
- -----------------------------------------------------------------------
Global Imaging Systems, Inc.(a) 134,000 4,254,500
- -----------------------------------------------------------------------
ScanSource, Inc.(a) 37,100 1,692,502
=======================================================================
9,273,978
=======================================================================
THRIFTS & MORTGAGE FINANCE-3.92%
Doral Financial Corp. (Puerto Rico) 127,800 4,125,384
- -----------------------------------------------------------------------
Fannie Mae 88,000 6,605,280
- -----------------------------------------------------------------------
IndyMac Bancorp, Inc. 60,000 1,787,400
- -----------------------------------------------------------------------
MGIC Investment Corp. 35,200 2,004,288
- -----------------------------------------------------------------------
New York Community Bancorp, Inc. 40,300 1,533,415
- -----------------------------------------------------------------------
Radian Group Inc. 41,500 2,023,125
- -----------------------------------------------------------------------
Washington Mutual, Inc. 57,500 2,306,900
=======================================================================
20,385,792
=======================================================================
</Table>
F-4
<Table>
<Caption>
MARKET
SHARES VALUE
- -----------------------------------------------------------------------
TRADING COMPANIES & DISTRIBUTORS-0.29%
MSC Industrial Direct Co., Inc.-Class A 54,100 $ 1,487,750
=======================================================================
TRUCKING-0.30%
Landstar System, Inc.(a) 41,700 1,586,268
=======================================================================
Total Common Stocks & Other Equity
Interests (Cost $414,511,771) 506,811,997
=======================================================================
MONEY MARKET FUNDS-3.17%
Liquid Assets Portfolio(b) 8,261,408 8,261,408
- -----------------------------------------------------------------------
STIC Prime Portfolio(b) 8,261,408 8,261,408
=======================================================================
Total Money Market Funds (Cost
$16,522,816) 16,522,816
=======================================================================
TOTAL INVESTMENTS-100.50% (excluding
investments purchased with cash collateral
from securities loaned) (Cost $431,034,587) 523,334,813
=======================================================================
</Table>
<Table>
- -----------------------------------------------------------------------
<Caption>
MARKET
SHARES VALUE
INVESTMENTS PURCHASED WITH CASH COLLATERAL
FROM SECURITIES LOANED
MONEY MARKET FUNDS-2.28%
Liquid Assets Portfolio(b)(c) 11,874,485 $ 11,874,485
=======================================================================
Total Money Market Funds (purchased with
cash collateral from securities loaned)
(Cost $11,874,485) 11,874,485
=======================================================================
TOTAL INVESTMENTS-102.78% (Cost $442,909,072) 535,209,298
=======================================================================
OTHER ASSETS LESS LIABILITIES-(2.78%) (14,500,127)
=======================================================================
NET ASSETS-100.00% $520,709,171
_______________________________________________________________________
=======================================================================
</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 Note 3.
(c) The security has been segregated to satisfy the forward commitment to return
the cash collateral received in securities lending transactions upon the
borrower's return of the securities loaned. See Note 3.
See accompanying notes which are an integral part of the financial statements.
F-5
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2003
<Table>
ASSETS:
Investments, at market value (cost
$414,511,771)* $ 506,811,997
- ------------------------------------------------------------
Investments in affiliated money market funds
(cost $28,397,301) 28,397,301
- ------------------------------------------------------------
Receivables for:
Fund shares sold 204,888
- ------------------------------------------------------------
Dividends 432,803
- ------------------------------------------------------------
Investment for deferred compensation and
retirement plans 80,886
- ------------------------------------------------------------
Other assets 48,298
============================================================
Total assets 535,976,173
____________________________________________________________
============================================================
LIABILITIES:
Payables for:
Investments purchased 190,707
- ------------------------------------------------------------
Fund shares reacquired 2,299,167
- ------------------------------------------------------------
Deferred compensation and retirement plans 108,887
- ------------------------------------------------------------
Collateral upon return of securities loaned 11,874,485
- ------------------------------------------------------------
Accrued distribution fees 250,640
- ------------------------------------------------------------
Accrued transfer agent fees 417,111
- ------------------------------------------------------------
Accrued operating expenses 126,005
============================================================
Total liabilities 15,267,002
============================================================
Net assets applicable to shares outstanding $ 520,709,171
____________________________________________________________
============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $ 645,037,594
- ------------------------------------------------------------
Undistributed net investment income (loss) (104,405)
- ------------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities, futures contracts
and option contracts (216,524,244)
- ------------------------------------------------------------
Unrealized appreciation of investment
securities and option contracts 92,300,226
============================================================
$ 520,709,171
============================================================
NET ASSETS:
Class A $ 288,976,266
____________________________________________________________
============================================================
Class B $ 198,147,982
____________________________________________________________
============================================================
Class C $ 33,584,923
____________________________________________________________
============================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER
SHARE, UNLIMITED NUMBER OF SHARES
AUTHORIZED:
Class A 18,645,969
____________________________________________________________
============================================================
Class B 14,198,366
____________________________________________________________
============================================================
Class C 2,410,001
____________________________________________________________
============================================================
Class A:
Net asset value per share $ 15.50
- ------------------------------------------------------------
Offering price per share:
(Net asset value of $15.50 divided by
94.50%) $ 16.40
____________________________________________________________
============================================================
Class B:
Net asset value and offering price per
share $ 13.96
____________________________________________________________
============================================================
Class C:
Net asset value and offering price per
share $ 13.94
____________________________________________________________
============================================================
</Table>
* At December 31, 2003, securities with an aggregate market value of $10,454,090
were on loan to brokers.
See accompanying notes which are an integral part of the financial statements.
F-6
STATEMENT OF OPERATIONS
For the year ended December 31, 2003
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $8,985) $ 3,833,061
- --------------------------------------------------------------------------
Dividends from affiliated money market funds* 191,544
- --------------------------------------------------------------------------
Interest 6,615
==========================================================================
Total investment income 4,031,220
==========================================================================
EXPENSES:
Advisory fees 3,333,532
- --------------------------------------------------------------------------
Administrative services fees 133,014
- --------------------------------------------------------------------------
Custodian fees 70,211
- --------------------------------------------------------------------------
Distribution fees:
Class A 648,509
- --------------------------------------------------------------------------
Class B 2,002,766
- --------------------------------------------------------------------------
Class C 316,848
- --------------------------------------------------------------------------
Transfer agent fees 2,103,241
- --------------------------------------------------------------------------
Trustees' fees 15,979
- --------------------------------------------------------------------------
Other 328,578
==========================================================================
Total expenses 8,952,678
==========================================================================
Less: Fees waived and expense offset arrangements (13,494)
==========================================================================
Net expenses 8,939,184
==========================================================================
Net investment income (loss) (4,907,964)
==========================================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES, FUTURES CONTRACTS AND OPTION CONTRACTS:
Net realized gain from:
Investment securities 12,614,993
- --------------------------------------------------------------------------
Futures contracts 1,155,270
- --------------------------------------------------------------------------
Option contracts written 349,426
==========================================================================
14,119,689
==========================================================================
Change in net unrealized appreciation (depreciation) of:
Investment securities 116,286,988
- --------------------------------------------------------------------------
Option contracts written (15,199)
==========================================================================
116,271,789
==========================================================================
Net gain from investment securities, futures contracts and
option contracts 130,391,478
==========================================================================
Net increase in net assets resulting from operations $125,483,514
__________________________________________________________________________
==========================================================================
</Table>
* Dividends from affiliated money market funds are net of fees paid to security
lending counterparties.
See accompanying notes which are an integral part of the financial statements.
F-7
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 2003 and 2002
<Table>
<Caption>
2003 2002
- -------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (4,907,964) $ (5,779,008)
- -------------------------------------------------------------------------------
Net realized gain (loss) from investment
securities, futures contracts and option
contracts 14,119,689 (160,704,077)
- -------------------------------------------------------------------------------
Change in net unrealized appreciation
(depreciation) of investment securities,
and option contracts 116,271,789 (82,229,216)
===============================================================================
Net increase (decrease) in net assets
resulting from operations 125,483,514 (248,712,301)
===============================================================================
Share transactions-net:
Class A (29,873,189) (29,981,711)
- -------------------------------------------------------------------------------
Class B (65,917,432) (101,502,496)
- -------------------------------------------------------------------------------
Class C (6,917,020) (9,762,755)
===============================================================================
Net increase (decrease) in net assets
resulting from share transactions (102,707,641) (141,246,962)
===============================================================================
Net increase (decrease) in net assets 22,775,873 (389,959,263)
===============================================================================
NET ASSETS:
Beginning of year 497,933,298 887,892,561
===============================================================================
End of year (including undistributed net
investment income (loss) of $(104,405) and
$(65,559) for 2003 and 2002, respectively) $ 520,709,171 $ 497,933,298
_______________________________________________________________________________
===============================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
F-8
NOTES TO FINANCIAL STATEMENTS
December 31, 2003
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Select Equity Fund (the "Fund") is a series portfolio of AIM Funds Group
(the "Trust"). The Trust is a Delaware statutory trust registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
series management investment company consisting of nine separate portfolios,
each authorized to issue an unlimited number of shares of beneficial interest.
The Fund currently offers multiple classes of shares. Matters affecting each
portfolio or class will be voted on exclusively by the shareholders of such
portfolio or class. The assets, liabilities and operations of each portfolio are
accounted for separately. Information presented in these financial statements
pertains only to the Fund.
The Fund's investment objective is to achieve long-term growth of capital.
Each company listed in the Schedule of Investments is organized in the United
States of America unless otherwise noted.
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 on the basis of prices furnished
by independent pricing services or market makers. Each security reported on
the NASDAQ National Market System is valued at the NASDAQ Official Closing
Price ("NOCP") as of the close of the customary trading session on the
valuation date or absent a NOCP, at the closing bid price. 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. Issuer specific events, market trends, bid/ask quotes of brokers
and information providers and other market data may be reviewed in the
course of making a good faith determination of a security's fair value.
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
ordinarily be reflected in the computation of the Fund's net asset value.
If a development/event is so significant such 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. Adjustments to closing prices to reflect fair value on affected
foreign securities may be provided by an independent pricing service.
Multiple factors may be considered by the independent pricing service in
determining adjustments to reflect fair value and may include information
relating to sector indices, ADRs, domestic and foreign index futures and
exchange-traded funds.
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.
The Fund allocates income and realized and unrealized capital gains and
losses to a class based on the relative net assets of each class.
C. 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
Subchapter M of the Internal Revenue Code necessary to qualify as a
regulated investment company and, as such, will not be subject to federal
income taxes on otherwise taxable income (including net realized capital
gain) which is
F-9
distributed to shareholders. Therefore, no provision for federal income
taxes is recorded in the financial statements. Any capital loss
carryforwards listed are reduced for limitations, if any, to the extent
required by the Internal Revenue Code.
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. A risk in writing a
call option is that the Fund gives up the opportunity for profit if the
market price of the security increases and the option is exercised.
F. FUTURES CONTRACTS -- The Fund may purchase or sell futures contracts as a
hedge against changes in market conditions. Initial margin deposits
required upon entering into futures contracts are satisfied by the
segregation of specific securities as collateral for the account of the
broker (the Fund's agent in acquiring the futures position). During the
period the futures contracts are open, changes in the value of the
contracts are recognized as unrealized gains or losses by "marking to
market" on a daily basis to reflect the market value of the contracts at
the end of each day's trading. Variation margin payments are made or
received depending upon whether unrealized gains or losses are incurred.
When the contracts are closed, the Fund recognizes a realized gain or loss
equal to the difference between the proceeds from, or cost of, the closing
transaction and the Fund's basis in the contract. If the Fund were unable
to liquidate a futures contract and/or enter into an offsetting closing
transaction, the Fund would continue to be subject to market risk with
respect to the value of the contracts and continue to be required to
maintain deposits on the futures contracts.
G. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund and which are directly attributable to that class are
charged to the operations of such class. All other expenses are allocated
among the classes based on relative net assets.
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement,
the Fund pays an advisory fee to AIM at the annual rate of 0.80% of the first
$150 million of the Fund's average daily net assets, plus 0.625% of the Fund's
average daily net assets in excess of $150 million. Further, AIM has voluntarily
agreed to waive advisory fees of the Fund in the amount of 25% of the advisory
fee AIM receives from the affiliated money market funds on investments by the
Fund in such affiliated money market funds (excluding investments made in
affiliated money market funds with cash collateral from securities loaned by the
Fund). For the year ended December 31, 2003, AIM waived fees of $4,384.
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, 2003, AIM was
paid $133,014 for such services.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay AIM Investment Services, Inc. ("AISI"), formerly known as A I M Fund
Services, Inc., a fee for providing transfer agency and shareholder services to
the Fund. During the year ended December 31, 2003, AISI retained $966,539 for
such services.
The Trust has entered into a master distribution agreement 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,
Class B and Class C shares (collectively the "Plans"). The Fund, pursuant to the
Plans, pays AIM Distributors compensation at the annual rate of 0.25% of the
Fund's average daily net assets of Class A shares and 1.00% of the average daily
net assets of Class B and Class C shares. Of these amounts, up to 0.25% of the
average daily net assets of the Class A, Class B or Class C shares may be paid
to furnish continuing personal shareholder services to their customers who
purchase and own shares of such classes. Any amounts not paid as a service fee
under the Plans would constitute an asset-based sales charge. NASD Rules also
impose a cap on the total sales charges, including asset-based sales charges,
that may be paid by any class of shares of the Fund. Pursuant to the Plans, for
the year ended December 31, 2003, the Class A, Class B and Class C shares paid
$648,509, $2,002,766 and $316,848, respectively.
Front-end sales commissions and contingent deferred sales charges ("CDSC")
(collectively the "sales charges") are not recorded as expenses of the Fund.
Front-end sales commissions are deducted from proceeds from the sales of Fund
shares prior to investment in Class A shares of the Fund. CDSC are deducted from
redemption proceeds prior to remittance to the shareholder. During the year
ended December 31, 2003, AIM Distributors retained $40,200 in front-end sales
commissions from the sale of Class A shares and $445, $0 and $2,572 from Class
A, Class B and Class C shares, respectively, for CDSC imposed upon redemptions
by shareholders.
Certain officers and trustees of the Trust are officers and directors of
AIM, AISI and/or AIM Distributors.
F-10
NOTE 3--INVESTMENTS IN AFFILIATES
The Fund is permitted pursuant to an exemptive order from the Securities and
Exchange Commission ("SEC") and approved procedures by the Board of Trustees to
invest daily available cash balances and cash collateral from securities lending
transactions in affiliated money market funds. Each day the prior day's balance
invested in the affiliated money market fund is redeemed in full and a new
purchase amount is submitted to invest the current day's available cash and/or
cash collateral received from security lending transactions. The table below
shows the transactions in and earnings from investments in affiliated money
market funds for the period ended December 31, 2003.
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
<Table>
<Caption>
UNREALIZED REALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND GAIN
12/31/2002 AT COST FROM SALES (DEPRECIATION) 12/31/2003 INCOME (LOSS)
- ----------------------------------------------------------------------------------------------------------------------------------
Liquid Assets Portfolio $ 8,219,451 $ 48,220,151 $ (48,178,194) $ -- $ 8,261,408 $ 85,074 $ --
- ----------------------------------------------------------------------------------------------------------------------------------
STIC Prime Portfolio 8,219,451 48,220,151 (48,178,194) -- $ 8,261,408 82,421 --
==================================================================================================================================
Subtotal $16,438,902 $ 96,440,302 $ (96,356,388) $ -- $16,522,816 $167,495 $ --
==================================================================================================================================
</Table>
INVESTMENTS OF CASH COLLATERAL FROM SECURITIES LENDING TRANSACTIONS:
<Table>
<Caption>
MARKET UNREALIZED REALIZED
VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND GAIN
12/31/2002 AT COST FROM SALES (DEPRECIATION) 12/31/2003 INCOME* (LOSS)
- -----------------------------------------------------------------------------------------------------------------------------------
Liquid Assets Portfolio $4,872,000 $ 66,537,845 $ (59,535,360) $ -- $11,874,485 $ 24,049 $ --
===================================================================================================================================
Total $21,310,902 $162,978,147 $(155,891,748) $ -- $28,397,301 $191,544 $ --
___________________________________________________________________________________________________________________________________
===================================================================================================================================
</Table>
* Dividend income is net of fees paid to security lending counterparties of
$73,535.
NOTE 4--EXPENSE OFFSET ARRANGEMENTS
Indirect expenses under expense offset arrangements are comprised of transfer
agency credits resulting from Demand Deposit Account (DDA) balances in transfer
agency clearing accounts and custodian credits resulting from periodic overnight
cash balances at the custodian. For the year ended December 31, 2003, the Fund
received reductions in transfer agent fees from AISI (an affiliate of AIM) of
$8,899 and reductions in custodian fees of $211 under expense offset
arrangements, which resulted in a reduction of the Fund's total expenses of
$9,110.
NOTE 5--TRUSTEES' FEES
Trustees' fees represent remuneration paid to each Trustee of the Trust who is
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 and INVESCO Funds in which their deferral accounts
shall be deemed to be invested.
Current Trustees are eligible to participate in a retirement plan that
provides for benefits to be paid upon retirement to Trustees over a period of
time based on the number of years of service. The Fund may have certain former
trustees that also participate in a retirement plan and receive benefits under
such plan.
During the year ended December 31, 2003, the Fund paid legal fees of $4,965
for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the
Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 6--BORROWINGS
The Fund may participate in an interfund lending facility that AIM has
established for temporary borrowings by the AIM Funds and the INVESCO Funds. An
interfund loan will be made under this facility only if the loan rate (an
average of the rate available on bank loans and the rate available on
investments in overnight repurchase agreements) is favorable to both the lending
fund and the borrowing fund. Under certain circumstances, a loan will be secured
by collateral. To the extent that the loan is required to be secured by
collateral, the collateral is marked to market daily to ensure that the market
value is at least 102% of the outstanding principal value of the loan.
Effective June 26, 2003, the Fund became a participant in an uncommitted
unsecured revolving credit facility with State Street Bank and Trust Company
("SSB"). The Fund may borrow up to the lesser of (i) $125,000,000 or (ii) the
limits set by its prospectus for borrowings. The Fund and other funds advised by
AIM which are parties to the credit facility can borrow on a first come, first
served basis. Principal on each loan outstanding shall bear interest at the bid
rate quoted by SSB at the time of the request for the loan.
During the reporting period, the Fund was a participant in a committed
credit facility with a syndicate administered by Citibank, N.A. The Fund could
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 were
parties to the credit facility could borrow on a first come, first served basis.
The funds which were party to the credit facility were charged a commitment fee
of 0.09% on the unused balance of the committed line. The commitment fee was
allocated among the funds based on their respective average net assets for the
period. The committed facility credit facility expired May 20, 2003.
During the year ended December 31, 2003, the Fund did not borrow or lend
under the interfund lending facility or borrow under either the uncommitted
unsecured revolving credit facility or the committed credit facility.
F-11
Additionally the Fund is permitted to temporarily carry a negative or
overdrawn balance in its account with the custodian bank. To compensate the
custodian bank for such overdrafts, the overdrawn Fund may either (i) leave
funds in the account so the custodian can be compensated by earning the
additional interest; or (ii) compensate by paying the custodian bank. In either
case, the custodian bank will be compensated an amount equal to the Federal
Funds rate plus 100 basis points.
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 of the loaned securities determined daily. Such collateral will be
cash or debt securities issued or guaranteed by the U.S. Government or any of
its agencies. Cash collateral received in connection with these loans is
invested in short-term money market instruments or affiliated money market
funds. It is the Fund's policy to obtain additional collateral from or return
excess collateral to the borrower by the end of the next business day, following
the valuation date of the securities loaned. Therefore, the value of the
collateral held may be temporarily less than the value of the securities on
loan. Lending securities entails a risk of loss to the Fund if and to the extent
that the market value of the securities loaned were to increase and the borrower
did not increase the collateral accordingly, and the borrower fails to return
the securities. The Fund could also experience delays and costs in gaining
access to the collateral. The Fund bears the risk of any deficiency in the
amount of the collateral available for return to the borrower due to a loss on
the collateral invested.
At December 31, 2003, securities with an aggregate value of $10,454,090 were
on loan to brokers. The loans were secured by cash collateral of $11,874,485
received by the Fund and subsequently invested in Liquid Asset Portfolio, an
affiliated money market fund. For the year ended December 31, 2003, the Fund
received dividends on cash collateral net of fees paid to counterparties of
$24,049 for securities lending transactions.
NOTE 8--OPTION CONTRACTS WRITTEN
<Table>
<Caption>
TRANSACTIONS DURING THE PERIOD
- -------------------------------------------------------------------------------
CALL OPTION CONTRACTS
----------------------
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
- -------------------------------------------------------------------------------
Beginning of year 400 $ 17,199
- -------------------------------------------------------------------------------
Written 9,290 595,187
- -------------------------------------------------------------------------------
Exercised (3,170) (262,960)
- -------------------------------------------------------------------------------
Expired (6,520) (349,426)
===============================================================================
End of year -- $ --
_______________________________________________________________________________
===============================================================================
</Table>
NOTE 9--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
Distributions to Shareholders:
There were no ordinary income or long-term capital gain distributions paid
during the years ended December 31, 2003 and 2002.
Tax Components of Net Assets:
As of December 31, 2003, the components of net assets on a tax basis were as
follows:
<Table>
Unrealized appreciation -- investments $ 90,017,761
- -------------------------------------------------------------------------------
Temporary book/tax differences (104,405)
- -------------------------------------------------------------------------------
Capital loss carryforward (214,241,779)
- -------------------------------------------------------------------------------
Shares of beneficial interest 645,037,594
===============================================================================
Total net assets $ 520,709,171
_______________________________________________________________________________
===============================================================================
</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.
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
trustee retirement plan expenses.
The Fund has a capital loss carryforward for tax purposes which expires as
follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD
- --------------------------------------------------------------------------------
December 31, 2009 $ 47,261,707
- --------------------------------------------------------------------------------
December 31, 2010 120,187,758
- --------------------------------------------------------------------------------
December 31, 2011 46,792,314
================================================================================
Total capital loss carryforward $214,241,779
________________________________________________________________________________
================================================================================
</Table>
NOTE 10--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities
and money market funds) purchased and sold by the Fund during the year ended
December 31, 2003 was $326,552,502 and $432,215,997, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF
INVESTMENT SECURITIES ON A TAX BASIS
- -----------------------------------------------------------
Aggregate unrealized appreciation of
investment securities $100,977,216
- -----------------------------------------------------------
Aggregate unrealized (depreciation) of
investment securities (10,959,455)
===========================================================
Net unrealized appreciation of investment
securities $ 90,017,761
___________________________________________________________
===========================================================
Cost of investments for tax purposes is $445,191,537.
</Table>
F-12
NOTE 11--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily, as a result of differing book/tax treatment of net operating losses
and partnership adjustments on December 31, 2003, undistributed net investment
income was increased by $4,869,118, undistributed net realized gains decreased
by $2,628 and shares of beneficial interest decreased by $4,866,490. This
reclassification had no effect on the net assets of the Fund.
NOTE 12--SHARE INFORMATION
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 CDSC. Under some
circumstances, Class A shares are subject to CDSC. Generally, Class B shares
will automatically convert to Class A shares eight years after the end of the
calendar month of purchase.
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING
- -------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------
2003 2002
--------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
- -------------------------------------------------------------------------------------------------------------------------
Sold:
Class A 1,879,248 $ 24,704,966 4,095,378 $ 59,894,387
- -------------------------------------------------------------------------------------------------------------------------
Class B 1,110,183 13,223,360 1,801,311 23,788,330
- -------------------------------------------------------------------------------------------------------------------------
Class C 507,573 6,077,786 630,709 8,316,201
=========================================================================================================================
Automatic conversion of Class B shares to Class A shares:
Class A 2,268,563 30,491,869 1,319,880 19,006,319
- -------------------------------------------------------------------------------------------------------------------------
Class B (2,511,307) (30,491,869) (1,446,033) (19,006,319)
=========================================================================================================================
Reacquired:
Class A (6,444,289) (85,070,024) (7,806,746) (108,882,417)
- -------------------------------------------------------------------------------------------------------------------------
Class B (4,176,762) (48,648,923) (8,382,431) (106,284,507)
- -------------------------------------------------------------------------------------------------------------------------
Class C (1,100,332) (12,994,806) (1,436,948) (18,078,956)
=========================================================================================================================
(8,467,123) $(102,707,641) (11,224,880) $(141,246,962)
_________________________________________________________________________________________________________________________
=========================================================================================================================
</Table>
NOTE 13--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
CLASS A
-------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------
2003 2002 2001 2000 1999
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 11.97 $ 17.00 $ 22.88 $ 26.23 $ 19.35
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.09)(a) (0.06)(a) (0.08)(a) (0.01)(a) (0.06)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 3.62 (4.97) (5.79) (0.44) 8.00
=================================================================================================================================
Total from investment operations 3.53 (5.03) (5.87) (0.45) 7.94
=================================================================================================================================
Less distributions from net realized gains -- -- (0.01) (2.90) (1.06)
=================================================================================================================================
Net asset value, end of period $ 15.50 $ 11.97 $ 17.00 $ 22.88 $ 26.23
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) 29.49% (29.59)% (25.64)% (1.77)% 41.48%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $288,976 $250,666 $396,779 $532,042 $461,628
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets 1.47%(c) (1.32)% 1.24% 1.07% 1.09%
=================================================================================================================================
Ratio of net investment income (loss) to average net assets (0.65)%(c) (0.45)% (0.45)% (0.02)% (0.31)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate 69% 86% 117% 56% 31%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and does not include sales
charges.
(c) Ratios are based on average daily net assets of $259,403,691.
F-13
NOTE 13--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS B
----------------------------------------------------------------
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------
2003 2002 2001 2000 1999
- ------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 10.86 $ 15.54 $ 21.07 $ 24.57 $ 18.33
- ------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.17)(a) (0.16)(a) (0.20)(a) (0.22)(a) (0.23)(a)
- ------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 3.27 (4.52) (5.32) (0.38) 7.53
==============================================================================================================================
Total from investment operations 3.10 (4.68) (5.52) (0.60) 7.30
==============================================================================================================================
Less distributions from net realized gains -- -- (0.01) (2.90) (1.06)
==============================================================================================================================
Net asset value, end of period $ 13.96 $ 10.86 $ 15.54 $ 21.07 $ 24.57
______________________________________________________________________________________________________________________________
==============================================================================================================================
Total return(b) 28.55% (30.12)% (26.19)% (2.50)% 40.29%
______________________________________________________________________________________________________________________________
==============================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $198,148 $214,709 $432,002 $661,445 $592,555
______________________________________________________________________________________________________________________________
==============================================================================================================================
Ratio of expenses to average net assets 2.22%(c) 2.07% 2.00% 1.84% 1.90%
==============================================================================================================================
Ratio of net investment income (loss) to average net assets (1.40)%(c) (1.20)% (1.21)% (0.80)% (1.12)%
______________________________________________________________________________________________________________________________
==============================================================================================================================
Portfolio turnover rate 69% 86% 117% 56% 31%
______________________________________________________________________________________________________________________________
==============================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and does not include sales
charges.
(c) Ratios are based on average daily net assets of $200,276,520.
<Table>
<Caption>
CLASS C
------------------------------------------------------------
YEAR ENDED DECEMBER 31,
------------------------------------------------------------
2003 2002 2001 2000 1999
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 10.84 $ 15.52 $ 21.05 $ 24.55 $ 18.32
- --------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.17)(a) (0.16)(a) (0.20)(a) (0.22)(a) (0.23)(a)
- --------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 3.27 (4.52) (5.32) (0.38) 7.52
==========================================================================================================================
Total from investment operations 3.10 (4.68) (5.52) (0.60) 7.29
==========================================================================================================================
Less distributions from net realized gains -- -- (0.01) (2.90) (1.06)
==========================================================================================================================
Net asset value, end of period $ 13.94 $ 10.84 $ 15.52 $ 21.05 $ 24.55
__________________________________________________________________________________________________________________________
==========================================================================================================================
Total return(b) 28.60% (30.15)% (26.21)% (2.50)% 40.26%
__________________________________________________________________________________________________________________________
==========================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $33,585 $32,558 $59,112 $71,989 $25,275
__________________________________________________________________________________________________________________________
==========================================================================================================================
Ratio of expenses to average net assets 2.22%(c) 2.07% 2.00% 1.84% 1.90%
==========================================================================================================================
Ratio of net investment income (loss) to average net assets (1.40)%(c) (1.20)% (1.21)% (0.80)% (1.12)%
__________________________________________________________________________________________________________________________
==========================================================================================================================
Portfolio turnover rate 69% 86% 117% 56% 31%
__________________________________________________________________________________________________________________________
==========================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and does not include sales
charges.
(c) Ratios are based on average daily net assets of $31,684,828.
NOTE 14--LEGAL PROCEEDINGS
Your Fund's investment advisor, A I M Advisors, Inc. ("AIM"), is an indirect
wholly owned subsidiary of AMVESCAP PLC ("AMVESCAP"). Another indirect wholly
owned subsidiary of AMVESCAP, INVESCO Funds Group, Inc. ("IFG"), was formerly
the investment advisor to the INVESCO Funds. IFG continues to serve as the
investment advisor to INVESCO Variable Investment Funds, Inc. ("IVIF"). On
November 25, 2003, AIM succeeded IFG as the investment advisor to the INVESCO
Funds other than IVIF.
The mutual fund industry as a whole is currently subject to a wide range of
inquiries and litigation related to issues of "market timing" and "late
trading." Both AIM and IFG are the subject of a number of such inquiries, as
described below.
F-14
NOTE 14--LEGAL PROCEEDINGS (CONTINUED)
A. Regulatory Inquiries and Actions
1. IFG
On December 2, 2003 each of the Securities and Exchange Commission ("SEC") and
the Office of the Attorney General of the State of New York ("NYAG") filed civil
proceedings against IFG and Raymond R. Cunningham, in his capacity as the Chief
Executive Officer of IFG. Mr. Cunningham currently holds the positions of Chief
Operating Officer and Senior Vice President of A I M Management Group Inc., the
parent of AIM, and the position of Senior Vice President of AIM. In addition, on
December 2, 2003, the State of Colorado filed civil proceedings against IFG.
Neither the Fund nor any of the other AIM or INVESCO Funds has been named as a
defendant in any of these proceedings.
The SEC complaint alleges that IFG failed to disclose in the INVESCO Funds'
prospectuses and to the INVESCO Funds' independent directors that IFG had
entered into certain arrangements permitting market timing of the INVESCO Funds.
The SEC is seeking injunctions, including permanent injunctions from serving as
an investment advisor, officer or director of an investment company; an
accounting of all market timing as well as certain fees and compensation
received; disgorgement; civil monetary penalties; and other relief.
The NYAG and Colorado complaints make substantially similar allegations. The
NYAG is seeking injunctions, including permanent injunctions from directly or
indirectly selling or distributing shares of mutual funds; disgorgement of all
profits obtained, including fees collected, and payment of all restitution and
damages caused, directly or indirectly from the alleged illegal activities;
civil monetary penalties; and other relief. The State of Colorado is seeking
injunctions; restitution, disgorgement and other equitable relief, civil
monetary penalties; and other relief.
In addition, IFG has received inquiries in the form of subpoenas or other oral
or written requests for information from various regulators concerning market
timing activity, late trading, fair value pricing and related issues concerning
the INVESCO Funds. These regulators include the Florida Department of Financial
Services, the Commissioner of Securities for the State of Georgia, the Office of
the State Auditor for the State of West Virginia, and the Office of the
Secretary of State for West Virginia. IFG has also received more limited
inquiries concerning related matters from the United States Department of Labor,
NASD, Inc., and the SEC. IFG is providing full cooperation with respect to these
inquiries.
2. AIM
AIM has also received inquiries in the form of subpoenas or other oral or
written requests for information from various regulators concerning market
timing activity, late trading, fair value pricing, and related issues concerning
the AIM Funds. AIM has received requests for information and documents
concerning these and related matters from the SEC and the Massachusetts
Secretary of the Commonwealth. In addition, AIM has received subpoenas
concerning these and related matters from the NYAG, the United States Attorney's
Office for the District of Massachusetts, the Commissioner of Securities for the
State of Georgia, the Office of the State Auditor for the State of West
Virginia, and the Office of the Secretary of State for West Virginia. AIM has
also received more limited inquiries from the SEC and NASD, Inc. concerning
specific funds, entities and/or individuals, none of which directly bears upon
the Fund. AIM is providing full cooperation with respect to these inquiries.
3. AMVESCAP Response
AMVESCAP is seeking to resolve both the pending regulatory complaints against
IFG alleging market timing and the ongoing market timing investigations with
respect to IFG and AIM. AMVESCAP recently found, in its ongoing review of these
matters, that shareholders were not always effectively protected from the
potential adverse impact of market timing and illegal late trading through
intermediaries. These findings were based, in part, on an extensive economic
analysis by outside experts who have been retained by AMVESCAP to examine the
impact of these activities. In light of these findings, AMVESCAP has publicly
stated that any AIM or INVESCO Fund, or any shareholders thereof, harmed by
these activities will receive full restitution. AMVESCAP has informed regulators
of these findings. In addition, AMVESCAP has retained outside counsel to
undertake a comprehensive review of AIM's and IFG's policies, procedures and
practices, with the objective that they rank among the most effective in the
fund industry.
There can be no assurance that AMVESCAP will be able to reach a satisfactory
settlement with the regulators, or that any such settlement will not include
terms which would have the effect of barring either or both of IFG and AIM, or
any other investment advisor directly or indirectly owned by AMVESCAP, from
serving as an investment advisor to any registered investment company including
the Fund. The Fund has been informed by AIM that, if either of these results
occurs, AIM will seek exemptive relief from the SEC to permit it to continue to
serve as the Fund's investment advisor. There can be no assurance that such
exemptive relief will be granted. Any settlement with the regulators could also
include terms which would bar Mr. Cunningham from serving as an officer or
director of any registered investment company.
B. Private Actions
In addition to the complaints described above, multiple lawsuits, including
purported class action and shareholder derivative suits, have been filed against
various parties (including, depending on the lawsuit, certain INVESCO Funds,
certain AIM Funds, IFG, AIM, A I M Management Group Inc., the parent of AIM,
AMVESCAP, certain related entities and certain of their officers, including Mr.
Cunningham). The allegations in the majority of the lawsuits are substantially
similar to the allegations in the regulatory complaints against IFG described
above. Certain other lawsuits allege that certain AIM and INVESCO Funds
inadequately employed fair value pricing. Such lawsuits allege a variety of
theories of recovery, including but not limited to: (i) violation of various
provisions of the Federal and state securities laws; (ii) violation of various
provisions of the Employee Retirement Income Security Act ("ERISA"); (iii)
breach of fiduciary duty; and (iv) breach of contract. The lawsuits have been
filed in both Federal and state courts and seek such remedies as compensatory
damages; restitution; rescission; accounting for wrongfully gotten gains,
profits and compensation; injunctive relief; disgorgement; equitable relief;
various corrective measures under ERISA; rescission of certain Funds' advisory
agreements with AIM; declaration that the advisory agreement is unenforceable or
void; refund of advisory fees; interest; and attorneys' and experts' fees.
F-15
NOTE 14--LEGAL PROCEEDINGS (CONTINUED)
IFG has removed certain of the state court proceedings to Federal District
Court. At a hearing before the Judicial Panel on Multidistrict Litigation
concerning the most efficient way to manage the numerous lawsuits alleging
market timing in mutual funds throughout the industry, IFG and AIM supported
transfer of all cases pending against them to one district for consolidated
proceedings. The Panel has not issued a ruling.
Additional lawsuits or regulatory actions arising out of these circumstances
and presenting similar allegations and requests for relief may be filed against
the Fund, IFG, AIM, AMVESCAP and related entities and individuals in the future.
As a result of these developments, investors in the AIM and INVESCO Funds
might react by redeeming their investments. This might require the Funds to sell
investments to provide for sufficient liquidity and could also have an adverse
effect on the investment performance of the Funds.
At the present time, management of AIM and the Fund is unable to estimate the
impact, if any, that the outcome of the matters described above may have on the
Fund or AIM.
F-16
REPORT OF INDEPENDENT AUDITORS
To the Board of Trustees and Shareholders
of AIM Select Equity Fund
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the AIM Select Equity Fund (one of
the funds constituting AIM Funds Group; hereafter referred to as the "Fund") at
December 31, 2003, the results of its operations for the year then ended, the
changes in its net assets for each of the two years in the period then ended and
the financial highlights for each of the four years in the period then ended, in
conformity with accounting principles generally accepted in the United States of
America. These financial statements and financial highlights (hereafter referred
to as "financial statements") are the responsibility of the Fund's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these financial statements in
accordance with auditing standards generally accepted in the United States of
America, which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 2003 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion. The financial highlights for each of the periods ended on or before
December 31, 1999 were audited by other independent auditors whose report dated
February 14, 2000, expressed an unqualified opinion thereon.
PRICEWATERHOUSECOOPERS LLP
February 20, 2004
Houston, Texas
F-16
PROXY RESULTS (UNAUDITED)
A Special Meeting of Shareholders of AIM Select Equity Fund, a portfolio of AIM
Funds Group, a Delaware statutory trust, was held on October 21, 2003. The
meeting was held for the following purpose:
(1)* To elect sixteen individuals to the Board, each of whom will serve until
his or her successor is elected and qualified: Bob R. Baker, Frank S.
Bayley, James T. Bunch, Bruce L. Crockett, Albert R. Dowden, Edward K.
Dunn, Jr., Jack M. Fields, Carl Frischling, Robert H. Graham, Gerald J.
Lewis, Prema Mathai-Davis, Lewis F. Pennock, Ruth H. Quigley, Louis S.
Sklar, Larry Soll, Ph D. and Mark H. Williamson.
The results of the voting on the above matter were as follows:
<Table>
<Caption>
WITHHOLDING
TRUSTEES/MATTER VOTES FOR AUTHORITY
- ---------------------------------------------------------------------------------
(1)* Bob R. Baker................................. 822,704,205 11,194,804
Frank S. Bayley.............................. 822,781,451 11,117,558
James T. Bunch............................... 822,886,061 11,012,948
Bruce L. Crockett............................ 822,942,379 10,956,630
Albert R. Dowden............................. 822,923,043 10,975,966
Edward K. Dunn, Jr........................... 822,752,667 11,146,342
Jack M. Fields............................... 823,013,560 10,885,449
Carl Frischling.............................. 822,602,646 11,296,363
Robert H. Graham............................. 822,881,635 11,017,374
Gerald J. Lewis.............................. 822,460,720 11,438,289
Prema Mathai-Davis........................... 822,715,053 11,183,956
Lewis F. Pennock............................. 822,839,481 11,059,528
Ruth H. Quigley.............................. 822,446,309 11,452,700
Louis S. Sklar............................... 822,882,710 11,016,299
Larry Soll, Ph.D............................. 822,748,856 11,150,153
Mark H. Williamson........................... 822,801,778 11,097,231
</Table>
* Proposal required approval by a combined vote of all the portfolios of AIM
Funds Group.
OTHER INFORMATION
TRUSTEES AND OFFICERS
As of January 1, 2004
The address of each trustee and officer of AIM Funds Group (the "Trust"), is 11
Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee oversees 104
portfolios in the AIM and INVESCO Funds complex, except for Messrs. Baker,
Bunch, Lewis and Soll who oversee 96 portfolios and Mr. Williamson who oversees
117 portfolios in the AIM and INVESCO Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
<Table>
<Caption>
NAME, YEAR OF BIRTH AND TRUSTEE AND/
POSITION(S) HELD WITH THE OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- ------------------------------------------------------------------------------------------------------------------------------
INTERESTED PERSONS
- ------------------------------------------------------------------------------------------------------------------------------
Robert H. Graham(1) -- 1946 1992 Director and Chairman, A I M Management Group Inc. None
Trustee, Chairman and (financial services holding company); and Director
President and Vice Chairman, AMVESCAP PLC and Chairman of
AMVESCAP PLC -- AIM Division (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), AIM Investment Services, Inc.,
(registered transfer agent), and Fund Management
Company (registered broker dealer); and Chief
Executive Officer, AMVESCAP PLC -- Managed
Products
- ------------------------------------------------------------------------------------------------------------------------------
Mark H. Williamson(2) -- 1951 2003 Director, President and Chief Executive Officer, None
Trustee and Executive Vice A I M Management Group Inc. (financial services
President holding company); Director, Chairman and
President, A I M Advisors, Inc. (registered
investment advisor); Director, A I M Capital
Management, Inc. (registered investment advisor)
and A I M Distributors, Inc. (registered broker
dealer); Director and Chairman, AIM Investment
Services, Inc. (registered transfer agent), and
Fund Management Company (registered broker
dealer); and Chief Executive Officer, AMVESCAP
PLC -- AIM Division (parent of AIM and a global
investment management firm)
Formerly: Director, Chairman, President and Chief
Executive Officer, INVESCO Funds Group, Inc. and
INVESCO Distributors, Inc.; Chief Executive
Officer, AMVESCAP PLC -- Managed Products;
Chairman and Chief Executive Officer of
NationsBanc Advisors, Inc.; and Chairman of
NationsBanc Investments, Inc.
- ------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- ------------------------------------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 2003 Consultant None
Trustee
Formerly: President and Chief Executive Officer,
AMC Cancer Research Center; and Chairman and Chief
Executive Officer, First Columbia Financial
Corporation
- ------------------------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2001 Of Counsel, law firm of Baker & McKenzie Badgley Funds, Inc.
Trustee (registered investment
company)
- ------------------------------------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 2003 Co-President and Founder, Green, Manning & Bunch None
Trustee Ltd., (investment banking firm); and Director,
Policy Studies, Inc. and Van Gilder Insurance
Corporation
Formerly: General Counsel and Director, Boettcher
& Co.; and Chairman and Managing Partner, law firm
of Davis, Graham & Stubbs
- ------------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett -- 1944 1987 Chairman, Crockett Technology Associates ACE Limited (insurance
Trustee (technology consulting company) company); and
Captaris, Inc.
(unified messaging
provider)
- ------------------------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2000 Director of a number of public and private Cortland Trust, Inc.
Trustee business corporations, including the Boss Group (Chairman) (registered
Ltd. (private investment and management) and investment company);
Magellan Insurance Company Annuity and Life Re
(Holdings), Ltd.
Formerly: Director, President and Chief Executive (insurance company)
Officer, Volvo Group North America, Inc.; Senior
Vice President, AB Volvo; and director of various
affiliated Volvo companies
- ------------------------------------------------------------------------------------------------------------------------------
Edward K. Dunn, Jr. -- 1935 1998 Formerly: Chairman, Mercantile Mortgage Corp.; None
Trustee President and Chief Operating Officer,
Mercantile-Safe Deposit & Trust Co.; and
President, Mercantile Bankshares Corp.
- ------------------------------------------------------------------------------------------------------------------------------
Jack M. Fields -- 1952 1997 Chief Executive Officer, Twenty First Century Administaff
Trustee Group, Inc. (government affairs company) and
Texana Timber LP
- ------------------------------------------------------------------------------------------------------------------------------
</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.
Trustees and Officers (continued)
As of January 1, 2004
The address of each trustee and officer of AIM Funds Group (the "Trust"), is 11
Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee oversees 104
portfolios in the AIM and INVESCO Funds complex, except for Messrs. Baker,
Bunch, Lewis and Soll who oversee 96 portfolios and Mr. Williamson who overseas
117 portfolios in the AIM and INVESCO Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
<Table>
<Caption>
NAME, YEAR OF BIRTH AND TRUSTEE AND/ PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST OR OFFICER SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- ----------------------------------------------------------------------------------------------------------------------------------
Carl Frischling -- 1937 1993 Partner, law firm of Kramer Levin Naftalis and Cortland Trust, Inc.
Trustee Frankel LLP (registered investment
company)
- ----------------------------------------------------------------------------------------------------------------------------------
Gerald J. Lewis -- 1933 2003 Chairman, Lawsuit Resolution Services (San Diego, General Chemical
Trustee California) Group, Inc.,
Wheelabrator
Formerly: Associate Justice of the California Technologies, Inc.
Court of Appeals (waste management
company), Fisher
Scientific, Inc.,
Henley Manufacturing,
Inc. (laboratory
supplies), and
California Coastal
Properties, Inc.
- ----------------------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA of the USA None
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 None
Trustee Operations Hines Interests Limited Partnership
(real estate development company)
- ----------------------------------------------------------------------------------------------------------------------------------
Larry Soll, Ph.D. -- 1942 2003 Retired None
Trustee
- ----------------------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- ----------------------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 2003 Director, Senior Vice President, Secretary and N/A
Senior Vice President and Chief General Counsel, A I M Management Group Inc.
Legal Officer (financial services holding company) and A I M
Advisors, Inc.; Vice President, A I M Capital
Management, Inc., A I M Distributors, Inc. and AIM
Investment Services, Inc.; and Director, Vice
President and General Counsel, Fund Management
Company
Formerly: Senior Vice President and General
Counsel, Liberty Financial Companies, Inc.; and
Senior Vice President and General Counsel, Liberty
Funds Group, LLC
- ----------------------------------------------------------------------------------------------------------------------------------
Robert G. Alley -- 1948 1992 Managing Director, Chief Fixed Income Officer and N/A
Vice President Senior Investment Officer, A I M Capital
Management, Inc.; and Vice President, A I M
Advisors, Inc.
- ----------------------------------------------------------------------------------------------------------------------------------
Stuart W. Coco -- 1955 1992 Managing Director and Chief Research N/A
Vice President Officer -- Fixed Income, 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, AIM Investment Services, Inc.
- ----------------------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, A I M Advisors,
Vice President and Treasurer Inc.; Senior Vice President, AIM Investment
Services, Inc.; and Vice President, A I M
Distributors, Inc.
- ----------------------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 1992 Managing Director and Chief Management Officer, N/A
Vice President A I M 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 N/A
Vice President President, Chief Executive Officer and Chief
Investment Officer, A I M Capital Management, Inc.
- ----------------------------------------------------------------------------------------------------------------------------------
</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 LLP
Suite 100 11 Greenway Plaza 11 Greenway Plaza 1201 Louisiana Street, Suite
Houston, TX 77046-1173 Suite 100 Suite 100 2900
Houston, TX 77046-1173 Houston, TX 77046-1173 Houston, TX 77002-5678
COUNSEL TO THE FUND COUNSEL TO THE TRUSTEES TRANSFER AGENT CUSTODIAN
Ballard Spahr Kramer, Levin, Naftalis & AIM Investment 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 19103-7599 New York, NY 10022-3852 Boston, MA 02110
</Table>
<Table>
DOMESTIC EQUITY INTERNATIONAL/GLOBAL EQUITY FIXED INCOME
AIM Aggressive Growth Fund AIM Asia Pacific Growth Fund TAXABLE
AIM Balanced Fund* AIM Developing Markets Fund
AIM Basic Balanced Fund* AIM European Growth Fund AIM Floating Rate Fund
AIM Basic Value Fund AIM European Small Company Fund AIM High Yield Fund
AIM Blue Chip Fund AIM Global Aggressive Growth Fund AIM Income Fund
AIM Capital Development Fund AIM Global Growth Fund AIM Intermediate Government Fund
AIM Charter Fund AIM Global Trends Fund AIM Limited Maturity Treasury Fund
AIM Constellation Fund AIM Global Value Fund(5) AIM Money Market Fund
AIM Dent Demographic Trends Fund AIM International Emerging Growth Fund AIM Short Term Bond Fund
AIM Diversified Dividend Fund(1) AIM International Growth Fund AIM Total Return Bond Fund
AIM Emerging Growth Fund AIM Trimark Fund INVESCO U.S. Government Money Fund
AIM Large Cap Basic Value Fund INVESCO International Core Equity Fund(6)
AIM Large Cap Growth Fund TAX-FREE
AIM Libra Fund SECTOR EQUITY
AIM Mid Cap Basic Value Fund AIM High Income Municipal Fund
AIM Mid Cap Core Equity Fund(2) AIM Global Health Care Fund AIM Municipal Bond Fund
AIM Mid Cap Growth Fund AIM Real Estate Fund AIM Tax-Exempt Cash Fund
AIM Opportunities I Fund INVESCO Advantage Health Sciences Fund AIM Tax-Free Intermediate Fund
AIM Opportunities II Fund INVESCO Energy Fund
AIM Opportunities III Fund INVESCO Financial Services Fund
AIM Premier Equity Fund INVESCO Gold & Precious Metals Fund
AIM Select Equity Fund INVESCO Health Sciences Fund
AIM Small Cap Equity Fund(3) INVESCO Leisure Fund
AIM Small Cap Growth Fund(4) INVESCO Multi-Sector Fund
AIM Trimark Endeavor Fund INVESCO Technology Fund
AM Trimark Small Companies Fund INVESCO Utilities Fund
AIM Weingarten Fund
INVESCO Core Equity Fund
INVESCO Dynamics Fund
INVESCO Mid-Cap Growth Fund
INVESCO Small Company Growth Fund
INVESCO S&P 500 Index Fund
INVESCO Total Return Fund*
</Table>
* Domestic equity and income fund
(1) Effective May 2, 2003, AIM Large Cap Core Equity Fund was renamed AIM
Diversified Dividend Fund. (2) As of the close of business on February 27, 2004,
AIM Mid Cap Core Equity Fund is available to new investors on a limited basis.
For information on who may continue to invest in AIM Mid Cap Core Equity Fund,
please contact your financial advisor. (3) AIM Small Cap Equity Fund was closed
to most investors on December 19, 2003. For information on who may continue to
invest in AIM Small Cap Equity Fund, please contact your financial advisor. (4)
AIM Small Cap Growth Fund was closed to most investors on March 18, 2002. For
information on who may continue to invest in AIM Small Cap Growth Fund, please
contact your financial advisor. (5) Effective April 30, 2003, AIM Worldwide
Spectrum Fund was renamed AIM Global Value Fund. (6) Effective November 24,
2003, INVESCO International Blue Chip Value Fund was renamed INVESCO
International Core Equity Fund.
For more complete information about any AIM or INVESCO fund, including sales
charges and expenses, ask your financial advisor for a prospectus. Please read
the prospectus carefully and consider the investment objectives, risks, and
charges and expenses of the investment carefully before investing. If used after
April, 2004, this brochure must be accompanied by a fund Performance &
Commentary or by an AIM Quarterly Performance Review for the most recent
quarter-end. Mutual funds distributed by A I M Distributors, Inc.
A I M Management Group Inc. has provided leadership in the investment management
industry since 1976 and manages $149 billion in assets for approximately 11
million shareholders, including individual investors, corporate clients and
financial institutions. AIM is a subsidiary of AMVESCAP PLC, one of the world's
largest independent financial services companies with $371 billion in assets
under management. Data as of December 31, 2003.
AIMinvestments.com SEQ-AR-1
<Table>
YOUR GOALS. OUR SOLUTIONS.--Servicemark--
- -----------------------------------------------------------------------------------------------
Mutual Retirement Annuities College Separately Offshore Alternative Cash [AIM INVESTMENTS LOGO APPEARS HERE]
Funds Products Savings Managed Products Investments Management --Servicemark--
Plans Accounts
</Table>
AIM SMALL CAP EQUITY FUND
Annual Report to Shareholders o December 31, 2003
[COVER IMAGE]
YOUR GOALS. OUR SOLUTIONS. [AIM INVESTMENTS LOGO APPEARS HERE]
--Servicemark-- --Servicemark--
================================================================================
AIM SMALL CAP EQUITY FUND SEEKS LONG-TERM GROWTH OF CAPITAL.
================================================================================
o Unless otherwise stated, information presented
is as of 12/31/03 and is based on total net
assets.
ABOUT SHARE CLASSES
<Table>
o Effective 9/30/03, Class B shares are ABOUT INDEXES USED IN THIS REPORT Industry classifications used in this
not available as an investment for report are generally according to the
retirement plans maintained pursuant to o The unmanaged Standard & Poor's Global Industry Classification Standard,
Section 401 of the Internal Revenue Composite Index of 500 Stocks (the S&P which was developed by and is the
Code, including 401(k) plans, money 500--Registered Trademark--) is an index exclusive property and a service mark of
purchase pension plans and profit of common stocks frequently used as a Morgan Stanley Capital International
sharing plans. Plans that have existing general measure of U.S. stock market Inc. and Standard & Poor's.
accounts invested in Class B shares will performance.
continue to be allowed to make o A description of the policies and
additional purchases. o The unmanaged Russell 2000--Registered procedures that the Fund uses to
Trademark-- Index represents the determine how to vote proxies relating
o Class R shares are available only to performance of the stocks of to portfolio securities is available
certain retirement plans. Please see the small-capitalization companies. without charge, upon request, by calling
prospectus for more information. They 800-959-4246, or on the AIM Web site,
are sold at net asset value, that is, o The unmanaged Lipper Small-Cap Core AIMinvestments.com.
without up-front sales charges. Fund Index represents an average of the
performance of the 30 largest
PRINCIPAL RISKS OF INVESTING IN THE FUND small-capitalization core equity funds
tracked by Lipper, Inc., an independent
o Investing in small and mid-size mutual fund performance monitor.
companies involves risks not associated
with investing in more established o A direct investment cannot be made in
companies. Also, small companies may an index. Unless otherwise indicated,
have business risk, significant stock index results include reinvested
price fluctuations and illiquidity. dividends, and they do not reflect sales
charges. Performance of an index of
funds reflects fund expenses;
performance of a market index does not.
</Table>
<Table>
======================================================
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE THIS REPORT MAY BE DISTRIBUTED ONLY TO SHAREHOLDERS OR TO PERSONS
====================================================== WHO HAVE RECEIVED A CURRENT PROSPECTUS OF THE FUND. PLEASE READ THE
PROSPECTUS CAREFULLY AND CONSIDER THE INVESTMENT OBJECTIVES, RISKS,
AND CHARGES AND EXPENSES OF THE INVESTMENT CAREFULLY BEFORE INVESTING.
</Table>
AIMinvestments.com
TO OUR SHAREHOLDERS
DEAR FELLOW SHAREHOLDER IN THE AIM FAMILY OF
FUNDS--Registered Trademark--:
[PHOTO OF
ROBERT H. The fiscal year ended December 31, 2003, was a welcome
GRAHAM] change from the bear market of the previous three years.
Major stock market indexes here and abroad delivered
ROBERT H. GRAHAM positive performance, with double-digit returns more the
rule than the exception. As is historically the case, bond
market returns were more modest, but nonetheless positive as
well. The U.S. economy appears to have turned a corner, with
solid growth in gross domestic product. Overseas,
particularly in Europe, economic performance was not so
robust but appeared to pick up during the second half of the
year.
U.S. investors seem to have regained their confidence,
putting $152.77 billion in new money into stock mutual funds
during 2003 and $31.40 billion into bond funds. By contrast,
money market funds, considered a safe haven because of their emphasis on
stability of net asset value, suffered large net outflows during 2003.
The durability of these trends is, of course, unpredictable, but the economy
does appear to have the wind at its back in terms of fiscal, monetary and tax
stimulus, and corporate earnings have been strong. Nevertheless, we caution all
our shareholders against thinking that 2004 will be a repeat of 2003. We simply
do not know.
What should investors do? They should do what we have always urged: Keep
their eyes on their long-term goals, keep their portfolios diversified, and work
with their financial advisors to tailor their investments to their risk
tolerance and investment objectives. We cannot overemphasize the importance of
professional guidance when it comes to selecting investments.
For information on your fund's performance and management during the fiscal
year, please see the management discussion that begins on the following page.
VISIT OUR WEB SITE
As you are aware, the mutual fund industry, including AIM Investments, has been
the subject of allegations and investigations of late surrounding the issues of
market timing and late trading in funds. We understand how unsettling this may
be for many of our shareholders. We encourage you to visit AIMinvestments.com
often to monitor developments. We will continue to post updates on these issues
as information becomes available.
The Securities and Exchange Commission, which regulates our industry, has
already proposed new rules and regulations, and is planning to propose several
more, that address the issues of market timing and late trading, among others.
We welcome these efforts, as does the industry trade group, the Investment
Company Institute. We believe comprehensive rule making is necessary and is the
best way to establish new industry responsibilities designed to protect
shareholders. We support practical rule changes and structural modifications
that are fair, enforceable and, most importantly, beneficial for investors.
Should you visit our Web site, we invite you to explore the other material
available there, including general investing information, performance updates on
our funds, and market and economic commentary from our financial experts.
As always, AIM is committed to building solutions for your investment goals,
and we thank you for your continued participation in AIM Investments. If you
have any questions, you can contact one of our Client Service representatives at
800-959-4246.
Sincerely,
/s/ ROBERT H. GRAHAM
Robert H. Graham
Chairman and President
February 9, 2004
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
<Table>
FUND POSTS DOUBLE-DIGIT GAINS
FOR THE FISCAL YEAR
For the year ended December 31, 2003, then rallied, posting a cumulative total economy had not yet exhibited
AIM Small Cap Equity Fund, Class A return of 40.86% from its low through sustainable growth. By October, the Fed
shares, returned 46.17% at net asset the end of the reporting period. reported that economic expansion had
value. (If sales charges were included, increased and consumer spending was
performance would be lower.) For the During this rally, the United States generally stronger, although the
performance of other share classes, and its allies took military action
please see the table on the next page. against Iraq and toppled the regime of SMALL- AND MID-CAP
The fund outperformed the S&P 500 Index, Saddam Hussein. The nation's gross STOCKS GENERALLY
frequently cited as a measure of the domestic product, generally considered OUTPERFORMED
performance of the U.S. stock market in the broadest measure of economic LARGE-CAP STOCKS
general, which returned 28.67% over the activity, expanded at an annualized rate FOR THE YEAR.
same period. Small-cap stocks generally of 3.1% in the second quarter, 8.2% in
outperformed large-cap stocks, enabling the third quarter, and 4.0% in the job market remained weak.
the fund to outperform the large-cap fourth quarter of 2003. As of the close
oriented S&P 500 Index. of the year, approximately 64% of the All sectors of the S&P 500 Index
companies in the S&P 500 Index had recorded gains for the fiscal year.
The fund outperformed the Lipper reported third-quarter earnings that Information technology, materials and
Small-Cap Core Fund Index, which exceeded analysts' expectations while consumer discretionary were the
returned 40.90%, but modestly approximately 20.5% had reported top-performing sectors while
underperformed the Russell 2000 Index, earnings that met those estimates. The telecommunication services, consumer
which returned 47.25% for the year. The job market, while improving, continued staples and health care were the
fund lagged the Russell 2000 Index to be weak, however, as the nation's weakest-performing sectors.
because of its less aggressive holdings unemployment rate stood at 5.7% at the
in the information technology sector. close of the year. Small- and mid-cap stocks generally
outperformed large-cap stocks for the
MARKET CONDITIONS For the first five months of the year. The performance of growth and
year, the Federal Reserve (the Fed) kept value stocks was similar, although
Amid a backdrop of generally improving the short-term federal funds rate at mid-cap growth stocks generally
economic conditions, the S&P 500 Index 1.25%. On June 25, 2003, it reduced that outperformed their value counterparts.
declined at the beginning of 2003, rate to 1.00%, its lowest level since
dropping to its lowest level of the year 1958. At the time, the Fed said it YOUR FUND
on March 11. The index favored a more expansive monetary policy
because the At the outset of the year, the fund was
positioned to take advantage of an
economic recovery.
</Table>
<Table>
==================================================================================================================================
TOP 10 EQUITY HOLDINGS* TOP 10 INDUSTRIES*
1. GrafTech International Ltd. 1.3% 1. Real Estate 6.6%
2. Friedman, Billings, Ramsey Group, Inc - Class A 1.3 2. Diversified Commercial Services 6.5
3. Scientific Games Corp.-Class A 1.1 3. Property & Casualty Insurance 3.8
4. Sierra Health Services, Inc. 1.1 4. Trucking 3.4
5. Serologicals Corp. 1.1 5. Thrifts & Mortgage Finance 3.3
6. VCA Antech, Inc. 1.1 6. Specialty Stores 3.2
7. Luminent Mortgage Capital, Inc. 1.1 7. Biotechnology 2.7
8. Wabash National Corp. 1.1 8. Oil & Gas Exploration & Production 2.6
9. Volume Services America Holdings, Inc.-IDS 1.1 9. Restaurants 2.3
10. Pep Boys-Manny, Moe & Jack 1.1 10. Communications Equipment 2.3
*Excludes money market fund holdings.
The fund's holdings are subject to change, and there is no assurance that the fund will continue to hold any particular security.
==================================================================================================================================
</Table>
2
<Table>
During the reporting period, we made $57 million for the third quarter of MICHAEL CHAPMAN
relatively modest adjustments to the 2003 compared to $15.1 million for the Mr. Chapman began
portfolio, reducing the fund's holdings same quarter of the previous year. [PHOTO OF his investment
in more defensive sectors such as Louisiana Pacific, on the other hand, MICHAEL career in 1995 as
consumer staples. The three largest reported net income $124.5 for the third CHAPMAN] an nalyst and then
sector-weightings at the end of the year quarter of 2003 compared to $3.3 million portfolio manager.
were financials, industrials and for the same period in 2002. We sold He joined AIM in
consumer discretionary. this stock because it no longer met our 2001 and was
valuation criteria. promoted to his current position in
These three sectors, along with 2002. He holds a B.S. in petroleum
information technology, had the most Detracting from performance were AFC engineering and an M.A. in energy and
positive impact on fund performance in Enterprises, a fast-food restaurant mineral resources from The University of
the improving economic climate during chain operator, and Centillium Texas.
the reporting period. The fund's Communications, a broadband
holdings in industrials, financials and communications technology company. AFC's PAUL J. RASPLICKA,
consumer discretionary generally stock declined in the middle of the year LEAD MANAGER
outperformed their counterparts in the amid questions concerning its accounting [PHOTO OF Mr. Rasplicka is
Russell 2000 Index. However, the practices. The fund no longer owns the PAUL J. lead portfolio
portfolio's information technology stock. Although Centillium reported a RASPLICKA] manager of AIM Small
stocks, while contributing positively to profit for the third quarter of the Cap Equity Fund. He
performance, tended to lag those in the year, it still experienced a loss for joined AIM in 1998.
index. the nine months ended September 30, Prior to joining AIM he was with INVESCO
2003. Trust Company, the Denver-based
Telecommunications services, consumer investment management subsidiary of
staples and utilities were the IN CLOSING AMVESCAP PLC, since 1994. He was
weakest-performing sectors for the fund, responsible for portfolio management of
both in terms of contribution to total Throughout the year, we remained small-capitalization growth separate
return and in relation to the Russell committed to the fund's capitalization accounts.
2000 Index. The fund was underweight in target, selection criteria and sell Mr. Rasplicka, a Chartered
all three sectors in comparison to the discipline. We are pleased to be able to Financial Analyst and a Chartered
index. report the fund's positive performance Investment Counselor, began his
for the year, and we appreciate your investment career in 1982 as an equity
Stocks that enhanced performance participation in the fund. research analyst.
included Friedman, Billings, Ramsey A native of Denver, Mr. Rasplicka
Group, which provides See important fund and index is a magna cum laude graduate of the
investment-banking, brokerage and asset disclosures inside front cover. University of Colorado in Boulder
management services, and Louisiana with a B.S. in business administration.
Pacific, which markets building TOTAL NUMBER OF HOLDINGS* 131 He received an M.B.A. from the
materials. Friedman, Billings, Ramsey TOTAL NET ASSETS $522.4 MILLION University of Chicago.
Group reported net income of
Assisted by the Small/Mid-Cap Core Team
FUND VS. INDEXES
[ARROW
Total returns, 12/31/02-12/31/03, BUTTON For More Information Visit
excluding sales charges. IMAGE] AIMinvestments.com
If sales charges were included,
performance would be lower.
Class A Shares 46.17%
Class B Shares 45.13
Class C Shares 45.13
Class R Shares 45.86
S&P 500 Index
(Broad Market Index) 28.67
Russell 2000 Index
(Style-Specific Index) 47.25
Lipper Small-Cap Core Fund Index
(Peer Group Index) 40.90
Source: Lipper, Inc.
</Table>
3
FUND PERFORMANCE
RESULTS OF A $10,000 INVESTMENT
8/31/00-12/31/03
<Table>
<Caption>
DATE AIM SMALL CAP EQUITY AIM SMALL CAP EQUITY AIM SMALL CAP EQUITY S&P 500 RUSSELL 2000 LIPPER SMALL-CAP
FUND CLASS A SHARES FUND CLASS B SHARES FUND CLASS C SHARES INDEX INDEX CORE FUND INDEX
8/31/00 9450 10000 10000 10000 10000 10000
09/30/2000 9308 9850 9850 9472 9706 9743
10/31/2000 9233 9760 9760 9432 9273 9450
11/30/2000 8193 8660 8660 8689 8321 8509
12/31/2000 8845 9340 9340 8732 9036 9335
01/31/2001 9280 9790 9790 9041 9506 9668
02/28/2001 8410 8870 8870 8217 8882 9054
03/31/2001 7985 8420 8420 7697 8448 8625
04/30/2001 8722 9191 9191 8295 9109 9313
05/31/2001 9251 9740 9740 8350 9333 9652
06/30/2001 9648 10160 10160 8147 9655 9951
07/31/2001 9384 9871 9871 8067 9132 9720
08/31/2001 9072 9541 9541 7562 8837 9448
09/30/2001 7985 8391 8391 6952 7648 8210
10/31/2001 8288 8702 8702 7084 8095 8698
11/30/2001 8883 9322 9322 7628 8722 9344
12/31/2001 9634 10113 10103 7695 9260 10000
01/31/2002 9530 9992 9992 7582 9164 9882
02/28/2002 9426 9883 9883 7436 8913 9618
03/31/2002 10325 10812 10812 7716 9629 10357
04/30/2002 10429 10913 10913 7248 9717 10408
05/31/2002 10211 10683 10683 7195 9286 10020
06/30/2002 9634 10073 10073 6683 8825 9459
07/31/2002 8046 8413 8403 6162 7492 8173
08/31/2002 8140 8503 8503 6202 7473 8217
09/30/2002 7374 7692 7692 5529 6936 7635
10/31/2002 7573 7902 7902 6015 7159 7906
11/30/2002 8036 8383 8383 6369 7798 8490
12/31/2002 7781 8113 8113 5995 7363 8077
01/31/2003 7573 7883 7883 5838 7160 7841
02/28/2003 7299 7593 7592 5750 6943 7596
03/31/2003 7497 7803 7803 5806 7033 7660
04/30/2003 8093 8413 8413 6284 7699 8298
05/31/2003 8783 9133 9133 6615 8526 9027
06/30/2003 9019 9373 9363 6699 8680 9235
07/31/2003 9596 9964 9963 6817 9223 9709
08/31/2003 9964 10345 10334 6950 9646 10129
09/30/2003 9785 10154 10154 6876 9468 9909
10/31/2003 10588 10985 10975 7265 10263 10688
11/30/2003 10928 11335 11325 7329 10627 11073
12/31/03 11376 11470 11770 7713 10843 11381
Source: Lipper, Inc.
</Table>
Past performance cannot guarantee comparable future results.
Your fund's total return includes sales charges, expenses and management fees.
Results for B shares are calculated as if a hypothetical shareholder had
liquidated his entire investment in the fund at the close of the reporting
period and paid the applicable contingent deferred sales charges. The
performance of the fund's share classes will differ due to different sales
charge structures and class expenses. Performance shown in the chart and table
does not reflect deduction of taxes a shareholder would pay on fund
distributions or sale of fund shares. Performance of the indexes does not
reflect the effects of taxes.
<Table>
AVERAGE ANNUAL TOTAL RETURNS *Class R shares were first offered on may be worth more or less than their
As of 12/31/03, including sales charges June 3, 2002. Returns prior to that date original cost.
CLASS A SHARES are hypothetical results based on Class
Inception (8/31/00) 3.94% A returns at net asset value (inception Class A share performance reflects
1 Year 38.12 date 8/31/00), adjusted to reflect Class the maximum 5.50% sales charge, and
R 12b-1 fees. Class R share returns do Class B and Class C share performance
CLASS B SHARES not include a 0.75% contingent deferred reflects the applicable contingent
Inception (8/31/00) 4.20% sales charge that may be imposed on a deferred sales charge (CDSC) for the
1 Year 40.13 total redemption of retirement plan period involved. The CDSC on Class B
assets within the first year. shares declines from 5% beginning at the
CLASS C SHARES time of purchase to 0% at the beginning
Inception (8/31/00) 5.01% Current performance may be lower or of the seventh year. The CDSC on Class C
1 Year 44.13 higher than the performance data quoted. shares is 1% for the first year after
Past performance cannot guarantee purchase. The performance of the fund's
CLASS R SHARES* comparable future results. Due to share classes will differ due to
Inception 5.53% significant market volatility, results different sales charge structures and
1 Year 45.86 of an investment made today may differ class expenses.
substantially from the historical
performance shown. Please visit
aiminvestments.com for the most current
month-end performance.
The fund's performance figures are
historical, and they reflect fund
expenses, the reinvestment of
distributions, and changes in net asset
value. Performance data quoted
represents past performance and the
investment return and principal value of
an investment will fluctuate so that an
investor's shares, when redeemed,
</Table>
4
FINANCIALS
SCHEDULE OF INVESTMENTS
December 31, 2003
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
COMMON STOCKS & OTHER EQUITY INTERESTS-96.41%
ADVERTISING-1.90%
ADVO, Inc. 164,000 $ 5,208,640
- ------------------------------------------------------------------------
R.H. Donnelley Corp.(a) 117,800 4,693,152
========================================================================
9,901,792
========================================================================
AIR FREIGHT & LOGISTICS-1.49%
Pacer International, Inc.(a) 200,000 4,044,000
- ------------------------------------------------------------------------
UTI Worldwide, Inc. (United Kingdom) 98,800 3,747,484
========================================================================
7,791,484
========================================================================
AIRLINES-0.47%
AirTran Holdings, Inc.(a) 204,800 2,437,120
========================================================================
APPAREL RETAIL-1.65%
Cache, Inc.(a) 200,000 4,166,000
- ------------------------------------------------------------------------
Stage Stores, Inc.(a) 159,200 4,441,680
========================================================================
8,607,680
========================================================================
APPLICATION SOFTWARE-1.09%
Open Solutions Inc.(a) 33,487 588,367
- ------------------------------------------------------------------------
ScanSoft, Inc.(a) 388,900 2,068,948
- ------------------------------------------------------------------------
Verint Systems Inc.(a) 133,500 3,011,760
========================================================================
5,669,075
========================================================================
ASSET MANAGEMENT & CUSTODY BANKS-1.76%
Affiliated Managers Group, Inc.(a) 64,200 4,467,678
- ------------------------------------------------------------------------
MCG Capital Corp. 241,500 4,709,250
========================================================================
9,176,928
========================================================================
AUTO PARTS & EQUIPMENT-1.16%
American Axle & Manufacturing Holdings,
Inc.(a) 85,200 3,443,784
- ------------------------------------------------------------------------
LKQ Corp.(a) 144,800 2,599,160
========================================================================
6,042,944
========================================================================
BIOTECHNOLOGY-2.67%
OraSure Technologies, Inc.(a) 289,000 2,300,440
- ------------------------------------------------------------------------
QLT Inc. (Canada)(a) 161,000 3,034,850
- ------------------------------------------------------------------------
Serologicals Corp.(a) 315,700 5,872,020
- ------------------------------------------------------------------------
United Therapeutics Corp.(a) 119,000 2,731,050
========================================================================
13,938,360
========================================================================
BROADCASTING & CABLE TV-0.93%
Cumulus Media Inc.-Class A(a) 220,300 4,846,600
========================================================================
BUILDING PRODUCTS-1.72%
ElkCorp. 169,300 4,520,310
- ------------------------------------------------------------------------
</Table>
<Table>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
<Caption>
BUILDING PRODUCTS-(CONTINUED)
Griffon Corp.(a) 221,500 $ 4,487,590
========================================================================
9,007,900
========================================================================
CASINOS & GAMING-1.13%
Scientific Games Corp.-Class A(a) 348,300 5,924,583
========================================================================
COMMUNICATIONS EQUIPMENT-2.32%
Avocent Corp.(a) 133,400 4,871,768
- ------------------------------------------------------------------------
Centillium Communications, Inc.(a) 397,500 2,237,925
- ------------------------------------------------------------------------
Inter-Tel, Inc. 95,200 2,378,096
- ------------------------------------------------------------------------
Plantronics, Inc.(a) 80,200 2,618,530
========================================================================
12,106,319
========================================================================
COMPUTER HARDWARE-0.59%
Pinnacle Systems, Inc.(a) 364,300 3,107,479
========================================================================
COMPUTER STORAGE & PERIPHERALS-1.02%
Overland Storage, Inc.(a) 120,000 2,256,000
- ------------------------------------------------------------------------
Synaptics Inc.(a) 205,000 3,070,900
========================================================================
5,326,900
========================================================================
CONSTRUCTION & ENGINEERING-0.84%
Chicago Bridge & Iron Co. N.V.-New York
Shares (Netherlands) 151,700 4,384,130
========================================================================
CONSTRUCTION & FARM MACHINERY & HEAVY
TRUCKS-1.07%
Wabash National Corp.(a) 190,300 5,575,790
========================================================================
CONSUMER FINANCE-1.42%
AmeriCredit Corp.(a) 181,300 2,888,109
- ------------------------------------------------------------------------
Rewards Network Inc.(a) 426,600 4,547,556
========================================================================
7,435,665
========================================================================
DATA PROCESSING & OUTSOURCED SERVICES-2.09%
Alliance Data Systems Corp.(a) 133,300 3,689,744
- ------------------------------------------------------------------------
Certegy Inc. 87,600 2,873,280
- ------------------------------------------------------------------------
Intrado Inc.(a) 199,500 4,379,025
========================================================================
10,942,049
========================================================================
DIVERSIFIED COMMERCIAL SERVICES-6.45%
Corrections Corp. of America(a) 177,300 5,111,559
- ------------------------------------------------------------------------
Integrated Alarm Services Group, Inc.(a) 478,000 4,063,000
- ------------------------------------------------------------------------
LECG Corp.(a) 149,500 3,422,055
- ------------------------------------------------------------------------
Navigant Consulting, Inc.(a) 256,800 4,843,248
- ------------------------------------------------------------------------
NCO Group, Inc.(a) 117,200 2,668,644
- ------------------------------------------------------------------------
Sotheby's Holdings, Inc.-Class A(a) 350,000 4,781,000
- ------------------------------------------------------------------------
</Table>
F-1
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
DIVERSIFIED COMMERCIAL SERVICES-(CONTINUED)
Tetra Tech, Inc. 152,500 $ 3,791,150
- ------------------------------------------------------------------------
United Rentals, Inc.(a) 260,500 5,017,230
========================================================================
33,697,886
========================================================================
DIVERSIFIED METALS & MINING-1.75%
Compass Minerals International, Inc.(a) 263,400 3,761,352
- ------------------------------------------------------------------------
CONSOL Energy Inc. (Acquired 09/17/03; Cost
$4,098,600)(a)(b)(c) 230,000 5,361,300
========================================================================
9,122,652
========================================================================
DRUG RETAIL-0.61%
NeighborCare, Inc.(a) 162,700 3,213,325
========================================================================
ELECTRONIC EQUIPMENT MANUFACTURERS-2.24%
Aeroflex Inc.(a) 367,300 4,293,737
- ------------------------------------------------------------------------
Amphenol Corp.-Class A(a) 46,700 2,985,531
- ------------------------------------------------------------------------
Varian Inc.(a) 106,300 4,435,899
========================================================================
11,715,167
========================================================================
ENVIRONMENTAL SERVICES-0.89%
Casella Waste Systems, Inc.-Class A(a) 338,700 4,636,803
========================================================================
FOOTWEAR-0.51%
Reebok International Ltd. 68,200 2,681,624
========================================================================
GENERAL MERCHANDISE STORES-0.41%
Fred's, Inc. 69,750 2,160,855
========================================================================
HEALTH CARE EQUIPMENT-0.49%
Wilson Greatbatch Technologies, Inc.(a) 60,100 2,540,427
========================================================================
HEALTH CARE FACILITIES-2.07%
United Surgical Partners International,
Inc.(a) 152,200 5,095,656
- ------------------------------------------------------------------------
VCA Antech, Inc.(a) 184,500 5,715,810
========================================================================
10,811,466
========================================================================
HEALTH CARE SERVICES-0.75%
US Oncology, Inc.(a) 366,200 3,940,312
========================================================================
HEALTH CARE SUPPLIES-1.85%
Align Technology, Inc.(a) 180,000 2,973,600
- ------------------------------------------------------------------------
PolyMedica Corp. 110,000 2,894,100
- ------------------------------------------------------------------------
Sola International Inc.(a) 202,000 3,797,600
========================================================================
9,665,300
========================================================================
HOME FURNISHINGS-0.93%
Tempur-Pedic International Inc.(a) 315,000 4,882,500
========================================================================
HOTELS, RESORTS & CRUISE LINES-0.51%
Kerzner International Ltd. (Bahamas)(a) 67,900 2,645,384
========================================================================
HOUSEHOLD PRODUCTS-0.08%
Rayovac Corp.(a) 19,900 416,905
========================================================================
</Table>
<Table>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
<Caption>
HOUSEWARES & SPECIALTIES-1.89%
Jarden Corp.(a) 191,700 $ 5,241,078
- ------------------------------------------------------------------------
Yankee Candle Co., Inc. (The)(a) 168,700 4,610,571
========================================================================
9,851,649
========================================================================
INDUSTRIAL GASES-0.69%
Airgas, Inc. 168,300 3,615,084
========================================================================
INDUSTRIAL MACHINERY-0.82%
Kennametal Inc. 108,300 4,304,925
========================================================================
INTERNET SOFTWARE & SERVICES-1.36%
Digital Insight Corp.(a) 102,000 2,539,800
- ------------------------------------------------------------------------
United Online, Inc.(a) 271,000 4,550,090
========================================================================
7,089,890
========================================================================
INVESTMENT BANKING & BROKERAGE-0.86%
CMET Finance Holdings, Inc. (Acquired
12/08/03; Cost $4,480,000)(a)(b)(c) 44,800 4,480,000
========================================================================
INVESTMENT COMPANIES-EXCHANGE TRADED
FUNDS-0.22%
iShares Nasdaq Biotechnology Index Fund(a) 16,000 1,151,200
========================================================================
IT CONSULTING & OTHER SERVICES-0.79%
DigitalNet Holdings, Inc.(a) 91,200 1,778,400
- ------------------------------------------------------------------------
ManTech International Corp.-Class A(a) 94,300 2,352,785
========================================================================
4,131,185
========================================================================
LIFE & HEALTH INSURANCE-0.86%
American Medical Security Group, Inc.(a) 200,600 4,497,452
========================================================================
MANAGED HEALTH CARE-1.13%
Sierra Health Services, Inc.(a) 215,700 5,920,965
========================================================================
OFFICE SERVICES & SUPPLIES-1.29%
Danka Business Systems PLC-ADR (United
Kingdom)(a) 517,400 2,276,560
- ------------------------------------------------------------------------
Moore Wallace Inc. (Canada)(a) 238,000 4,457,740
========================================================================
6,734,300
========================================================================
OIL & GAS EQUIPMENT & SERVICES-1.67%
FMC Technologies, Inc.(a) 119,300 2,779,690
- ------------------------------------------------------------------------
Key Energy Services, Inc.(a) 287,600 2,965,156
- ------------------------------------------------------------------------
W-H Energy Services, Inc.(a) 183,100 2,966,220
========================================================================
8,711,066
========================================================================
OIL & GAS EXPLORATION & PRODUCTION-2.55%
Comstock Resources, Inc.(a) 140,000 2,702,000
- ------------------------------------------------------------------------
Southwestern Energy Co.(a) 188,900 4,514,710
- ------------------------------------------------------------------------
Ultra Petroleum Corp. (Canada)(a) 107,800 2,654,036
- ------------------------------------------------------------------------
</Table>
F-2
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
OIL & GAS EXPLORATION & PRODUCTION-(CONTINUED)
Westport Resources Corp.(a) 115,700 $ 3,454,802
========================================================================
13,325,548
========================================================================
OIL & GAS REFINING, MARKETING &
TRANSPORTATION-0.52%
Golar LNG Ltd. (Bermuda)(a) 191,600 2,742,558
========================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES-0.20%
Oxford Finance Corp. (Acquired 03/25/02; Cost
$1,300,000)(b)(c) 130,000 1,040,000
========================================================================
PACKAGED FOODS & MEATS-0.86%
Flowers Foods, Inc. 174,900 4,512,420
========================================================================
PERSONAL PRODUCTS-0.91%
NBTY, Inc.(a) 176,600 4,743,476
========================================================================
PHARMACEUTICALS-1.36%
aaiPharma Inc.(a) 126,000 3,165,120
- ------------------------------------------------------------------------
Axcan Pharma Inc. (Canada)(a) 250,700 3,923,455
========================================================================
7,088,575
========================================================================
PROPERTY & CASUALTY INSURANCE-3.82%
Direct General Corp. 154,000 5,097,400
- ------------------------------------------------------------------------
Infinity Property & Casualty Corp. 158,500 5,238,425
- ------------------------------------------------------------------------
Navigators Group, Inc. (The)(a) 136,500 4,213,755
- ------------------------------------------------------------------------
Quanta Capital Holdings Ltd. (Bermuda)
(Acquired 08/27/03-11/21/03; Cost
$4,710,940)(a)(b)(c) 469,700 5,401,550
========================================================================
19,951,130
========================================================================
PUBLISHING-0.91%
Journal Communications, Inc.-Class A 256,200 4,747,386
========================================================================
RAILROADS-0.98%
Genesee & Wyoming Inc.-Class A(a) 162,700 5,125,050
========================================================================
REAL ESTATE-6.60%
American Financial Realty Trust(c) 290,200 4,947,910
- ------------------------------------------------------------------------
American Home Mortgage Investment Corp. 131,100 2,951,061
- ------------------------------------------------------------------------
Ashford Hospitality Trust(a) 418,000 3,925,020
- ------------------------------------------------------------------------
Fieldstone Investment Corp. (Acquired
11/10/03-11/11/03; Cost
$4,704,275)(a)(b)(c) 311,300 5,214,275
- ------------------------------------------------------------------------
Friedman, Billings, Ramsey Group, Inc.-Class
A 298,120 6,880,610
- ------------------------------------------------------------------------
Highland Hospitality Corp.(a) 448,800 4,891,920
- ------------------------------------------------------------------------
Luminent Mortgage Capital, Inc.(a) 400,000 5,640,000
========================================================================
34,450,796
========================================================================
REGIONAL BANKS-0.48%
Texas Capital Bancshares, Inc.(a) 173,800 2,513,496
========================================================================
</Table>
<Table>
MARKET
SHARES VALUE
<Caption>
- ------------------------------------------------------------------------
RESTAURANTS-2.33%
Landry's Restaurants, Inc. 115,100 $ 2,960,372
- ------------------------------------------------------------------------
Ruby Tuesday, Inc. 127,900 3,643,871
- ------------------------------------------------------------------------
Volume Services America Holdings, Inc.-IDS(d) 334,500 5,569,425
========================================================================
12,173,668
========================================================================
SEMICONDUCTOR EQUIPMENT-0.50%
Axcelis Technologies, Inc.(a) 253,800 2,593,836
========================================================================
SEMICONDUCTORS-2.11%
AMIS Holdings, Inc.(a) 222,500 4,067,300
- ------------------------------------------------------------------------
DSP Group, Inc.(a) 170,300 4,242,173
- ------------------------------------------------------------------------
Integrated Circuit Systems, Inc.(a) 94,400 2,689,456
========================================================================
10,998,929
========================================================================
SPECIALIZED FINANCE-1.04%
GATX Corp. 194,400 5,439,312
========================================================================
SPECIALTY CHEMICALS-1.70%
Great Lakes Chemical Corp. 190,400 5,176,976
- ------------------------------------------------------------------------
Minerals Technologies Inc. 62,850 3,723,862
========================================================================
8,900,838
========================================================================
SPECIALTY STORES-3.24%
Advance Auto Parts, Inc.(a) 44,800 3,646,720
- ------------------------------------------------------------------------
Pep Boys-Manny, Moe & Jack 241,500 5,523,105
- ------------------------------------------------------------------------
Select Comfort Corp.(a) 161,400 3,996,264
- ------------------------------------------------------------------------
West Marine, Inc.(a) 134,400 3,737,664
========================================================================
16,903,753
========================================================================
STEEL-1.34%
GrafTech International Ltd.(a) 520,000 7,020,000
========================================================================
TECHNOLOGY DISTRIBUTORS-1.88%
Global Imaging Systems, Inc.(a) 167,300 5,311,775
- ------------------------------------------------------------------------
ScanSource, Inc.(a) 98,800 4,507,256
========================================================================
9,819,031
========================================================================
THRIFTS & MORTGAGE FINANCE-3.29%
First Niagara Financial Group, Inc. 265,000 3,951,150
- ------------------------------------------------------------------------
Franklin Bank Corp.-Class A (Acquired
10/29/02; Cost $1,350,000)(a)(b)(c) 135,000 2,308,500
- ------------------------------------------------------------------------
Franklin Bank Corp.(a) 125,500 2,384,500
- ------------------------------------------------------------------------
Jefferson Bancshares, Inc. 200,000 2,758,000
- ------------------------------------------------------------------------
Saxon Capital, Inc.(a) 184,700 3,869,465
- ------------------------------------------------------------------------
TierOne Corp.(a) 83,200 1,910,272
========================================================================
17,181,887
========================================================================
TRUCKING-3.35%
Dollar Thrifty Automotive Group, Inc.(a) 105,700 2,741,858
- ------------------------------------------------------------------------
Landstar System, Inc.(a) 134,800 5,127,792
- ------------------------------------------------------------------------
Overnite Corp.(a) 207,400 4,718,350
- ------------------------------------------------------------------------
</Table>
F-3
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
TRUCKING-(CONTINUED)
Quality Distribution Inc.(a) 252,200 $ 4,930,510
========================================================================
17,518,510
========================================================================
Total Common Stocks & Other Equity
Interests (Cost $381,075,671) 503,631,319
========================================================================
MONEY MARKET FUNDS-3.84%
Liquid Assets Portfolio(e) 10,035,910 10,035,910
- ------------------------------------------------------------------------
STIC Prime Portfolio(e) 10,035,910 10,035,910
========================================================================
Total Money Market Funds (Cost
$20,071,820) 20,071,820
========================================================================
TOTAL INVESTMENTS-100.25% (excluding
investments purchased with cash collateral
from securities loaned) (Cost $401,147,491) 523,703,139
========================================================================
</Table>
<Table>
MARKET
SHARES VALUE
<Caption>
- ------------------------------------------------------------------------
INVESTMENTS PURCHASED WITH CASH COLLATERAL
FROM SECURITIES LOANED
MONEY MARKET FUNDS-13.38%
Liquid Assets Portfolio(e)(f) 34,938,267 $ 34,938,267
- ------------------------------------------------------------------------
STIC Prime Portfolio(e)(f) 34,938,266 34,938,266
========================================================================
Total Money Market Funds (purchased with
cash collateral from securities loaned)
(Cost $69,876,533) 69,876,533
========================================================================
TOTAL INVESTMENTS-113.63% (Cost $471,024,024) 593,579,672
========================================================================
OTHER ASSETS LESS LIABILITIES-(13.63%) (71,219,220)
========================================================================
NET ASSETS-100.00% $522,360,452
________________________________________________________________________
========================================================================
</Table>
Investment Abbreviations:
<Table>
ADR - American Depositary Receipt
IDS - Income Deposit Securities
</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 Fund has no rights to demand registration of these securities.
The aggregate market value of these securities at 12/31/03 was $23,805,625,
which represented 4.56% of the Fund's net assets. These securities are
considered to be illiquid.
(c) Security fair valued in accordance with the procedures established by the
Board of Trustees.
(d) Consists of more than one class of securities traded together as a unit.
(e) The money market fund and the Fund are affiliated by having the same
investment advisor. See Note 3.
(f) The security has been segregated to satisfy the forward commitment to return
the cash collateral received in securities lending transactions upon the
borrower's return of the securities loaned. See Note 3.
See accompanying notes which are an integral part of the financial statements.
F-4
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2003
<Table>
ASSETS:
Investments, at market value (cost
$381,075,671)* $503,631,319
- -----------------------------------------------------------
Investments in affiliated money market funds
(cost $89,948,353) 89,948,353
- -----------------------------------------------------------
Receivables for:
Investments sold 1,169,234
- -----------------------------------------------------------
Fund shares sold 504,658
- -----------------------------------------------------------
Dividends 422,509
- -----------------------------------------------------------
Investment for deferred compensation and
retirement plans 24,123
- -----------------------------------------------------------
Other assets 45,518
===========================================================
Total assets 595,745,714
___________________________________________________________
===========================================================
LIABILITIES:
Payables for:
Investments purchased 1,484,734
- -----------------------------------------------------------
Fund shares reacquired 1,289,195
- -----------------------------------------------------------
Deferred compensation and retirement plans 28,228
- -----------------------------------------------------------
Collateral upon return of securities loaned 69,876,533
- -----------------------------------------------------------
Accrued distribution fees 286,947
- -----------------------------------------------------------
Accrued transfer agent fees 307,553
- -----------------------------------------------------------
Accrued operating expenses 112,072
===========================================================
Total liabilities 73,385,262
===========================================================
Net assets applicable to shares outstanding $522,360,452
___________________________________________________________
===========================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $437,348,480
- -----------------------------------------------------------
Undistributed net investment income (loss) (28,398)
- -----------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities and foreign
currencies (37,515,278)
- -----------------------------------------------------------
Unrealized appreciation of investment
securities 122,555,648
===========================================================
$522,360,452
___________________________________________________________
===========================================================
NET ASSETS:
Class A $266,284,101
___________________________________________________________
===========================================================
Class B $177,811,497
___________________________________________________________
===========================================================
Class C $ 75,763,014
___________________________________________________________
===========================================================
Class R $ 2,501,840
___________________________________________________________
===========================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER
SHARE, UNLIMITED NUMBER OF SHARES
AUTHORIZED:
Class A 22,140,298
___________________________________________________________
===========================================================
Class B 15,103,201
___________________________________________________________
===========================================================
Class C 6,438,364
___________________________________________________________
===========================================================
Class R 208,688
___________________________________________________________
===========================================================
Class A:
Net asset value per share $ 12.03
- -----------------------------------------------------------
Offering price per share:
(Net asset value of $12.03 divided
by 94.50%) $ 12.73
___________________________________________________________
===========================================================
Class B:
Net asset value and offering price per
share $ 11.77
___________________________________________________________
===========================================================
Class C:
Net asset value and offering price per
share $ 11.77
___________________________________________________________
===========================================================
Class R:
Net asset value and offering price per
share $ 11.99
___________________________________________________________
===========================================================
</Table>
* At December 31, 2003, securities with an aggregate market value of
$67,951,774 were on loan to brokers.
See accompanying notes which are an integral part of the financial statements.
F-5
STATEMENT OF OPERATIONS
For the year ended December 31, 2003
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $6,496) $ 2,633,231
- --------------------------------------------------------------------------
Dividends from affiliated money market funds* 530,401
==========================================================================
Total investment income 3,163,632
==========================================================================
EXPENSES:
Advisory fees 3,062,023
- --------------------------------------------------------------------------
Administrative services fees 112,855
- --------------------------------------------------------------------------
Custodian fees 72,926
- --------------------------------------------------------------------------
Distribution fees:
Class A 636,252
- --------------------------------------------------------------------------
Class B 1,247,627
- --------------------------------------------------------------------------
Class C 527,403
- --------------------------------------------------------------------------
Class R 4,743
- --------------------------------------------------------------------------
Transfer agent fees 1,551,554
- --------------------------------------------------------------------------
Trustees' fees 13,692
- --------------------------------------------------------------------------
Other 302,101
==========================================================================
Total expenses 7,531,176
==========================================================================
Less: Fees waived and expense offset arrangements (20,279)
==========================================================================
Net expenses 7,510,897
==========================================================================
Net investment income (loss) (4,347,265)
==========================================================================
REALIZED AND UNREALIZED GAIN FROM INVESTMENT SECURITIES AND
FOREIGN CURRENCIES:
Net realized gain from:
Investment securities 23,911,837
- --------------------------------------------------------------------------
Foreign currencies 2,678
==========================================================================
23,914,515
==========================================================================
Change in net unrealized appreciation of investment
securities 123,707,904
==========================================================================
Net gain from investment securities and foreign currencies 147,622,419
==========================================================================
Net increase in net assets resulting from operations $143,275,154
__________________________________________________________________________
==========================================================================
</Table>
* Dividends from affiliated money market funds are net of fees paid to security
lending counterparties.
See accompanying notes which are an integral part of the financial statements.
F-6
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 2003 and 2002
<Table>
<Caption>
2003 2002
- ------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (4,347,265) $ (2,453,128)
- ------------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities and
foreign currencies 23,914,515 (51,756,756)
- ------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities 123,707,904 (25,094,706)
==========================================================================================
Net increase (decrease) in net assets resulting from
operations 143,275,154 (79,304,590)
==========================================================================================
Share transactions-net:
Class A 52,426,841 75,475,822
- ------------------------------------------------------------------------------------------
Class B 29,417,204 63,981,320
- ------------------------------------------------------------------------------------------
Class C 13,847,595 22,474,509
- ------------------------------------------------------------------------------------------
Class R 2,003,122 56,926
==========================================================================================
Net increase in net assets resulting from share
transactions 97,694,762 161,988,577
==========================================================================================
Net increase in net assets 240,969,916 82,683,987
==========================================================================================
NET ASSETS:
Beginning of year 281,390,536 198,706,549
==========================================================================================
End of year (including undistributed net investment income
(loss) of $(28,398) and $119,353 for 2003 and 2002,
respectively) $522,360,452 $281,390,536
__________________________________________________________________________________________
==========================================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
F-7
NOTES TO FINANCIAL STATEMENTS
December 31, 2003
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Small Cap Equity Fund (the "Fund") is a series portfolio of AIM Funds Group
(the "Trust"). The Trust is a Delaware statutory trust registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
series management investment company consisting of nine separate portfolios,
each authorized to issue an unlimited number of shares of beneficial interest.
The Fund currently consists of multiple classes of shares. Matters affecting
each portfolio or class will be voted on exclusively by the shareholders of such
portfolio or class. The assets, liabilities and operations of each portfolio are
accounted for separately. Information presented in these financial statements
pertains only to the Fund. The Fund is currently closed to new investors.
The Fund's investment objective is to achieve long-term growth of capital.
Each company listed in the Schedule of Investments is organized in the United
States of America unless otherwise noted.
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 on the basis of prices furnished
by independent pricing services or market makers. Each security reported on
the NASDAQ National Market System is valued at the NASDAQ Official Closing
Price ("NOCP") as of the close of the customary trading session on the
valuation date or absent a NOCP, at the closing bid price. 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. Issuer specific events, market trends, bid/ask quotes of brokers
and information providers and other market data may be reviewed in the
course of making a good faith determination of a security's fair value.
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
ordinarily be reflected in the computation of the Fund's net asset value.
If a development/event is so significant such 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. Adjustments to closing prices to reflect fair value on affected
foreign securities may be provided by an independent pricing service.
Multiple factors may be considered by the independent pricing service in
determining adjustments to reflect fair value and may include information
relating to sector indices, ADRs, domestic and foreign index futures and
exchange-traded funds.
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.
The Fund allocates income and realized and unrealized capital gains and
losses to a class based on the relative net assets of each class.
C. 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
Subchapter M of the Internal Revenue Code necessary to qualify as a
regulated investment company and, as such, will not be subject to federal
income taxes on otherwise
F-8
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. Any capital loss carryforwards listed
are reduced for limitations, if any, to the extent required by the Internal
Revenue Code.
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. The combined results of changes in foreign exchange rates
and the fluctuation of market prices on investments are included with the
net realized and unrealized gain or loss from investments in the Statement
of Operations. Reported net realized foreign currency gains or losses arise
from, (i) sales of foreign currencies, (ii) currency gains or losses
realized between the trade and settlement dates on securities transactions,
and (iii) the difference between the amounts of dividends, interest, and
foreign withholding taxes recorded on the Fund's books and the U.S. dollar
equivalent of the amounts actually received or paid. Net unrealized foreign
currency gains and losses arise from changes in the fair values of assets
and liabilities, other than investments in securities at fiscal period end,
resulting from changes in exchange rates.
F. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to attempt
to minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency
contract for the purchase or sale of a security denominated in a foreign
currency in order to "lock in" the U.S. dollar price of that security. The
Fund could be exposed to risk if counterparties to the contracts are unable
to meet the terms of their contracts or if the value of the foreign
currency changes unfavorably.
G. COVERED CALL OPTIONS -- The Fund may write call options, on a covered
basis; that is, the Fund will own the underlying security. When the Fund
writes a covered call option, an amount equal to the premium received by
the Fund is recorded as an asset and an equivalent liability. The amount of
the liability is subsequently "marked-to-market" to reflect the current
market value of the option written. The current market value of a written
option is the mean between the last bid and asked prices on that day. If a
written call option expires on the stipulated expiration date, or if the
Fund enters into a closing purchase transaction, the Fund realizes a gain
(or a loss if the closing purchase transaction exceeds the premium received
when the option was written) without regard to any unrealized gain or loss
on the underlying security, and the liability related to such option is
extinguished. If a written option is exercised, the Fund realizes a gain or
a loss from the sale of the underlying security and the proceeds of the
sale are increased by the premium originally received. A risk in writing a
call option is that the Fund gives up the opportunity for profit if the
market price of the security increases and the option is exercised.
H. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund and which are directly attributable to that class are
charged to the operations of such class. All other expenses are allocated
among the classes based on relative net assets.
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement,
the Fund pays an advisory fee to AIM at the annual rate of 0.85% of the Fund's
average daily net assets. AIM has voluntarily agreed to waive advisory fees of
the Fund in the amount of 25% of the advisory fee AIM receives from the
affiliated money market funds on investments by the Fund in such affiliated
money market funds (excluding investments made in affiliated money market funds
with cash collateral from securities loaned by the Fund). For the year ended
December 31, 2003, AIM waived fees of $3,786.
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, 2003, AIM was
paid $112,855 for such services.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay AIM Investment Services, Inc. ("AISI"), formerly known as A I M Fund
Services, Inc., a fee for providing transfer agency and shareholder services to
the Fund. During the year ended December 31, 2003, AISI retained $700,499 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, Class C and Class R shares of the Fund. The Trust has adopted
plans pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund's Class
A, Class B, Class C and Class R 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, 1.00% of the
average daily net assets of Class B and Class C shares and 0.50% of the average
daily net assets of Class R shares. Of these amounts, up to 0.25% of the average
daily net assets of the Class A, Class B, Class C or Class R shares may be paid
to furnish continuing personal shareholder services to customers who purchase
and own shares of such classes. Any amounts not paid as a service fee under the
Plans would constitute an asset-based sales charge. 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. During the Fund's closing to new investors,
AIM Distributors has agreed to waive 0.10% of the Fund's average daily net
assets of Class A distribution plan fees. Pursuant to the Plans, for the year
ended December 31, 2003, the Class A, Class B, Class C and Class R shares paid
$629,015, $1,247,267, $527,403 and $4,743, respectively, after AIM Distributors
waived Class A plan fees of $7,237.
Front-end sales commissions and contingent deferred sales charges ("CDSC")
(collectively the "sales charges") are not recorded as expenses of the Fund.
Front-end sales commissions are deducted from proceeds from the sales of Fund
shares prior to investment in Class A shares of the Fund. CDSC are deducted from
redemption proceeds prior to
F-9
remittance to the shareholder. During the year ended December 31, 2003, AIM
Distributors retained $161,868 in front-end sales commissions from the sale of
Class A shares and $457, $107, $10,626 and $0 from Class A, Class B, Class C and
Class R shares, respectively, for CDSC imposed upon redemptions by shareholders.
Certain officers and trustees of the Trust are officers and directors of
AIM, AISI and/or AIM Distributors.
NOTE 3--INVESTMENTS IN AFFILIATES
The Fund is permitted pursuant to an exemptive order from the Securities and
Exchange Commission ("SEC") and approved procedures by the Board of Trustees to
invest daily available cash balances and cash collateral from securities lending
transactions in affiliated money market funds. Each day the prior day's balance
invested in the affiliated money market fund is redeemed in full and a new
purchase amount is submitted to invest the current day's available cash and/or
cash collateral received from securities lending transactions. The table below
shows the transactions in and earnings from investments in affiliated money
market funds for the period ended December 31, 2003.
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
12/31/2002 AT COST FROM SALES (DEPRECIATION) 12/31/2003 INCOME GAIN (LOSS)
- ---------------------------------------------------------------------------------------------------------------------------------
Liquid Assets Portfolio $ 9,368,395 $107,688,704 $(107,021,189) $ -- $10,035,910 $102,561 $ --
- ---------------------------------------------------------------------------------------------------------------------------------
STIC Prime Portfolio 9,368,395 107,688,704 (107,021,189) -- 10,035,910 99,905 --
=================================================================================================================================
Subtotal $18,736,790 $215,377,408 $(214,042,378) $ -- $20,071,820 $202,466 $ --
=================================================================================================================================
</Table>
INVESTMENTS OF CASH COLLATERAL FROM SECURITIES LENDING TRANSACTIONS:
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
12/31/2002 AT COST FROM SALES (DEPRECIATION) 12/31/2003 INCOME* GAIN (LOSS)
- ---------------------------------------------------------------------------------------------------------------------------------
Liquid Assets Portfolio $ -- $116,651,952 $ (81,713,686) $ -- $34,938,267 $166,125 $ --
- ---------------------------------------------------------------------------------------------------------------------------------
STIC Prime Portfolio -- 116,646,094 (81,707,827) -- 34,938,266 161,810 --
- ---------------------------------------------------------------------------------------------------------------------------------
Subtotal $ -- $233,298,046 $(163,421,513) $ -- $69,876,533 $327,935 $ --
=================================================================================================================================
Total $18,736,790 $448,675,454 $(377,463,891) $ -- $89,948,353 $530,401 $ --
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
* Dividend income is net of fees paid to security lending counterparties of
$330,633.
NOTE 4--EXPENSE OFFSET ARRANGEMENTS
Indirect expenses under expense offset arrangements are comprised of transfer
agency credits resulting from Demand Deposit Account (DDA) balances in transfer
agency clearing accounts and custodian credits resulting from periodic overnight
cash balances at the custodian. For the year ended December 31, 2003, the Fund
received reductions in transfer agency fees from AISI (an affiliate of AIM) of
$6,036 and reductions in custodian fees of $3,220 under expense offset
arrangements, which resulted in a reduction of the Fund's total expenses of
$9,256.
NOTE 5--TRUSTEES' FEES
Trustees' fees represent remuneration paid to each Trustee of the Trust who is
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 and INVESCO Funds in which their deferral accounts
shall be deemed to be invested.
Current Trustees are eligible to participate in a retirement plan that
provides for benefits to be paid upon retirement to Trustees over a period of
time based on the number of years of service. The Fund may have certain former
Trustees that also participate in a retirement plan and receive benefits under
such plan.
During the year ended December 31, 2003, the Fund paid legal fees of $4,391
for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the
Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 6--BORROWINGS
The Fund may participate in an interfund lending facility that AIM has
established for temporary borrowings by the AIM Funds and the INVESCO Funds. An
interfund loan will be made under this facility only if the loan rate (an
average of the rate available on bank loans and the rate available on
investments in overnight repurchase agreements) is favorable to both the lending
fund and the borrowing fund. Under certain circumstances, a loan will be secured
by collateral. To the extent that the loan is required to be secured by
collateral, the collateral is marked to market daily to ensure that the market
value is at least 102% of the outstanding principal value of the loan.
Effective June 26, 2003, the Fund became a participant in an uncommitted
unsecured revolving credit facility with State Street Bank and Trust Company
("SSB"). The Fund may borrow up to the lesser of (i) $125,000,000 or (ii) the
limits set by its prospectus for borrowings. The Fund and other funds advised by
AIM which are parties to the credit facility can borrow on a first come, first
served basis. Principal on each
F-10
loan outstanding shall bear interest at the bid rate quoted by SSB at the time
of the request for the loan.
During the reporting period, the Fund was a participant in a committed
credit facility with a syndicate administered by Citibank, N.A. The Fund could
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 were
parties to the credit facility could borrow on a first come, first served basis.
The funds which were party to the credit facility were charged a commitment fee
of 0.09% on the unused balance of the committed line. The commitment fee was
allocated among the funds based on their respective average net assets for the
period. The committed credit facility expired May 20, 2003.
During the year ended December 31, 2003, the Fund did not borrow or lend
under the interfund lending facility or borrow under either the uncommitted
unsecured revolving credit facility or the committed credit facility.
Additionally the Fund is permitted to temporarily carry a negative or
overdrawn balance in its account with the custodian bank. To compensate the
custodian bank for such overdrafts, the overdrawn Fund may either (i) leave
funds in the account so the custodian can be compensated by earning the
additional interest; or (ii) compensate by paying the custodian bank. In either
case, the custodian bank will be compensated an amount equal to the Federal
Funds rate plus 100 basis points.
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 of the loaned securities determined daily. Such collateral will be
cash or debt securities issued or guaranteed by the U.S. Government or any of
its agencies. Cash collateral received in connection with these loans is
invested in short-term money market instruments or affiliated money market
funds. It is the Fund's policy to obtain additional collateral from or return
excess collateral to the borrower by the end of the next business day, following
the valuation date of the securities loaned. Therefore, the value of the
collateral held may be temporarily less than the value of the securities on
loan. Lending securities entails a risk of loss to the Fund if and to the extent
that the market value of the securities loaned were to increase and the borrower
did not increase the collateral accordingly, and the borrower fails to return
the securities. The Fund could also experience delays and costs in gaining
access to the collateral. The Fund bears the risk of any deficiency in the
amount of the collateral available for return to the borrower due to a loss on
the collateral invested.
At December 31, 2003, securities with an aggregate value of $67,951,774 were
on loan to brokers. The loans were secured by cash collateral of $69,876,533
received by the Fund and subsequently invested in affiliated money market funds.
For the year ended December 31, 2003, the Fund received dividends on cash
collateral net of fees paid to counterparties of $327,935 for securities lending
transactions.
NOTE 8--OPTION CONTRACTS WRITTEN
<Table>
<Caption>
TRANSACTIONS DURING THE PERIOD
- --------------------------------------------------------------------------------
CALL OPTION CONTRACTS
------------------------
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
- --------------------------------------------------------------------------------
Beginning of year -- $ --
- --------------------------------------------------------------------------------
Written 1,250 146,942
- --------------------------------------------------------------------------------
Exercised (1,250) (146,942)
================================================================================
End of year -- $ --
________________________________________________________________________________
================================================================================
</Table>
NOTE 9--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
Distributions to Shareholders:
There were no ordinary income or long-term capital gain distributions paid
during the years ended December 31, 2003 and 2002.
Tax Components of Net Assets:
As of December 31, 2003, the components of net assets on a tax basis were as
follows:
<Table>
Unrealized appreciation -- investments $121,527,197
- -------------------------------------------------------------------------------
Temporary book/tax differences (21,532)
- -------------------------------------------------------------------------------
Capital loss carryforward (36,493,693)
- -------------------------------------------------------------------------------
Shares of beneficial interest 437,348,480
===============================================================================
Total net assets $522,360,452
_______________________________________________________________________________
===============================================================================
</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 reclassification of distributions from a
partnership.
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
trustee retirement plan expenses.
The Fund utilized $23,715,960 of capital loss carryforward in the current
period to offset net realized capital gain for Federal Income Tax purposes. The
Fund has a capital loss carryforward for tax purposes which expires as follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD
- -------------------------------------------------------------------------------
December 31, 2010 $36,493,693
_______________________________________________________________________________
===============================================================================
</Table>
F-11
NOTE 10--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities
and money market funds) purchased and sold by the Fund during the year ended
December 31, 2003 was $476,973,675 and $385,773,844, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF
INVESTMENT SECURITIES ON A TAX BASIS
- -------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $125,852,747
- -------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (4,325,550)
===============================================================================
Net unrealized appreciation of investment securities $121,527,197
_______________________________________________________________________________
===============================================================================
Cost of investments for tax purposes is $472,052,475.
</Table>
NOTE 11--RECLASSIFICATIONS OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of foreign currency
transactions, partnership adjustments and net operating losses, on December 31,
2003, undistributed net investment income was increased by $4,199,514,
undistributed net realized gain decreased by $29,442 and shares of beneficial
interest decreased by $4,170,072. This reclassification had no effect on the net
assets of the Fund.
NOTE 12--SHARE INFORMATION
The Fund currently consists of four different classes of shares: Class A shares,
Class B shares, Class C shares and Class R shares. Class A shares are sold with
a front-end sales charge. Class B shares and Class C shares are sold with CDSC.
Class R shares are sold at net asset value. Under some circumstances, Class A
shares and Class R shares are subject to CDSC. Generally, Class B shares will
automatically convert to Class A shares eight years after the end of the
calendar month of purchase.
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING
- -----------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
---------------------------------------------------------
2003 2002
-------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
- -----------------------------------------------------------------------------------------------------------------------
Sold:
Class A 11,095,421 $109,381,334 20,734,085 $207,041,581
- -----------------------------------------------------------------------------------------------------------------------
Class B 5,802,424 56,480,592 10,459,416 103,695,654
- -----------------------------------------------------------------------------------------------------------------------
Class C 2,724,692 26,562,929 4,842,924 46,658,247
- -----------------------------------------------------------------------------------------------------------------------
Class R* 231,356 2,309,531 6,714 56,937
=======================================================================================================================
Automatic conversion of Class B shares to Class A shares:
Class A 474,336 4,772,838 172,467 1,560,774
- -----------------------------------------------------------------------------------------------------------------------
Class B (483,310) (4,772,838) (174,243) (1,560,774)
=======================================================================================================================
Reacquired:
Class A (6,516,746) (61,727,331) (14,135,868) (133,126,533)
- -----------------------------------------------------------------------------------------------------------------------
Class B (2,491,251) (22,290,550) (4,344,297) (38,153,560)
- -----------------------------------------------------------------------------------------------------------------------
Class C (1,358,495) (12,715,334) (2,695,124) (24,183,738)
- -----------------------------------------------------------------------------------------------------------------------
Class R* (29,381) (306,409) (1) (11)
=======================================================================================================================
9,449,046 $ 97,694,762 14,866,073 $161,988,577
_______________________________________________________________________________________________________________________
=======================================================================================================================
</Table>
* Class R shares commenced sales on June 3, 2002.
F-12
NOTE 13--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
CLASS A
------------------------------------------------------------
AUGUST 31, 2000
(DATE
OPERATIONS
YEAR ENDED DECEMBER 31, COMMENCED) TO
-------------------------------------- DECEMBER 31,
2003 2002 2001 2000
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 8.23 $ 10.19 $ 9.36 $ 10.00
- --------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.09)(a) (0.05)(a) (0.05)(a) (0.00)(a)
- --------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 3.89 (1.91) 0.88 (0.64)
==========================================================================================================================
Total from investment operations 3.80 (1.96) 0.83 (0.64)
==========================================================================================================================
Less dividends from net investment income -- -- (0.00) --
==========================================================================================================================
Net asset value, end of period $ 12.03 $ 8.23 $ 10.19 $ 9.36
__________________________________________________________________________________________________________________________
==========================================================================================================================
Total return(b) 46.17% (19.23)% 8.92% (6.40)%
__________________________________________________________________________________________________________________________
==========================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $266,284 $140,652 $105,146 $32,805
__________________________________________________________________________________________________________________________
==========================================================================================================================
Ratio of expenses to average net assets 1.77%(c) 1.67% 1.78% 1.78%(d)(e)
==========================================================================================================================
Ratio of net investment income (loss) to average net assets (0.89)%(c) (0.54)% (0.57)% (0.12)%(e)
__________________________________________________________________________________________________________________________
==========================================================================================================================
Portfolio turnover rate(f) 112% 117% 123% 49%
__________________________________________________________________________________________________________________________
==========================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include sales charges
and is not annualized for periods less than one year.
(c) Ratios are based on average daily net assets of $181,786,297.
(d) After fee waivers. Ratio of expenses to average net assets prior to fee
waivers was 2.72% (annualized).
(e) Annualized.
(f) Not annualized for periods less than one year.
F-13
NOTE 13--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS B
--------------------------------------------------------
AUGUST 31, 2000
(DATE
OPERATIONS
YEAR ENDED DECEMBER 31, COMMENCED) TO
------------------------------------- DECEMBER 31,
2003 2002 2001 2000
- ----------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 8.11 $ 10.11 $ 9.33 $ 10.00
- ----------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.15)(a) (0.11)(a) (0.11)(a) (0.03)(a)
- ----------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 3.81 (1.89) 0.89 (0.64)
======================================================================================================================
Total from investment operations 3.66 (2.00) 0.78 (0.67)
======================================================================================================================
Net asset value, end of period $ 11.77 $ 8.11 $ 10.11 $ 9.33
______________________________________________________________________________________________________________________
======================================================================================================================
Total return(b) 45.13% (19.78)% 8.36% (6.70)%
______________________________________________________________________________________________________________________
======================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $177,811 $99,551 $64,012 $16,385
______________________________________________________________________________________________________________________
======================================================================================================================
Ratio of expenses to average net assets 2.42%(c) 2.32% 2.44% 2.49%(d)(e)
======================================================================================================================
Ratio of net investment income (loss) to average net assets (1.54)%(c) (1.19)% (1.23)% (0.83)(%(e)
______________________________________________________________________________________________________________________
======================================================================================================================
Portfolio turnover rate(f) 112% 117% 123% 49%
______________________________________________________________________________________________________________________
======================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include sales charges
and is not annualized for periods less than one year.
(c) Ratios are based on average daily net assets of $124,762,681.
(d) After fee waivers. Ratio of expenses to average net assets prior to fee
waivers was 3.43% (annualized).
(e) Annualized.
(f) Not annualized for periods less than one year.
<Table>
<Caption>
CLASS C
---------------------------------------------------------
AUGUST 31, 2000
(DATE
OPERATIONS
YEAR ENDED DECEMBER 31, COMMENCED) TO
----------------------------------- DECEMBER 31,
2003 2002 2001 2000
- -----------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 8.11 $ 10.10 $ 9.34 $10.00
- -----------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.15)(a) (0.11)(a) (0.11)(a) (0.03)(a)
- -----------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 3.81 (1.88) 0.87 (0.63)
=======================================================================================================================
Total from investment operations 3.66 (1.99) 0.76 (0.66)
=======================================================================================================================
Net asset value, end of period $ 11.77 $ 8.11 $ 10.10 $ 9.34
_______________________________________________________________________________________________________________________
=======================================================================================================================
Total return(b) 45.13% (19.70)% 8.14% (6.60)%
_______________________________________________________________________________________________________________________
=======================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $75,763 $41,132 $29,548 $9,028
_______________________________________________________________________________________________________________________
=======================================================================================================================
Ratio of expenses to average net assets 2.42%(c) 2.32% 2.44% 2.49%(d)(e)
=======================================================================================================================
Ratio of net investment income (loss) to average net assets (1.54)%(c) (1.19)% (1.23)% (0.83)%(e)
_______________________________________________________________________________________________________________________
=======================================================================================================================
Portfolio turnover rate(f) 112% 117% 123% 49%
_______________________________________________________________________________________________________________________
=======================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America, does not include sales charges
and is not annualized for periods less than one year.
(c) Ratios are based on average daily net assets of $52,740,332.
(d) After fee waivers. Ratio of expenses to average net assets prior to fee
waivers was 3.43% (annualized).
(e) Annualized.
(f) Not annualized for periods less than one year.
F-14
NOTE 13--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS R
--------------------------------
JUNE 3, 2002
(DATE SALES
YEAR ENDED COMMENCED) TO
DECEMBER 31, DECEMBER 31,
2003 2002
- ----------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 8.22 $ 10.58
- ----------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.11)(a) (0.04)(a)
- ----------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 3.88 (2.32)
==============================================================================================
Total from investment operations 3.77 (2.36)
==============================================================================================
Net asset value, end of period $11.99 $ 8.22
______________________________________________________________________________________________
==============================================================================================
Total return(b) 45.86% (22.31)%
______________________________________________________________________________________________
==============================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $2,502 $ 55
______________________________________________________________________________________________
==============================================================================================
Ratio of expenses to average net assets 1.92%(c) 1.92%(d)
==============================================================================================
Ratio of net investment income (loss) to average net assets (1.04)%(c) (0.78)%(d)
______________________________________________________________________________________________
==============================================================================================
Portfolio turnover rate(e) 112% 117%
______________________________________________________________________________________________
==============================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and is not annualized for
periods less than one year.
(c) Ratios are based on average daily net assets of $948,635.
(d) Annualized.
(e) Not annualized for periods less than one year.
NOTE 14--LEGAL PROCEEDINGS
Your Fund's investment advisor, A I M Advisors, Inc. ("AIM"), is an indirect
wholly owned subsidiary of AMVESCAP PLC ("AMVESCAP"). Another indirect wholly
owned subsidiary of AMVESCAP, INVESCO Funds Group, Inc. ("IFG"), was formerly
the investment advisor to the INVESCO Funds. IFG continues to serve as the
investment advisor to INVESCO Variable Investment Funds, Inc. ("IVIF"). On
November 25, 2003, AIM succeeded IFG as the investment advisor to the INVESCO
Funds other than IVIF.
The mutual fund industry as a whole is currently subject to a wide range of
inquiries and litigation related to issues of "market timing" and "late
trading." Both AIM and IFG are the subject of a number of such inquiries, as
described below.
A. Regulatory Inquiries and Actions
1. IFG
On December 2, 2003 each of the Securities and Exchange Commission ("SEC") and
the Office of the Attorney General of the State of New York ("NYAG") filed civil
proceedings against IFG and Raymond R. Cunningham, in his capacity as the Chief
Executive Officer of IFG. Mr. Cunningham currently holds the positions of Chief
Operating Officer and Senior Vice President of A I M Management Group Inc., the
parent of AIM, and the position of Senior Vice President of AIM. In addition, on
December 2, 2003, the State of Colorado filed civil proceedings against IFG.
Neither the Fund nor any of the other AIM or INVESCO Funds has been named as a
defendant in any of these proceedings.
The SEC complaint alleges that IFG failed to disclose in the INVESCO Funds'
prospectuses and to the INVESCO Funds' independent directors that IFG had
entered into certain arrangements permitting market timing of the INVESCO Funds.
The SEC is seeking injunctions, including permanent injunctions from serving as
an investment advisor, officer or director of an investment company; an
accounting of all market timing as well as certain fees and compensation
received; disgorgement; civil monetary penalties; and other relief.
The NYAG and Colorado complaints make substantially similar allegations. The
NYAG is seeking injunctions, including permanent injunctions from directly or
indirectly selling or distributing shares of mutual funds; disgorgement of all
profits obtained, including fees collected, and payment of all restitution and
damages caused, directly or indirectly from the alleged illegal activities;
civil monetary penalties; and other relief. The State of Colorado is seeking
injunctions; restitution, disgorgement and other equitable relief, civil
monetary penalties; and other relief.
In addition, IFG has received inquiries in the form of subpoenas or other oral
or written requests for information from various regulators concerning market
timing activity, late trading, fair value pricing and related issues concerning
the INVESCO Funds. These regulators include the Florida Department of Financial
Services, the Commissioner of Securities for the State of Georgia, the Office of
the State Auditor for the State of West Virginia, and the Office of the
Secretary of State for West Virginia. IFG has also received more limited
inquiries concerning related matters from the United States Department of Labor,
NASD, Inc., and the SEC. IFG is providing full cooperation with respect to these
inquiries.
F-15
NOTE 14--LEGAL PROCEEDINGS (CONTINUED)
2. AIM
AIM has also received inquiries in the form of subpoenas or other oral or
written requests for information from various regulators concerning market
timing activity, late trading, fair value pricing, and related issues concerning
the AIM Funds. AIM has received requests for information and documents
concerning these and related matters from the SEC and the Massachusetts
Secretary of the Commonwealth. In addition, AIM has received subpoenas
concerning these and related matters from the NYAG, the United States Attorney's
Office for the District of Massachusetts, the Commissioner of Securities for the
State of Georgia, the Office of the State Auditor for the State of West
Virginia, and the Office of the Secretary of State for West Virginia. AIM has
also received more limited inquiries from the SEC and NASD, Inc. concerning
specific funds, entities and/or individuals, none of which directly bears upon
the Fund. AIM is providing full cooperation with respect to these inquiries.
3. AMVESCAP Response
AMVESCAP is seeking to resolve both the pending regulatory complaints against
IFG alleging market timing and the ongoing market timing investigations with
respect to IFG and AIM. AMVESCAP recently found, in its ongoing review of these
matters, that shareholders were not always effectively protected from the
potential adverse impact of market timing and illegal late trading through
intermediaries. These findings were based, in part, on an extensive economic
analysis by outside experts who have been retained by AMVESCAP to examine the
impact of these activities. In light of these findings, AMVESCAP has publicly
stated that any AIM or INVESCO Fund, or any shareholders thereof, harmed by
these activities will receive full restitution. AMVESCAP has informed regulators
of these findings. In addition, AMVESCAP has retained outside counsel to
undertake a comprehensive review of AIM's and IFG's policies, procedures and
practices, with the objective that they rank among the most effective in the
fund industry.
There can be no assurance that AMVESCAP will be able to reach a satisfactory
settlement with the regulators, or that any such settlement will not include
terms which would have the effect of barring either or both of IFG and AIM, or
any other investment advisor directly or indirectly owned by AMVESCAP, from
serving as an investment advisor to any registered investment company including
the Fund. The Fund has been informed by AIM that, if either of these results
occurs, AIM will seek exemptive relief from the SEC to permit it to continue to
serve as the Fund's investment advisor. There can be no assurance that such
exemptive relief will be granted. Any settlement with the regulators could also
include terms which would bar Mr. Cunningham from serving as an officer or
director of any registered investment company.
B. Private Actions
In addition to the complaints described above, multiple lawsuits, including
purported class action and shareholder derivative suits, have been filed against
various parties (including, depending on the lawsuit, certain INVESCO Funds,
certain AIM Funds, IFG, AIM, A I M Management Group Inc., the parent of AIM,
AMVESCAP, certain related entities and certain of their officers, including Mr.
Cunningham). The allegations in the majority of the lawsuits are substantially
similar to the allegations in the regulatory complaints against IFG described
above. Certain other lawsuits allege that certain AIM and INVESCO Funds
inadequately employed fair value pricing. Such lawsuits allege a variety of
theories of recovery, including but not limited to: (i) violation of various
provisions of the Federal and state securities laws; (ii) violation of various
provisions of the Employee Retirement Income Security Act ("ERISA"); (iii)
breach of fiduciary duty; and (iv) breach of contract. The lawsuits have been
filed in both Federal and state courts and seek such remedies as compensatory
damages; restitution; rescission; accounting for wrongfully gotten gains,
profits and compensation; injunctive relief; disgorgement; equitable relief;
various corrective measures under ERISA; rescission of certain Funds' advisory
agreements with AIM; declaration that the advisory agreement is unenforceable or
void; refund of advisory fees; interest; and attorneys' and experts' fees.
IFG has removed certain of the state court proceedings to Federal District
Court. At a hearing before the Judicial Panel on Multidistrict Litigation
concerning the most efficient way to manage the numerous lawsuits alleging
market timing in mutual funds throughout the industry, IFG and AIM supported
transfer of all cases pending against them to one district for consolidated
proceedings. The Panel has not issued a ruling.
Additional lawsuits or regulatory actions arising out of these circumstances
and presenting similar allegations and requests for relief may be filed against
the Fund, IFG, AIM, AMVESCAP and related entities and individuals in the future.
As a result of these developments, investors in the AIM and INVESCO Funds
might react by redeeming their investments. This might require the Funds to sell
investments to provide for sufficient liquidity and could also have an adverse
effect on the investment performance of the Funds.
At the present time, management of AIM and the Fund is unable to estimate the
impact, if any, that the outcome of the matters described above may have on the
Fund or AIM.
F-16
REPORT OF INDEPENDENT AUDITORS
To the Board of Trustees and Shareholders
of AIM Small Cap Equity Fund
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the AIM Small Cap Equity Fund (one
of the funds constituting AIM Funds Group; hereafter referred to as the "Fund")
at December 31, 2003, the results of its operations for the year then ended, the
changes in its net assets for each of the two years in the period then ended and
the financial highlights for each of the periods indicated, in conformity with
accounting principles generally accepted in the United States of America. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with 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, 2003 by correspondence with the
custodian and brokers, provide a reasonable basis for our opinion.
PRICEWATERHOUSECOOPERS LLP
February 20, 2004
Houston, Texas
F-17
PROXY RESULTS (UNAUDITED)
A Special Meeting of Shareholders of AIM Small Cap Equity Fund, a portfolio of
AIM Funds Group, a Delaware statutory trust, was held on October 21, 2003. The
meeting was held for the following purpose:
(1)* To elect sixteen individuals to the Board, each of whom will serve until
his or her successor is elected and qualified: Bob R. Baker, Frank S.
Bayley, James T. Bunch, Bruce L. Crockett, Albert R. Dowden, Edward K.
Dunn, Jr., Jack M. Fields, Carl Frischling, Robert H. Graham, Gerald J.
Lewis, Prema Mathai-Davis, Lewis F. Pennock, Ruth H. Quigley, Louis S.
Sklar, Larry Soll, Ph D. and Mark H. Williamson.
The results of the voting on the above matter were as follows:
<Table>
<Caption>
WITHHOLDING
TRUSTEES/MATTER VOTES FOR AUTHORITY
- ---------------------------------------------------------------------------------
(1)* Bob R. Baker................................. 822,704,205 11,194,804
Frank S. Bayley.............................. 822,781,451 11,117,558
James T. Bunch............................... 822,886,061 11,012,948
Bruce L. Crockett............................ 822,942,379 10,956,630
Albert R. Dowden............................. 822,923,043 10,975,966
Edward K. Dunn, Jr........................... 822,752,667 11,146,342
Jack M. Fields............................... 823,013,560 10,885,449
Carl Frischling.............................. 822,602,646 11,296,363
Robert H. Graham............................. 822,881,635 11,017,374
Gerald J. Lewis.............................. 822,460,720 11,438,289
Prema Mathai-Davis........................... 822,715,053 11,183,956
Lewis F. Pennock............................. 822,839,481 11,059,528
Ruth H. Quigley.............................. 822,446,309 11,452,700
Louis S. Sklar............................... 822,882,710 11,016,299
Larry Soll, Ph.D............................. 822,748,856 11,150,153
Mark H. Williamson........................... 822,801,778 11,097,231
</Table>
* Proposal required approval by a combined vote of all the portfolios of AIM
Funds Group.
F-18
OTHER INFORMATION
TRUSTEES AND OFFICERS
As of January 1, 2004
The address of each trustee and officer of AIM Funds Group (the "Trust"), is 11
Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee oversees 104
portfolios in the AIM and INVESCO Funds complex, except for Messrs. Baker,
Bunch, Lewis and Soll who oversee 96 portfolios and Mr. Williamson who oversees
117 portfolios in the AIM and INVESCO Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
<Table>
<Caption>
NAME, YEAR OF BIRTH AND TRUSTEE AND/
POSITION(S) HELD WITH THE OR OFFICER PRINCIPAL OCCUPATION(S)
TRUST SINCE DURING PAST 5 YEARS
- ----------------------------------------------------------------------------------------------------------------
INTERESTED PERSONS
- ----------------------------------------------------------------------------------------------------------------
Robert H. Graham(1) -- 1946 1992 Director and Chairman, A I M Management Group Inc.
Trustee, Chairman and (financial services holding company); and Director and Vice
President Chairman, AMVESCAP PLC and Chairman of AMVESCAP PLC -- AIM
Division (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), AIM Investment Services, Inc.,
(registered transfer agent), and Fund Management Company
(registered broker dealer); and Chief Executive Officer,
AMVESCAP PLC -- Managed Products
- ----------------------------------------------------------------------------------------------------------------
Mark H. Williamson(2) -- 1951 2003 Director, President and Chief Executive Officer, A I M
Trustee and Executive Vice Management Group Inc. (financial services holding company);
President Director, Chairman and President, A I M Advisors, Inc.
(registered investment advisor); Director, A I M Capital
Management, Inc. (registered investment advisor) and A I M
Distributors, Inc. (registered broker dealer); Director and
Chairman, AIM Investment Services, Inc. (registered transfer
agent), and Fund Management Company (registered broker
dealer); and Chief Executive Officer, AMVESCAP PLC -- AIM
Division (parent of AIM and a global investment management
firm)
Formerly: Director, Chairman, President and Chief Executive
Officer, INVESCO Funds Group, Inc. and INVESCO Distributors,
Inc.; Chief Executive Officer, AMVESCAP PLC -- Managed
Products; Chairman and Chief Executive Officer of
NationsBanc Advisors, Inc.; and Chairman of NationsBanc
Investments, Inc.
- ----------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- ----------------------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 2003 Consultant
Trustee
Formerly: President and Chief Executive Officer, AMC Cancer
Research Center; and Chairman and Chief Executive Officer,
First Columbia Financial Corporation
- ----------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2001 Of Counsel, law firm of Baker & McKenzie
Trustee
- ----------------------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 2003 Co-President and Founder, Green, Manning & Bunch Ltd.,
Trustee (investment banking firm); and Director, Policy Studies,
Inc. and Van Gilder Insurance Corporation
Formerly: General Counsel and Director, Boettcher & Co.; and
Chairman and Managing Partner, law firm of Davis, Graham &
Stubbs
- ----------------------------------------------------------------------------------------------------------------
Bruce L. Crockett -- 1944 1987 Chairman, Crockett Technology Associates (technology
Trustee consulting company)
- ----------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2000 Director of a number of public and private business
Trustee corporations, including the Boss Group Ltd. (private
investment and management) and Magellan Insurance Company
Formerly: Director, President and Chief Executive Officer,
Volvo Group North America, Inc.; Senior Vice President, AB
Volvo; and director of various affiliated Volvo companies
- ----------------------------------------------------------------------------------------------------------------
Edward K. Dunn, Jr. -- 1935 1998 Formerly: Chairman, Mercantile Mortgage Corp.; President and
Trustee Chief Operating Officer, Mercantile-Safe Deposit & Trust
Co.; and President, Mercantile Bankshares Corp.
- ----------------------------------------------------------------------------------------------------------------
Jack M. Fields -- 1952 1997 Chief Executive Officer, Twenty First Century Group, Inc.
Trustee (government affairs company) and Texana Timber LP
- ----------------------------------------------------------------------------------------------------------------
<Caption>
NAME, YEAR OF BIRTH AND
POSITION(S) HELD WITH THE OTHER DIRECTORSHIP(S)
TRUST HELD BY TRUSTEE
- -------------------------------- ----------------------
INTERESTED PERSONS
- -------------------------------------------------------------------------------
Robert H. Graham(1) -- 1946 None
Trustee, Chairman and
President
- ------------------------------------------------------------------------------------------------------
Mark H. Williamson(2) -- 1951 None
Trustee and Executive Vice
President
- ----------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- ----------------------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 None
Trustee
- ----------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 Badgley Funds, Inc.
Trustee (registered investment
company)
- ----------------------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 None
Trustee
- ----------------------------------------------------------------------------------------------------------------
Bruce L. Crockett -- 1944 ACE Limited (insurance
Trustee company); and
Captaris, Inc.
(unified messaging
provider)
- ----------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 Cortland Trust, Inc.
Trustee (Chairman) (registered
investment company);
Annuity and Life Re
(Holdings), Ltd.
(insurance company)
- ----------------------------------------------------------------------------------------------------------------
Edward K. Dunn, Jr. -- 1935 None
Trustee
- ----------------------------------------------------------------------------------------------------------------
Jack M. Fields -- 1952 Administaff
Trustee
- ----------------------------------------------------------------------------------------------------------------
</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.
Trustees and Officers (continued)
As of January 1, 2004
The address of each trustee and officer of AIM Funds Group (the "Trust"), is 11
Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee oversees 104
portfolios in the AIM and INVESCO Funds complex, except for Messrs. Baker,
Bunch, Lewis and Soll who oversee 96 portfolios and Mr. Williamson who oversees
117 portfolios in the AIM and INVESCO Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
<Table>
<Caption>
NAME, YEAR OF BIRTH AND TRUSTEE AND/ PRINCIPAL OCCUPATION(S)
POSITION(S) HELD WITH THE TRUST OR OFFICER SINCE DURING PAST 5 YEARS
- -------------------------------------------------------------------------------------------------------------------
Carl Frischling -- 1937 1993 Partner, law firm of Kramer Levin Naftalis and Frankel LLP
Trustee
- -------------------------------------------------------------------------------------------------------------------
Gerald J. Lewis -- 1933 2003 Chairman, Lawsuit Resolution Services (San Diego,
Trustee California)
Formerly: Associate Justice of the California Court of
Appeals
- -------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA of the USA
Trustee
- -------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 1992 Partner, law firm of Pennock & Cooper
Trustee
- -------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2001 Retired
Trustee
- -------------------------------------------------------------------------------------------------------------------
Louis S. Sklar -- 1939 1993 Executive Vice President, Development and Operations Hines
Trustee Interests Limited Partnership (real estate development
company)
- -------------------------------------------------------------------------------------------------------------------
Larry Soll, Ph.D. -- 1942 2003 Retired
Trustee
- -------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- -------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 2003 Director, Senior Vice President, Secretary and General
Senior Vice President and Chief Counsel, A I M Management Group Inc. (financial services
Legal Officer holding company) and A I M Advisors, Inc.; Vice President,
A I M Capital Management, Inc., A I M Distributors, Inc. and
AIM Investment Services, Inc.; and Director, Vice President
and General Counsel, Fund Management Company
Formerly: Senior Vice President and General Counsel, Liberty
Financial Companies, Inc.; and Senior Vice President and
General Counsel, Liberty Funds Group, LLC
- -------------------------------------------------------------------------------------------------------------------
Robert G. Alley -- 1948 1992 Managing Director, Chief Fixed Income Officer and Senior
Vice President Investment Officer, A I M Capital Management, Inc.; and Vice
President, A I M Advisors, Inc.
- -------------------------------------------------------------------------------------------------------------------
Stuart W. Coco -- 1955 1992 Managing Director and Chief Research Officer -- Fixed
Vice President Income, 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 Advisors,
Vice President Inc. and A I M Capital Management, Inc.; and Vice President,
AIM Investment Services, Inc.
- -------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, A I M Advisors, Inc.;
Vice President and Treasurer Senior Vice President, AIM Investment Services, Inc.; and
Vice President, A I M Distributors, Inc.
- -------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 1992 Managing Director and Chief Management Officer, A I M
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 President, Chief
Vice President Executive Officer and Chief Investment Officer, A I M
Capital Management, Inc.
- -------------------------------------------------------------------------------------------------------------------
<Caption>
NAME, YEAR OF BIRTH AND OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST HELD BY TRUSTEE
- --------------------------------- ----------------------
Carl Frischling -- 1937 Cortland Trust, Inc.
Trustee (registered investment
company)
- -------------------------------------------------------------------------------------------------------------------
Gerald J. Lewis -- 1933 General Chemical
Trustee Group, Inc.,
Wheelabrator
Technologies, Inc.
(waste management
company), Fisher
Scientific, Inc.,
Henley Manufacturing,
Inc. (laboratory
supplies), and
California Coastal
Properties, Inc.
- -------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 None
Trustee
- -------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 None
Trustee
- -------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 None
Trustee
- -------------------------------------------------------------------------------------------------------------------
Louis S. Sklar -- 1939 None
Trustee
- -------------------------------------------------------------------------------------------------------------------
Larry Soll, Ph.D. -- 1942 None
Trustee
- -------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- -------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 N/A
Senior Vice President and Chief
Legal Officer
- -------------------------------------------------------------------------------------------------------------------
Robert G. Alley -- 1948 N/A
Vice President
- -------------------------------------------------------------------------------------------------------------------
Stuart W. Coco -- 1955 N/A
Vice President
- -------------------------------------------------------------------------------------------------------------------
Melville B. Cox -- 1943 N/A
Vice President
- -------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 N/A
Vice President and Treasurer
- -------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 N/A
Vice President
- -------------------------------------------------------------------------------------------------------------------
Edgar M. Larsen -- 1940 N/A
Vice President
- -------------------------------------------------------------------------------------------------------------------
</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 LLP
Suite 100 11 Greenway Plaza 11 Greenway Plaza 1201 Louisiana, Suite 2900
Houston, TX 77046-1173 Suite 100 Suite 100 Houston, TX 77002-5678
Houston, TX 77046-1173 Houston, TX 77046-1173
COUNSEL TO THE FUND COUNSEL TO THE TRUSTEES TRANSFER AGENT CUSTODIAN
Ballard Spahr Kramer, Levin, Naftalis & AIM Investment 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 19103-7599 New York, NY 10022-3852 Boston, MA 02110
</Table>
<Table>
DOMESTIC EQUITY INTERNATIONAL/GLOBAL EQUITY FIXED INCOME
AIM Aggressive Growth Fund AIM Asia Pacific Growth Fund TAXABLE
AIM Balanced Fund* AIM Developing Markets Fund
AIM Basic Balanced Fund* AIM European Growth Fund AIM Floating Rate Fund
AIM Basic Value Fund AIM European Small Company Fund AIM High Yield Fund
AIM Blue Chip Fund AIM Global Aggressive Growth Fund AIM Income Fund
AIM Capital Development Fund AIM Global Growth Fund AIM Intermediate Government Fund
AIM Charter Fund AIM Global Trends Fund AIM Limited Maturity Treasury Fund
AIM Constellation Fund AIM Global Value Fund(5) AIM Money Market Fund
AIM Dent Demographic Trends Fund AIM International Emerging Growth Fund AIM Short Term Bond Fund
AIM Diversified Dividend Fund(1) AIM International Growth Fund AIM Total Return Bond Fund
AIM Emerging Growth Fund AIM Trimark Fund INVESCO U.S. Government Money Fund
AIM Large Cap Basic Value Fund INVESCO International Core Equity Fund(6)
AIM Large Cap Growth Fund TAX-FREE
AIM Libra Fund SECTOR EQUITY
AIM Mid Cap Basic Value Fund AIM High Income Municipal Fund
AIM Mid Cap Core Equity Fund(2) AIM Global Health Care Fund AIM Municipal Bond Fund
AIM Mid Cap Growth Fund AIM Real Estate Fund AIM Tax-Exempt Cash Fund
AIM Opportunities I Fund INVESCO Advantage Health Sciences Fund AIM Tax-Free Intermediate Fund
AIM Opportunities II Fund INVESCO Energy Fund
AIM Opportunities III Fund INVESCO Financial Services Fund
AIM Premier Equity Fund INVESCO Gold & Precious Metals Fund
AIM Select Equity Fund INVESCO Health Sciences Fund
AIM Small Cap Equity Fund(3) INVESCO Leisure Fund
AIM Small Cap Growth Fund(4) INVESCO Multi-Sector Fund
AIM Trimark Endeavor Fund INVESCO Technology Fund
AM Trimark Small Companies Fund INVESCO Utilities Fund
AIM Weingarten Fund
INVESCO Core Equity Fund
INVESCO Dynamics Fund
INVESCO Mid-Cap Growth Fund
INVESCO Small Company Growth Fund
INVESCO S&P 500 Index Fund
INVESCO Total Return Fund*
</Table>
* Domestic equity and income fund
(1) Effective May 2, 2003, AIM Large Cap Core Equity Fund was renamed AIM
Diversified Dividend Fund. (2) As of the close of business on February 27, 2004,
AIM Mid Cap Core Equity Fund is available to new investors on a limited basis.
For information on who may continue to invest in AIM Mid Cap Core Equity Fund,
please contact your financial advisor. (3) AIM Small Cap Equity Fund was closed
to most investors on December 19, 2003. For information on who may continue to
invest in AIM Small Cap Equity Fund, please contact your financial advisor. (4)
AIM Small Cap Growth Fund was closed to most investors on March 18, 2002. For
information on who may continue to invest in AIM Small Cap Growth Fund, please
contact your financial advisor. (5) Effective April 30, 2003, AIM Worldwide
Spectrum Fund was renamed AIM Global Value Fund. (6) Effective November 24,
2003, INVESCO International Blue Chip Value Fund was renamed INVESCO
International Core Equity Fund.
For more complete information about any AIM or INVESCO fund, including sales
charges and expenses, ask your financial advisor for a prospectus. Please read
the prospectus carefully and consider the investment objectives, risks, and
charges and expenses of the investment carefully before investing. If used after
April, 2004, this brochure must be accompanied by a fund Performance &
Commentary or by an AIM Quarterly Performance Review for the most recent
quarter-end. Mutual funds distributed by A I M Distributors, Inc.
A I M Management Group Inc. has provided leadership in the investment management
industry since 1976 and manages $149 billion in assets for approximately 11
million shareholders, including individual investors, corporate clients and
financial institutions. AIM is a subsidiary of AMVESCAP PLC, one of the world's
largest independent financial services companies with $371 billion in assets
under management. Data as of December 31, 2003.
AIMinvestments.com SCE-AR-1
<Table>
YOUR GOALS. OUR SOLUTIONS.--Servicemark--
- ----------------------------------------------------------------------------------------------
Mutual Retirement Annuities College Separately Offshore Alternative Cash [AIM INVESTMENTS LOGO APPEARS HERE]
Funds Products Savings Managed Products Investments Management
Plans Accounts
</Table>
ITEM 2. CODE OF ETHICS.
As of the end of the period covered by this report, Registrant had adopted a
code of ethics (the "Code") that applies to the Registrant's principal executive
office ("PEO") and principal financial officer ("PFO"). There were no amendments
to the Code during the period covered by the report. The Registrant did not
grant any waivers, including implicit waivers, from any provisions of the Code
to the PEO or PFO during the period covered by this report.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
The Board of Trustees has determined that the registrant has at least one audit
committee financial expert serving on its Audit Committee. The Audit Committee
financial expert is Prema Mathai-Davis. Ms. Mathai-Davis is "independent" within
the meaning of that term used in Form N-CSR.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
FEES BILLED BY PWC RELATED TO THE REGISTRANT
PWC billed the Registrant aggregate fees for services rendered to the
Registrant for the last two fiscal years as follows:
<Table>
<Caption>
Percentage of Fees Percentage of Fees
Billed Applicable Billed Applicable
to Non-Audit to Non-Audit
Services Provided Services Provided
Fees Billed for in 2003 Pursuant to in 2002 Pursuant to
Services Rendered Waiver of Fees Billed for Waiver of
to the Registrant Pre-Approval Services Rendered to Pre-Approval
in 2003 Requirement(1)(2) the Registrant in 2002 Requirement(1)(2)
------------------ ------------------- ---------------------- -------------------
Audit Fees $276,979 N/A $343,470 N/A
Audit-Related Fees(3) $ 0 0% $ 2,500 N/A
Tax Fees(4) $ 63,847 0% $ 77,389 N/A
All Other Fees $ 0 0% $ 0 N/A
-------- --------
Total Fees $340,826 $423,359 N/A
</Table>
PWC billed the Registrant aggregate non-audit fees of $63,847 for the fiscal
year ended 2003, and $79,889 for the fiscal year ended 2002, for non-audit
services rendered to the Registrant.
- ---------
(1) Prior to May 6, 2003, the Registrant's Audit Committee was not required
to pre-approve non-audit services. Therefore, the percentage of fees
shown in this column only represents fees billed for non-audit services
rendered after May 6, 2003, pursuant to a waiver of the pre-approval
requirement.
(2) With respect to the provision of non-audit services, the pre-approval
requirement is waived pursuant to a de minimis exception if (i) such
services were not recognized as non-audit services by the Registrant at
the time of engagement, (ii) the aggregate amount of all such services
provided is no more than 5% of the aggregate audit and non-audit fees
billed to the Registrant during a fiscal year; and (iii) such services
are promptly approved by the Registrant's Audit Committee prior to the
completion of the audit by the Audit Committee.
(3) Audit-Related Fees for the fiscal year ended December 31, 2002 includes
fees billed for providing services to comply with foreign countries'
investment regulations.
(4) Tax Fees for the fiscal year ended December 31, 2003 includes fees
billed for reviewing tax returns. Tax Fees for the fiscal year ended
December 31, 2002 includes fees billed for reviewing tax returns.
1
FEES BILLED BY PWC RELATED TO AIM AND AIM AFFILIATES
PWC billed AIM and AIM Affiliates aggregate fees for pre-approved
non-audit services rendered to AIM and AIM Affiliates for the last two fiscal
years as follows:
<Table>
<Caption>
Fees Billed for Fees Billed for
Non-Audit Services Non-Audit Services
Rendered to AIM and Percentage of Fees Rendered to AIM and Percentage of Fees
AIM Affiliates in Billed Applicable to AIM Affiliates in Billed Applicable to
2003 That Were Non-Audit Services 2002 That Were Non-Audit Services
Required Provided in 2003 Required Provided in 2002
to be Pre-Approved Pursuant to Waiver of to be Pre-Approved Pursuant to Waiver of
by the Registrant's Pre-Approval by the Registrant's Pre-Approval
Audit Committee(1) Requirement(2)(3) Audit Committee(1) Requirement(2)(3)
------------------- --------------------- ------------------- ---------------------
Audit-Related Fees $ 0 0% N/A N/A
Tax Fees $ 0 0% N/A N/A
All Other Fees $ 0 0% N/A N/A
---
Total Fees $ 0 N/A N/A
PWC billed AIM and AIM Affiliates aggregate non-audit fees of $0 for the fiscal
year ended 2003, and $346,364 for the fiscal year ended 2002, for non-audit
services rendered to AIM and AIM Affiliates.
The Audit Committee also has considered whether the provision of non-audit
services that were rendered to AIM, and any entity controlling, controlled by or
under common control with AIM that provides ongoing services to the Registrant
("AIM Affiliates"), that were not required to be pre-approved pursuant to SEC
regulations is compatible with maintaining PWC's independence. The Audit
Committee determined that the provision of such services is compatible with PWC
maintaining independence with respect the Registrant.
- ---------
(1) Prior to May 6, 2003, the Registrant's Audit Committee was not required
to pre-approve non-audit services. Therefore, the fees billed for
non-audit services shown in this column only represents fees for
pre-approved non-audit services rendered after May 6, 2003, to AIM and
AIM Affiliates.
(2) Prior to May 6, 2003, the Registrant's Audit Committee was not required
to pre-approve non-audit services. Therefore, the percentage of fees
shown in this column only represents fees billed for non-audit services
rendered after May 6, 2003, pursuant to a waiver of the pre-approval
requirement.
(3) With respect to the provision of non-audit services, the pre-approval
requirement is waived pursuant to a de minimis exception if (i) such
services were not recognized as non-audit services by the Registrant at
the time of engagement, (ii) the aggregate amount of all such services
provided is no more than 5% of the aggregate audit and non-audit fees
billed to the Registrant during a fiscal year; and (iii) such services
are promptly approved by the Registrant's Audit Committee prior to the
completion of the audit by the Audit Committee.
PRE-APPROVAL OF AUDIT AND NON-AUDIT SERVICES
POLICIES AND PROCEDURES
As adopted by the Audit Committees of
the AIM Funds and the INVESCO Funds (the "Funds")
AMENDED NOVEMBER 6, 2003
I. STATEMENT OF PRINCIPLES
Under the Sarbanes-Oxley Act of 2002 and rules adopted by the Securities and
Exchange Commission ("SEC") ("Rules"), the Audit Committees of the Funds' (the
"Audit Committee") Board of
2
Directors/Registrantees (the "Board") are responsible for the appointment,
compensation and oversight of the work of independent accountants (an
"Auditor"). As part of this responsibility and to assure that the Auditor's
independence is not impaired, the Audit Committee pre-approves the audit and
non-audit services provided to the Funds by the Auditor, as well as all
non-audit services provided by the Auditor to the Funds' investment adviser and
to affiliates of the adviser that provide ongoing services to the Funds
("Service Affiliates") if the services directly impact the Funds' operations or
financial reporting. The SEC Rules also specify the types of services that an
Auditor may not provide to its audit client. The following policies and
procedures comply with the requirements for pre-approval and provide a mechanism
by which management of the Funds may request and secure pre-approval of audit
and non-audit services in an orderly manner with minimal disruption to normal
business operations.
Proposed services either may be pre-approved without consideration of specific
case-by-case services by the Audit Committee ("general pre-approval") or require
the specific pre-approval of the Audit Committee ("specific pre-approval"). As
set forth in these policies and procedures, unless a type of service has
received general pre-approval, it will require specific pre-approval by the
Audit Committee. Additionally, any proposed services exceeding general
pre-approved cost levels or established amounts will also require specific
pre-approval by the Audit Committee.
The Audit Committee will annually review and pre-approve the services that may
be provided by the Auditor without obtaining specific pre-approval from the
Audit Committee. The term of any general pre-approval runs from the date of such
pre-approval through September 30th of the following year, unless the Audit
Committee considers a different period and states otherwise. The Audit Committee
will add to or subtract from the list of general pre-approved services from time
to time, based on subsequent determinations.
The purpose of these policies and procedures is to set forth the guidelines to
assist the Audit Committee in fulfilling its responsibilities.
II. DELEGATION
The Audit Committee may from time to time delegate pre-approval authority to one
or more of its members who are Independent Directors. All decisions to
pre-approve a service by a delegated member shall be reported to the Audit
Committee at its next-scheduled meeting.
III. AUDIT SERVICES
The annual audit services engagement terms and fees will be subject to specific
pre-approval of the Audit Committee. Audit services include the annual financial
statement audit and other procedures such as tax provision work that is required
to be performed by the independent auditor to be able to form an opinion on the
Funds' financial statements. The Audit Committee will obtain, review and
consider sufficient information concerning the proposed Auditor to make a
reasonable evaluation of the Auditor's qualifications and independence.
In addition to the annual Audit services engagement, the Audit Committee may
grant general pre-approval for other audit services, which are those services
that only the independent auditor reasonably can provide. Other Audit services
may include services such as issuing consents for the inclusion of audited
financial statements with SEC registration statements, periodic reports and
other documents filed with the SEC or other documents issued in connection with
securities offerings.
3
IV. GENERAL PRE-APPROVAL OF NON-AUDIT SERVICES
The Audit Committee may provide general pre-approval of types of non-audit
services described in this Section IV to the Funds and its Service Affiliates if
the Committee believes that the provision of the service will not impair the
independence of the Auditor, is consistent with the SEC's Rules on auditor
independence, and otherwise conforms to the Audit Committee's general principles
and policies as set forth herein.
AUDIT-RELATED SERVICES
"Audit-related services" are assurance and related services that are reasonably
related to the performance of the audit or review of the Fund's financial
statements or that are traditionally performed by the independent auditor.
Audit-related services include, among others, accounting consultations related
to accounting, financial reporting or disclosure matters not classified as
"Audit services"; assistance with understanding and implementing new accounting
and financial reporting guidance from rulemaking authorities; and agreed-upon
procedures related to mergers.
TAX SERVICES
"Tax services" include, but are not limited to, the review and signing of the
Funds' federal tax returns, the review of required distributions by the Funds
and consultations regarding tax matters such as the tax treatment of new
investments or the impact of new regulations. The Audit Committee will
scrutinize carefully the retention of the Auditor in connection with a
transaction initially recommended by the Auditor, the major business purpose of
which may be tax avoidance or the tax treatment of which may not be supported in
the Internal Revenue Code and related regulations. The Audit Committee will
consult with the Funds' Treasurer (or his or her designee) and may consult with
outside counsel or advisors as necessary to ensure the consistency of Tax
services rendered by the Auditor with the foregoing policy.
ALL OTHER SERVICES
The Audit Committee may pre-approve non-audit services classified as "All other
services" that are not categorically prohibited by the SEC, as listed in
Exhibit 1 to this policy.
V. SPECIFIC PRE-APPROVAL OF NON-AUDIT SERVICES
The Audit Committee may provide specific pre-approval of any non-audit services
to the Funds and its Service Affiliates if the Audit Committee believes that the
provision of the service will not impair the independence of the auditor, is
consistent with the SEC Rules on auditor independence, and otherwise conforms to
the Audit Committees' general principles and policies as set forth herein.
VI. PRE-APPROVAL FEE LEVELS OR ESTABLISHED AMOUNTS
Pre-approval fee levels or established amounts for services to be provided by
the Auditor under general pre-approval policies will be set annually by the
Audit Committee. Any proposed services exceeding these levels or amounts will
require specific pre-approval by the Audit Committee. The Audit Committee will
always factor in the overall relationship of fees for audit and non-audit
services in determining whether to pre-approve any such services.
VII. PROCEDURES
On an annual basis, A I M Advisors, Inc. ("AIM") will submit to the Audit
Committee for general pre-approval, a list of non-audit services that the Funds
or Service Affiliates of the Funds may request from the Auditor. The list will
describe the non-audit services in reasonable detail and will include an
estimated range of fees where possible and such other information as the Audit
Committee may request.
Each request for services to be provided by the Auditor under the general
pre-approval of the Audit Committee will be submitted to the Funds' Treasurer
(or his or her designee) and must include a detailed
4
description of the services to be rendered. The Treasurer or his or her designee
will ensure that such services are included within the list of services that
have received the general pre-approval of the Audit Committee. The Audit
Committee will be informed at the next regularly scheduled Audit Committee
meeting of any such services rendered by the Auditor.
Each request to provide services that require specific approval by the Audit
Committee shall be submitted to the Audit Committee jointly by the Fund's
Treasurer or his or her designee and the Auditor, and must include a joint
statement that, in their view, such request is consistent with the policies and
procedures and the SEC Rules.
Non-audit services pursuant to the de minimis exception provided by the SEC
Rules will be promptly brought to the attention of the Audit Committee for
approval, including documentation that each of the conditions for this
exception, as set forth in the SEC Rules, has been satisfied.
On at least an annual basis, the Auditor will prepare a summary of all the
services provided to any entity in the investment Company complex as defined in
section 2-01(f)(14) of Regulation S-X in sufficient detail as to the nature of
the engagement and the fees associated with those services.
The Audit Committee has designated the Funds' Treasurer to monitor the
performance of all services provided by the Auditor and to ensure such services
are in compliance with these policies and procedures. The Funds' Treasurer will
report to the Audit Committee on a periodic basis as to the results of such
monitoring. Both the Funds' Treasurer and management of AIM will immediately
report to the chairman of the Audit Committee any breach of these policies and
procedures that comes to the attention of the Funds' Treasurer or senior
management of AIM.
EXHIBIT 1
CONDITIONALLY PROHIBITED NON-AUDIT SERVICES (NOT PROHIBITED IF THE FUND CAN
REASONABLY CONCLUDE THAT THE RESULTS OF THE SERVICE WOULD NOT BE SUBJECT TO
AUDIT PROCEDURES IN CONNECTION WITH THE AUDIT OF THE FUND'S FINANCIAL
STATEMENTS)
o Bookkeeping or other services related to the accounting records or
financial statements of the audit client
o Financial information systems design and implementation
o Appraisal or valuation services, fairness opinions, or
contribution-in-kind reports
o Actuarial services
o Internal audit outsourcing services
CATEGORICALLY PROHIBITED NON-AUDIT SERVICES
o Management functions
o Human resources
o Broker-dealer, investment adviser, or investment banking services
o Legal services
o Expert services unrelated to the audit
o Any other service that the Public Company Oversight Board determines by
regulation is impermissible
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable.
ITEM 6. [RESERVED]
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
5
ITEM 8. [RESERVED]
ITEM 9. CONTROLS AND PROCEDURES.
(a) As of December 18, 2003, an evaluation was performed under the
supervision and with the participation of the officers of AIM Variable
Insurance Funds (the "Registrant"), including the Principal Executive
Officer ("PEO") and Principal Financial Officer ("PFO"), to assess the
effectiveness of the Registrant's disclosure controls and procedures,
as that term is defined in Rule 30a-3(c) under the Investment Company
Act of 1940 (the "Act"), as amended. Based on that evaluation, the
Registrant's officers, including the PEO and PFO, concluded that, as of
December 18, 2003, the Registrant's disclosure controls and procedures
were reasonably designed so as to ensure: (1) that information required
to be disclosed by the Registrant of Form N-CSR is recorded, processed,
summarized and reported within the time periods specified by the rules
and forms of the Securities and Exchange Commission; and (2) that
material information relating go the Registrant is made known to the
PEO and PFO as appropriate to allow timely decisions regarding required
disclosure.
(b) There have been no changes in the Registrant's internal control over
financial reporting (as defined in Rule 30a-3(d) under the Act) that
occurred during the Registrant's last fiscal half-year (the
Registrant's second fiscal half-year in the case of an annual report)
that has materially affected, or is reasonably likely to materially
affect, the Registrant's internal control over financial reporting.
However, changes in certain other controls have been implemented during
such time period, involving such things as trade monitoring, fair value
pricing, revising trading guidelines, and establishing redemption fees
on trades in certain funds, which could affect the Registrant.
ITEM 10. EXHIBITS. CODE OF ETHICS FOR SENIOR OFFICERS.
(a)(1) Code of Ethics.
(a)(2) Certifications of principal executive officer and principal
financial officer as required by Rule 30a-2 under the
Investment Company Act of 1940.
(b) Certification of principal executive officer and principal
financial officer as required by Section 906 of the
Sarbanes-Oxley Act of 2002.
6
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Registrant: AIM Funds Group
---------------------------
By: /s/ ROBERT H. GRAHAM
---------------------------
Robert H. Graham
Principal Executive Officer
Date: February 23, 2004
---------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By: /s/ ROBERT H. GRAHAM
---------------------------
Robert H. Graham
Principal Executive Officer
Date: February 23, 2004
---------------------------
By: /s/ SIDNEY M. DILGREN
---------------------------
Sidney M. Dilgren
Principal Financial Officer
Date: February 23, 2004
---------------------------
EXHIBIT INDEX
10a Code of Ethics
(b)(1) Certifications of principal executive officer and principal financial
officer as required by Rule 30a-2 under the Investment Company Act of
1940. Certification of principal executive officer and principal
financial officer as required by Section 906 of the Sarbanes-Oxley Act
of 2002.