.
.
.
<Table>
-------------------------
OMB APPROVAL
-------------------------
OMB Number: 3235-0570
Expires: Nov. 30, 2005
Estimated average burden
hours per response: 5.0
-------------------------
</Table>
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: 06/30/04
-----------------
Item 1. Reports to Stockholders.
AIM BALANCED FUND
Semiannual Report to Shareholders o June 30, 2004
[COVER IMAGE]
YOUR GOALS. OUR SOLUTIONS. [AIM INVESTMENTS LOGO APPEARS HERE]
--Registered Trademark-- --Registered Trademark--
<Table>
===================================================================================================================================
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 6/30/04 and is based on total net assets.
===================================================================================================================================
ABOUT SHARE CLASSES ABOUT INDEXES USED IN THIS REPORT o A direct investment cannot be made in
an index. Unless otherwise indicated,
o Effective 9/30/03, Class B shares are o The unmanaged Lipper Balanced Fund index results include reinvested
not available as an investment for Index represents an average of the 30 dividends, and they do not reflect sales
retirement plans maintained pursuant to largest balanced funds tracked by charges. Performance of an index of
Section 401 of the Internal Revenue Lipper, Inc., an independent mutual fund funds reflects fund expenses;
Code, including 401(k) plans, money performance monitor. It is calculated performance of a market index does not.
purchase pension plans and profit daily, with adjustments for
sharing plans. Plans that have existing distributions as of the ex-dividend OTHER INFORMATION
accounts invested in Class B shares will dates.
continue to be allowed to make o The average credit quality of the
additional purchases. o The unmanaged Standard & Poor's fund's holdings as of the close of the
Composite Index of 500 Stocks (the S&P reporting period represents the weighted
o Class R shares are available only to 500--Registered Trademark-- Index) is average quality rating of the securities
certain retirement plans. Please see the an index of common stocks frequently in the portfolio as assigned by
prospectus for more information. used as a general measure of U.S. stock Nationally Recognized Statistical Rating
market performance. Organizations based on assessment of the
PRINCIPAL RISKS OF INVESTING IN THE FUND credit quality of the individual
o The fund uses a blended index composed securities.
o U.S. Treasury securities such as of 60% Russell 1000--Registered
bills, notes and bonds offer a high Trademark-- Value Index and 40% Lehman o The returns shown in the Management's
degree of safety, and they guarantee the U.S. Aggregate Bond Index. The unmanaged Discussion of Fund Performance are based
payment of principal and any applicable Russell 1000--Registered Trademark-- on net asset values calculated for
interest if held to maturity. Fund Index represents the performance of the shareholder transactions. Generally
shares are not insured, and their value stocks of large-capitalization accepted accounting principles require
and yield will vary with market companies; the Value segment measures adjustments to be made to the net assets
conditions. the performance of Russell 1000 of the fund at period end for financial
companies with lower price/book ratios reporting purposes, and as such, the net
o International investing presents and lower forecasted growth values. The asset values for shareholder
certain risks not associated with unmanaged Lehman U.S. Aggregate Bond transactions and the returns based on
investing solely in the United States. Index, which represents the U.S. those net asset values may differ from
These include risks relating to investment-grade fixed-rate bond market the net asset values and returns
fluctuations in the value of the U.S. (including government and corporate reported in the Financial Highlights.
dollar relative to the values of other securities, mortgage pass-through
currencies, the custody arrangements securities and asset-backed securities), o Industry classifications used in this
made for the fund's foreign holdings, is compiled by Lehman Brothers, a global report are generally according to the
differences in accounting, political investment bank. Global Industry Classification Standard,
risks and the lesser degree of public which was developed by and is the
information required to be provided by o The unmanaged MSCI World Index is a exclusive property and a service mark of
non-U.S. companies. The fund may invest group of global securities tracked by Morgan Stanley Capital International
up to 25% of its assets in the Morgan Stanley Capital International. Inc. and Standard & Poor's.
securities of non-U.S. issuers.
o The fund is not managed to track the A description of the policies and
o Investing in small and mid-size performance of any particular index, procedures that the Fund uses to
companies involves risks not associated including the indexes defined here, and determine how to vote proxies relating
with investing in more established consequently, the performance of the to portfolio securities is available
companies, including business risk, fund may deviate significantly from the without charge, upon request, by calling
significant stock price fluctuations and performance of the indexes. 800-959-4246, or on the AIM Web site,
illiquidity. AIMinvestments.com.
</Table>
================================================================================
THIS REPORT MUST BE ACCOMPANIED OR PRECEDED BY A CURRENTLY EFFECTIVE FUND
PROSPECTUS, WHICH CONTAINS MORE COMPLETE INFORMATION, INCLUDING SALES CHARGES
AND EXPENSES. READ IT CAREFULLY BEFORE YOU INVEST.
================================================================================
=====================================================
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
=====================================================
AIMinvestments.com
TO OUR SHAREHOLDERS
DEAR FELLOW SHAREHOLDER IN THE AIM FAMILY OF
FUNDS--Registered Trademark--:
[PHOTO OF The six months covered by this report could be characterized
ROBERT H. as a trendless market. Positive news about employment and a
GRAHAM] strengthening economy were offset by concerns about higher
interest rates, continued violence in Iraq and high oil
ROBERT H. GRAHAM prices. The result: muted performance in both U.S. equity
and fixed-income markets.
The same macroeconomic factors were at work overseas as
well, causing developed international markets to generally
perform in line with that of the United States. In fact, the
MSCI World Index tracked the performance of the S&P 500
Index with six-month returns of 3.52% and 3.44%,
respectively.
The anticipation of higher interest rates hampered bond performance, with
most areas of the fixed-income market turning in flat returns for the six-month
period, as evidenced by the 0.15% return of the Lehman U.S. Aggregate Bond
Index. Considered a good proxy for the U.S. bond market, this index includes
fixed-rate mortgage-backed securities, U.S. agency investments, U.S. Treasuries
of various maturities and U.S. corporate bonds.
In an unremarkable period like the one covered by this report, we encourage
shareholders to look past short-term market performance and remain focused on
their long-term investment goals. Whether markets rise, fall or go sideways, the
only certainty is their unpredictability, especially in the short run.
Historically, markets have risen over the long term, with the S&P 500 Index
returning 13.55% over the past 25 years and the Lehman U.S. Aggregate Bond Index
returning 9.20%.* While past performance cannot guarantee future results, we
believe that staying invested for the long term offers the best opportunity for
capital growth.
For information on how your fund performed and was managed during the six
months covered by this report, please read your fund managers' discussion on the
following pages. We hope you find it informative.
There continues to be increased regulatory focus on mutual funds and other
investment products. For the latest information about ongoing regulatory
matters, please visit our Web site, AIMinvestments.com. We continue to post
updates as information becomes available. We also encourage you to visit our Web
site for investor education and planning information as well as regular
performance updates on our funds.
As always, AIM is committed to building solutions for your investment goals,
and we thank you for your continued participation in
AIM Investments--Servicemark--. If you have any questions, please contact our
Client Service representatives at 800-959-4246.
Sincerely,
/s/ ROBERT H. GRAHAM
- ---------------------------
Robert H. Graham
Chairman and President
July 20, 2004
* Average annual total returns, June 30, 1979, to June 30, 2004. Source: Lipper,
Inc.
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
<Table>
INDUSTRIALS, HEALTH CARE, ENERGY tive performance in the fund's equity
SECTORS PACED FUND PERFORMANCE portfolio. Industrials outperformed the
broader market on news of strong GDP
Class A shares of AIM Balanced Fund federal funds target rate by 0.25%--its growth in the United States along with
returned 3.66% at net asset value for first rate increase in four years and a growing factory orders and payrolls.
the six-month reporting period ended move much anticipated by markets. While index returns in the health care
June 30, 2004, outperforming the fund's sector were only modestly positive, the
benchmarks, the S&P 500 Index, the Gross domestic product (GDP) expanded fund significantly outperformed here as
fund's blended index (60% Russell 1000 at an annualized rate of 4.5% in the well, aided in large part by good stock
Value Index/40% Lehman U.S. Aggregate first quarter of 2004 and 3.0% during selection.
Bond Index) and the Lipper Balanced Fund the second quarter. What had been a
Index, which returned 3.44%, 2.41% and "jobless recovery" produced more than The fund's energy holdings
2.25%, respectively. (Had the effects of 1.2 million new jobs from January outperformed the energy sector of the
the front-end sales charge been through June, according to the U.S. S&P 500 Index, the best performing area
included, the return would have been Department of Labor. of the market. The energy sector
lower.) Results for other share classes continued to benefit from high commodity
are found in the table on page 3. The In the U.S. fixed-rate securities prices as well as the ongoing threat
fund outperformed its benchmarks because market, high yield issues outperformed of oil supply disruptions at a time of
of strong performance from its equity their investment-grade counterparts, on increasing global demand.
portfolio during a period that favored average, for the reporting period. The
stocks over bonds. U.S. investment-grade fixed-rate bond The materials and consumer
market, as measured by the Lehman U.S. discretionary sectors underperformed
MARKET CONDITIONS Aggregate Bond Index, returned 0.15% for during the reporting period, hurting
the same period. Among the segments of fund performance.
Equity markets during the period were the investment-grade Lehman U.S.
characterized by a consolidating market Aggregate Bond Index, fixed-rate The materials sector posted a loss,
environment with returns more muted than mortgage-backed securities averaged the largely on fears of a slowing Chinese
those experienced during 2003. Strong highest results, followed by U.S. agency economy. Our overweight position in the
macroeconomic news on the industrial and investments, U.S. Treasuries of various consumer discretionary sector, which
employment fronts was offset by concerns maturities, and U.S. corporate generated flat returns, also hindered
over higher interest rates, continued instruments. fund performance. Concerns about the
violence in Iraq and persistently high impact of rising interest rates and high
oil prices. YOUR FUND oil prices resulted in poor relative
performance for this sector.
As the reporting period closed, the The fund's overweight position in
U.S. Federal Reserve (the Fed) voted to industrials, one of the best performing Among specific holdings that most
hike the sectors of the Russell 1000 Value Index, benefited fund performance were
along with strong stock selection in the manufacturing conglomerate Tyco and
sector, helped fuel posi- pharmaceuticals manufacturer Aventis.
Tyco continued to move beyond the
controversy associated with its former
chief executive officer, as investors
focused
</Table>
<Table>
====================================================================================================================================
TOP 10 EQUITY HOLDINGS* TOP 10 INDUSTRIES* TOP 10 FIXED INCOME ISSUERS*
1. Tyco International Ltd. (Bermuda) 3.0% 1. Mortgage Backed U.S. Agency 1. Federal National Mortgage
Securities 9.6% Association 7.2%
2. First Data Corp. 2.3
2. Other Diversified Financial 2. U.S. Treasury Securities 5.0
3. Fannie Mae 2.2 Services 5.3
3. Federal Home Loan Bank 4.5
4. Cardinal Health, Inc. 2.1 3. Non-Mortgage Backed U.S. Agency
Securities 5.1 4. Federal Home Loan Mortgage
5. Waste Management, Inc. 2.1 Corp. 1.8
4. U.S. Treasury Securities 5.0
6. Computer Associates 5. Governmental National
International, Inc. 2.1 5. Industrial Conglomerates 4.6 Mortgage Association 1.2
7. Cendant Corp. 2.0 6. Pharmaceuticals 4.3 6. General Motors Acceptance Corp. 0.8
8. Citigroup Inc. 1.9 7. Health Care Distributors 3.6 7. Ford Motor Credit Co. 0.8
9. Aventis S.A. (France) 1.8 8. Data Processing & Outsourced 8. Citicorp Lease 0.5
Services 3.5
10. Walt Disney Co. (The) 1.7 9. Hertz Corp. (The) 0.5
9. Diversified Banks 3.0
10. Time Warner Cos. Inc. 0.5
10. Advertising 2.9
*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>
on accelerating sales growth, margin changing opportunities, our disciplined R. CANON COLEMAN II
expansion opportunities and significant process has precipitated a gradual move Mr. Coleman, Chartered
cash-flow generation. The strength in into more economically defensive sectors [COLEMAN Financial Analyst,
Aventis was primarily attributable to such as health care as we are PHOTO] joined AMVESCAP in 1999
the company's recent decision to merge increasingly able to find attractive Mr. Coleman earned a
with another French pharmaceuticals valuation opportunities in these areas. B.S. and an M.S. in
manufacturer, Sanofi-Synthelabo S.A. accounting from the University of
While the changes have led to a Florida. He also has an M.B.A. from The
Detractors from fund performance modest reduction in degrees the equity Wharton School at the University of
included pharmaceuticals manufacturer portfolio is geared to a recovery Pennsylvania.
Wyeth and investment banking firm Morgan scenario, we believe they have also
Stanley. Wyeth, maker of both further diversified the fund and JAN H. FRIEDLI
prescription drugs and over-the-counter increased its value content. The Mr. Friedli began his
health products, saw its stock weaken fixed-income portfolio performed in line [FRIEDLI investment career in
because of the perception of increased with fixed-income markets, as measured PHOTO] 1990 and has worked as a
risk related to diet drug litigation. by the Lehman U.S. Aggregate Bond Index, portfolio manager since
Morgan Stanley, like many companies in which experienced a difficult quarter as 1997. He joined AIM in
the financial sector, declined on fears short-term interest rates began to trend 1999. Mr. Friedli earned a B.S. in
of rising interest rates. The fund upward. In this unfavorable environment, computer science from Villanova
continued to hold both companies at the the portfolio benefited from its reduced University and an M.B.A. with honors from
end of the period. duration profile. In addition, the the University of Chicago.
portfolio's exposure to high-coupon
At this point in the economic mortgage-backed securities also helped SCOT W. JOHNSON
recovery, the extremes created in the contribute to performance given the Mr. Johnson, Chartered
recent bear market have largely been defensive nature of their above-market [JOHNSON Financial Analyst,
erased. As markets have rallied, the coupon rates and more stable prepayment PHOTO] joined AIM in 1994 as a
abundance of compelling valuation patterns. Importantly, the portfolio's junior portfolio
opportunities in economically-sensitive credit profile remained very strong with analyst. He received
stocks relative to more defensive stocks a weighted-average AA rating. both his bachelor's degree in economics
has significantly decreased. At the and an M.B.A. in finance from Vanderbilt
close of the reporting period, we saw IN CLOSING University.
almost equally attractive valuation
opportunities in both areas. Based on The absence of a long-term investment MATTHEW W. SEINSHEIMER
our estimates, the relative valuation horizon is a major obstacle many face in Mr. Seinsheimer,
advantage smaller companies enjoyed building significant wealth. Normal [SEINSHEIMER Chartered Financial
during the past several years also market volatility limits our ability to PHOTO] Analyst, began his
appears to have been corrected by the measure success, but over longer time investment career in
significant outperformance of small- and periods, we believe we have the 1992. He joined AIM in
mid-cap stocks in recent periods. As a potential to turn market volatility into 1998. He received a B.B.A. from Southern
result of these capital appreciation. Our equity Methodist University and an M.B.A. from
strategy is to invest in quality The University of Texas at Austin.
companies when they are significantly
undervalued by the market. We believe a MICHAEL J. SIMON
long-term investment horizon and Mr. Simon, Chartered
attractive value content are critical to [SIMON Financial Analyst,
creating wealth. At the close of the PHOTO] joined AIM in 2001.
period, the discount between market Mr. Simon, who began his
value and our estimate of portfolio investment career in
intrinsic value remained attractive. We 1989, received a B.B.A. in finance from
will continue to work hard to grow this Texas Christian University and an M.B.A.
portfolio value. Thank you for your from the University of Chicago.
investment and for sharing our long-term
horizon. BRET W. STANLEY
Mr. Stanley, Chartered
[STANLEY Financial Analyst, is
See important fund and index PHOTO] lead portfolio manager
disclosures inside front cover. of AIM Balanced Fund and
the head of AIM's Value
Investment Management Unit. Prior to
joining AIM in 1998, Mr. Stanley managed
growth and income, equity income and
value portfolios. Mr. Stanley received a
B.B.A. in finance from The University of
Texas at Austin and an M.S. in finance
from the University of Houston.
Assisted by the Basic Value and
Investment Grade teams
========================================================================================
FUND VS. INDEXES
Total returns 12/31/03-6/30/04, excluding applicable sales charges. If applicable sales
charges were included, returns would be lower.
CLASS A SHARES 3.66%
CLASS B SHARES 3.32
CLASS C SHARES 3.32
CLASS R SHARES 3.57
S&P 500 INDEX
(BROAD MARKET INDEX) 3.44
60% RUSSELL 1000 INDEX/
40% LEHMAN U.S. AGGREGATE BOND INDEX
(STYLE-SPECIFIC INDEX) 2.41
LIPPER BALANCED FUND INDEX
(PEER GROUP INDEX) 2.25
SOURCE: LIPPER, INC.
TOTAL NUMBER OF HOLDINGS* 470
TOTAL NET ASSETS $2.1 BILLION
======================================================================================== [RIGHT ARROW GRAPHIC]
FOR A PRESENTATION OF YOUR FUND'S
LONG-TERM PERFORMANCE RECORD, PLEASE
TURN THE PAGE.
</Table>
3
LONG-TERM PERFORMANCE
YOUR FUND'S LONG-TERM PERFORMANCE
================================================================================
Below you will find a presentation of your fund's long-term performance record
for periods ended 6/30/04, the close of the six-month period covered by this
report.
Please read the important disclosure accompanying these tables, which explains
how fund performance is calculated and the sales charges, if any, that apply to
the share class in which you are invested.
================================================================================
<Table>
====================================================================================================================================
AVERAGE ANNUAL TOTAL RETURNS Class R shares' inception date is Class A share performance reflects
As of 6/30/04, including applicable 6/3/02. Returns since that date are the maximum 4.75% sales charge, and
sales charges historical returns. All other returns Class B and Class C share performance
are blended returns of historical Class reflects the applicable contingent
CLASS A SHARES R share performance and restated Class A deferred sales charge (CDSC) for the
Inception (3/31/78) 9.35% share performance (for periods prior to period involved. The CDSC on Class B
10 Years 8.08 the inception date of Class R shares) at shares declines from 5% beginning at the
5 Years -1.75 net asset value, adjusted to reflect the time of purchase to 0% at the beginning
1 Year 7.48 higher Rule 12b-1 fees applicable to of the seventh year. The CDSC on Class C
Class R shares. shares is 1% for the first year after
CLASS B SHARES purchase. Class R shares do not have a
Inception (10/18/93) 6.46% The performance data quoted represent front-end sales charge; returns shown
10 Years 7.92 past performance and cannot guarantee are at net asset value and do not
5 Years -1.90 comparable future results; current reflect a 0.75% CDSC that may be imposed
1 Year 7.02 performance may be lower or higher. on a total redemption of retirement plan
Please visit AIMinvestments.com for the assets within the first year.
CLASS C SHARES most recent month-end performance.
Inception (8/4/97) 1.80% Performance figures reflect reinvested The performance of the fund's share
5 Years -1.53 distributions, changes in net asset classes will differ due to different
1 Year 11.04 value and the effect of the maximum sales charge structures and class
sales charge unless otherwise stated. expenses.
CLASS R SHARES Investment return and principal value
10 Years 8.35% will fluctuate so that you may have a Had the advisor not waived fees and/or
5 Years -1.03 gain or loss when you sell shares. reimbursed expenses in the past, Class A
1 Year 12.58 and Class R share performance would have
been lower.
[ARROW
BUTTON For More Information Visit
Image] AIMinvestments.com
====================================================================================================================================
</Table>
4
SUPPLEMENT TO SEMIANNUAL REPORT DATED 6/30/04
AIM BALANCED FUND
<Table>
===================================================================================================================================
INSTITUTIONAL CLASS SHARES AVERAGE ANNUAL TOTAL RETURNS Please note that past performance is not
For periods ended 6/30/04 indicative of future results. More
The following information has been recent returns may be more or less than
prepared to provide Institutional Class Inception (3/15/02) 0.54% those shown. All returns assume
shareholders with a performance overview 1 Year 13.24 reinvestment of distributions at net
specific to their holdings. 6 Months* 3.84 asset value. Investment return and
Institutional Class shares are offered principal value will fluctuate so your
exclusively to institutional investors, *Cumulative total return that has not been shares, when redeemed, may be worth more
including defined contribution plans annualized or less than their original cost. See
that meet certain criteria. full report for information on
Institutional Class shares have no sales comparative benchmarks. Please consult
charge; therefore, performance is at your fund prospectus for more
NAV. Performance of Institutional Class information. For the most current
shares will differ from performance of month-end performance, please call
other share classes due to differing 800-451-4246 or visit
sales charges and class expenses. AIMinvestments.com.
===================================================================================================================================
</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.
<Table>
AIMinvestments.com BAL-INS-2 8/04 A I M Distributors, Inc. YOUR GOALS. OUR SOLUTIONS. [AIM INVESTMENTS LOGO APPEARS HERE]
--Registered Trademark-- --Registered Trademark--
</Table>
FINANCIALS
SCHEDULE OF INVESTMENTS
June 30, 2004
(Unaudited)
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
STOCKS & OTHER EQUITY INTERESTS-65.67%
ADVERTISING-2.75%
Interpublic Group of Cos., Inc. (The)(a) 1,650,000 $ 22,654,500
- --------------------------------------------------------------------------
Omnicom Group Inc. 455,000 34,529,950
==========================================================================
57,184,450
==========================================================================
AEROSPACE & DEFENSE-1.18%
Honeywell International Inc. 673,000 24,651,990
==========================================================================
ALUMINUM-1.02%
Alcoa Inc.(b) 646,000 21,337,380
==========================================================================
APPAREL RETAIL-1.38%
Gap, Inc. (The)(b) 1,185,000 28,736,250
==========================================================================
ASSET MANAGEMENT & CUSTODY BANKS-1.27%
Bank of New York Co., Inc. (The) 895,000 26,384,600
==========================================================================
BUILDING PRODUCTS-2.50%
American Standard Cos. Inc.(a) 493,900 19,909,109
- --------------------------------------------------------------------------
Masco Corp. 1,030,000 32,115,400
==========================================================================
52,024,509
==========================================================================
COMMUNICATIONS EQUIPMENT-0.68%
Motorola, Inc. 775,000 14,143,750
==========================================================================
CONSUMER ELECTRONICS-2.26%
Koninklijke (Royal) Philips Electronics
N.V.-New York Shares (Netherlands) 766,000 20,835,200
- --------------------------------------------------------------------------
Sony Corp.-ADR (Japan) 687,000 26,140,350
==========================================================================
46,975,550
==========================================================================
DATA PROCESSING & OUTSOURCED SERVICES-3.54%
Ceridian Corp.(a) 1,153,000 25,942,500
- --------------------------------------------------------------------------
First Data Corp.(b) 1,073,000 47,769,960
==========================================================================
73,712,460
==========================================================================
DEPARTMENT STORES-0.87%
May Department Stores Co. (The) 663,000 18,225,870
==========================================================================
DIVERSIFIED BANKS-1.37%
Bank One Corp. 560,000 28,560,000
==========================================================================
DIVERSIFIED CHEMICALS-0.47%
Dow Chemical Co. (The) 242,000 9,849,400
==========================================================================
DIVERSIFIED COMMERCIAL SERVICES-2.04%
Cendant Corp. 1,739,000 42,570,720
==========================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
ENVIRONMENTAL SERVICES-2.10%
Waste Management, Inc. 1,425,000 $ 43,676,250
==========================================================================
FOOD RETAIL-2.60%
Kroger Co. (The)(a) 1,592,000 28,974,400
- --------------------------------------------------------------------------
Safeway Inc.(a)(b) 993,000 25,162,620
==========================================================================
54,137,020
==========================================================================
GENERAL MERCHANDISE STORES-1.42%
Target Corp. 697,300 29,614,331
==========================================================================
HEALTH CARE DISTRIBUTORS-3.63%
Cardinal Health, Inc.(b) 634,200 44,425,710
- --------------------------------------------------------------------------
McKesson Corp. 910,000 31,240,300
==========================================================================
75,666,010
==========================================================================
HEALTH CARE EQUIPMENT-0.98%
Baxter International Inc. 594,000 20,498,940
==========================================================================
HEALTH CARE FACILITIES-1.34%
HCA Inc. 673,000 27,990,070
==========================================================================
HEALTH CARE SERVICES-0.44%
IMS Health Inc. 388,000 9,094,720
==========================================================================
INDUSTRIAL CONGLOMERATES-4.37%
General Electric Co. 901,000 29,192,400
- --------------------------------------------------------------------------
Tyco International Ltd. (Bermuda)(b) 1,867,000 61,872,380
==========================================================================
91,064,780
==========================================================================
INDUSTRIAL MACHINERY-1.60%
Illinois Tool Works Inc.(b) 347,000 33,273,830
==========================================================================
INSURANCE BROKERS-0.75%
Aon Corp.(b) 550,000 15,658,500
==========================================================================
INVESTMENT BANKING & BROKERAGE-2.58%
Merrill Lynch & Co., Inc. 451,500 24,371,970
- --------------------------------------------------------------------------
Morgan Stanley 555,000 29,287,350
==========================================================================
53,659,320
==========================================================================
MANAGED HEALTH CARE-1.56%
Anthem, Inc.(a)(b) 364,000 32,599,840
==========================================================================
MOVIES & ENTERTAINMENT-1.72%
Walt Disney Co. (The) 1,405,000 35,813,450
==========================================================================
MULTI-LINE INSURANCE-1.05%
Hartford Financial Services Group, Inc. (The) 317,700 21,838,698
==========================================================================
OIL & GAS DRILLING-1.33%
Transocean Inc. (Cayman Islands)(a) 955,000 27,637,700
==========================================================================
</Table>
F-1
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
OIL & GAS EQUIPMENT & SERVICES-2.61%
Halliburton Co. 965,000 $ 29,200,900
- --------------------------------------------------------------------------
Schlumberger Ltd. (Netherlands)(b) 395,000 25,086,450
==========================================================================
54,287,350
==========================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES-2.96%
Citigroup Inc. 871,933 40,544,884
- --------------------------------------------------------------------------
J.P. Morgan Chase & Co. 465,000 18,028,050
- --------------------------------------------------------------------------
Zurich RegCaPS Funding Trust III, 1.71%
Floating Rate Pfd. (Acquired 06/03/2004;
Cost $3,167,277)(c)(d) 3,250 3,168,750
==========================================================================
61,741,684
==========================================================================
PACKAGED FOODS & MEATS-0.96%
Kraft Foods Inc.-Class A 633,000 20,053,440
==========================================================================
PHARMACEUTICALS-4.32%
Aventis S.A. (France) 492,000 37,229,628
- --------------------------------------------------------------------------
Pfizer Inc. 773,000 26,498,440
- --------------------------------------------------------------------------
Sanofi-Syntelabo S.A. (France)(b) 42,000 2,668,510
- --------------------------------------------------------------------------
Wyeth 649,600 23,489,536
==========================================================================
89,886,114
==========================================================================
PROPERTY & CASUALTY INSURANCE-1.63%
ACE Ltd. (Cayman Islands) 801,000 33,866,280
==========================================================================
SYSTEMS SOFTWARE-2.06%
Computer Associates International, Inc.(b) 1,532,000 42,987,920
==========================================================================
THRIFTS & MORTGAGE FINANCE-2.33%
Fannie Mae 641,300 45,763,168
- --------------------------------------------------------------------------
Fannie Mae-Series K, 3.00% Pfd 55,000 2,755,500
==========================================================================
48,518,668
==========================================================================
Total Stocks & Other Equity Interests
(Cost $1,218,029,598) 1,367,921,844
==========================================================================
<Caption>
PRINCIPAL
AMOUNT
BONDS & NOTES-15.28%
ADVERTISING-0.12%
Interpublic Group of Cos., Inc. (The), Sr.
Unsec. Notes, 7.88%, 10/15/05 $2,275,000 2,419,508
==========================================================================
AEROSPACE & DEFENSE-0.02%
Lockheed Martin Corp.-Series A, Medium Term
Notes, 8.66%, 11/30/06 300,000 332,355
==========================================================================
AUTOMOBILE MANUFACTURERS-0.04%
DaimlerChrysler N.A. Holding Corp.-Series D,
Gtd. Medium Term Notes, 3.40%, 12/15/04 775,000 779,603
==========================================================================
BROADCASTING & CABLE TV-0.88%
Continental Cablevision, Inc., Sr. Unsec.
Deb., 9.50%, 08/01/13 1,710,000 1,915,867
- --------------------------------------------------------------------------
</Table>
<Table>
- --------------------------------------------------------------------------
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
BROADCASTING & CABLE TV-(CONTINUED)
Cox Communications, Inc., Unsec. Notes,
6.88%, 06/15/05 $ 600,000 $ 623,874
- --------------------------------------------------------------------------
7.50%, 08/15/04 1,000,000 1,007,310
- --------------------------------------------------------------------------
Cox Radio, Inc., Sr. Unsec. Notes, 6.63%,
02/15/06 750,000 789,945
- --------------------------------------------------------------------------
Rogers Cable Inc. (Canada)-Series B, Sr. Sec.
Yankee Notes, 10.00%, 03/15/05 1,575,000 1,645,875
- --------------------------------------------------------------------------
TCI Communications, Inc., Sr. Notes, 8.65%,
09/15/04 2,450,000 2,481,629
- --------------------------------------------------------------------------
Time Warner Cos. Inc.,
Notes, 7.98%, 08/15/04 2,150,000 2,166,877
- --------------------------------------------------------------------------
Sr. Unsec. Gtd. Deb.,
6.88%, 06/15/18 3,835,000 4,027,785
- --------------------------------------------------------------------------
7.57%, 02/01/24 1,200,000 1,298,970
- --------------------------------------------------------------------------
Unsec. Notes, 7.75%, 06/15/05 2,307,000 2,414,945
==========================================================================
18,373,077
==========================================================================
CONSUMER FINANCE-2.15%
Associates Corp. of North America, Sr. Global
Deb., 6.95%, 11/01/18 3,475,000 3,864,096
- --------------------------------------------------------------------------
Capital One Bank, Sr. Global Notes, 8.25%,
06/15/05 3,885,000 4,095,528
- --------------------------------------------------------------------------
Capital One Financial Corp.,
Sr. Unsec. Notes, 7.25%, 05/01/06 1,820,000 1,924,377
- --------------------------------------------------------------------------
Unsec. Notes, 7.13%, 08/01/08 1,000,000 1,072,210
- --------------------------------------------------------------------------
Ford Motor Credit Co.,
Floating Rate Global Notes,
3.05%, 10/25/04(d) 2,000,000 2,004,260
- --------------------------------------------------------------------------
Notes, 6.75%, 05/15/05 325,000 335,608
- --------------------------------------------------------------------------
Unsec. Global Notes,
6.50%, 01/25/07 750,000 789,225
- --------------------------------------------------------------------------
6.88%, 02/01/06 6,690,000 7,026,841
- --------------------------------------------------------------------------
7.50%, 03/15/05 3,615,000 3,735,054
- --------------------------------------------------------------------------
Unsec. Notes, 7.75%, 03/15/05 2,660,000 2,752,302
- --------------------------------------------------------------------------
General Motors Acceptance Corp.,
Floating Rate Medium Term Notes,
3.34%, 03/04/05(d)(e) 7,580,000 7,583,563
- --------------------------------------------------------------------------
Global Notes,
4.50%, 07/15/06 2,000,000 2,025,700
- --------------------------------------------------------------------------
7.50%, 07/15/05 400,000 418,816
- --------------------------------------------------------------------------
Medium Term Notes,
5.25%, 05/16/05 700,000 714,385
- --------------------------------------------------------------------------
5.36%, 07/27/04 2,835,000 2,842,343
- --------------------------------------------------------------------------
Unsec. Unsub. Global Notes, 6.75%,
01/15/06(e) 3,500,000 3,667,160
==========================================================================
44,851,468
==========================================================================
DIVERSIFIED BANKS-1.66%
AB Spintab, Bonds, 7.50% (Acquired 02/12/04;
Cost $3,682,866)(c)(f) 3,300,000 3,560,710
- --------------------------------------------------------------------------
American Savings Bank, Notes, 6.63%, 02/15/06
(Acquired 03/05/03; Cost $554,525)(c) 500,000 521,745
- --------------------------------------------------------------------------
</Table>
F-2
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
- --------------------------------------------------------------------------
DIVERSIFIED BANKS-(CONTINUED)
Banco Nacional de Comercio Exterior S.N.C.
(Mexico), Notes, 3.88%, 01/21/09 (Acquired
02/25/04; Cost $984,791)(c) $1,000,000 $ 949,878
- --------------------------------------------------------------------------
BankBoston Capital Trust IV, Gtd. Floating
Rate Notes, 1.97%, 06/08/28(d) 3,215,000 3,132,760
- --------------------------------------------------------------------------
Barclays Bank PLC (United Kingdom), Bonds,
8.55% (Acquired 11/05/03; Cost
$1,107,576)(c)(f) 900,000 1,071,301
- --------------------------------------------------------------------------
Centura Capital Trust I, Gtd. Notes, 8.85%,
06/01/27 (Acquired 05/22/03; Cost
$1,771,602)(c) 1,400,000 1,588,818
- --------------------------------------------------------------------------
Corporacion Andina de Fomento (Venezuela),
Unsec. Yankee Notes, 8.88%, 06/01/05 2,785,000 2,918,374
- --------------------------------------------------------------------------
Daiwa P.B. Ltd. (Cayman Islands), Gtd. Sub.
Floating Rate Medium Term Euro Notes,
2.15%(f) 1,200,000 1,188,000
- --------------------------------------------------------------------------
Danske Bank A/S (Denmark), Tier I Floating
Rate Bonds, 5.91% (Acquired 06/07/04; Cost
$1,245,000)(c)(f) 1,245,000 1,258,994
- --------------------------------------------------------------------------
HSBC Capital Funding L.P. (United Kingdom),
Gtd. Bonds, 4.61% (Acquired 11/05/03; Cost
$373,008)(c)(f) 400,000 363,031
- --------------------------------------------------------------------------
Lloyds Bank PLC (United Kingdom)-Series 1,
Unsec. Sub. Floating Rate Euro Notes,
2.19%(f) 3,870,000 3,381,041
- --------------------------------------------------------------------------
NBD Bank N.A. Michigan, Unsec. Putable Sub.
Deb., 8.25%, 11/01/04 1,715,000 2,104,202
- --------------------------------------------------------------------------
National Bank of Canada (Canada), Floating
Rate Euro Deb., 1.31%, 08/29/87(g) 1,500,000 1,335,385
- --------------------------------------------------------------------------
National Westminster Bank PLC (United
Kingdom)-Series B, Unsec. Sub. Floating
Rate Euro Notes, 1.38%(f) 1,000,000 863,073
- --------------------------------------------------------------------------
PNC Capital Trust C, Gtd. Floating Rate
Notes, 1.88%, 06/01/28(d) 1,000,000 942,210
- --------------------------------------------------------------------------
RBS Capital Trust I, Bonds, 4.71%(f) 400,000 368,356
- --------------------------------------------------------------------------
Wells Fargo & Co., Sr. Unsec. Global Notes,
3.75%, 10/15/07 6,750,000 6,761,677
- --------------------------------------------------------------------------
Wells Fargo Bank, N.A., Unsec. Sub. Global
Notes, 7.80%, 06/15/10 2,100,000 2,211,930
==========================================================================
34,521,485
==========================================================================
DIVERSIFIED CAPITAL MARKETS-0.19%
UBS Preferred Funding Trust I, Gtd. Global
Bonds, 8.62%(f) 3,385,000 4,043,619
==========================================================================
ELECTRIC UTILITIES-0.47%
AmerenEnergy Generating Co.-Series C, Sr.
Unsec. Global Notes, 7.75%, 11/01/05 350,000 373,093
- --------------------------------------------------------------------------
CenterPoint Energy, Inc.-Series B, Sr. Global
Notes, 5.88%, 06/01/08 900,000 910,962
- --------------------------------------------------------------------------
Cinergy Corp., Unsec. Sub. Global Deb.,
6.25%, 09/01/04 950,000 956,726
- --------------------------------------------------------------------------
Consolidated Edison Co. of New York, Unsec.
Deb., 7.75%, 06/01/26(h) 900,000 961,065
- --------------------------------------------------------------------------
</Table>
<Table>
- --------------------------------------------------------------------------
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
ELECTRIC UTILITIES-(CONTINUED)
Hydro-Quebec-Series B (Canada), Gtd. Medium
Term Notes, 8.62%, 12/15/11 $2,150,000 $ 2,628,569
- --------------------------------------------------------------------------
Pacific Gas & Electric Co., First Mortgage
Floating Rate Bonds, 1.81%, 04/03/06(d) 1,000,000 1,003,810
- --------------------------------------------------------------------------
Western Power Distribution Holdings Ltd.
(United Kingdom), Unsec. Unsub. Notes,
6.75%, 12/15/04 (Acquired 01/08/04; Cost
$815,419)(c) 785,000 796,072
- --------------------------------------------------------------------------
Yorkshire Power Finance (Cayman Islands)-
Series B, Sr. Unsec. Gtd. Unsub. Global
Notes, 6.50%, 02/25/08 2,075,000 2,120,324
==========================================================================
9,750,621
==========================================================================
FOOD RETAIL-0.21%
Kroger Co., Sr. Unsec. Gtd. Notes, 7.38%,
03/01/05 2,515,000 2,600,007
- --------------------------------------------------------------------------
Safeway Inc., Sr. Unsec. Notes, 2.50%,
11/01/05 1,750,000 1,741,092
==========================================================================
4,341,099
==========================================================================
GAS UTILITIES-0.37%
CenterPoint Energy Resources Corp., Unsec.
Deb., 6.50%, 02/01/08 1,145,000 1,207,322
- --------------------------------------------------------------------------
Columbia Energy Group-Series C, Notes, 6.80%,
11/28/05 4,500,000 4,737,195
- --------------------------------------------------------------------------
NiSource Capital Markets, Inc., Medium Term
Notes, 7.68%, 04/15/05 1,720,000 1,784,620
==========================================================================
7,729,137
==========================================================================
HEALTH CARE FACILITIES-0.24%
HCA Inc.,
Notes, 7.00%, 07/01/07 600,000 636,852
- --------------------------------------------------------------------------
Sr. Sub. Notes, 6.91%, 06/15/05 4,205,000 4,341,831
==========================================================================
4,978,683
==========================================================================
HOMEBUILDING-0.40%
D.R. Horton, Inc., Sr. Unsec. Notes, 7.88%,
08/15/11 1,760,000 1,936,000
- --------------------------------------------------------------------------
Lennar Corp.-Series B, Sr. Unsec. Gtd. Global
Notes, 9.95%, 05/01/10 3,855,000 4,298,325
- --------------------------------------------------------------------------
Pulte Homes, Inc., Unsec. Gtd. Notes, 7.30%,
10/24/05 1,500,000 1,577,565
- --------------------------------------------------------------------------
Ryland Group, Inc. (The), Sr. Unsec. Unsub.
Notes, 9.75%, 09/01/10 500,000 557,500
==========================================================================
8,369,390
==========================================================================
HYPERMARKETS & SUPER CENTERS-0.15%
Wal-Mart Stores, Inc., Unsec. Deb., 8.50%,
09/15/24 2,895,000 3,043,890
==========================================================================
INDUSTRIAL CONGLOMERATES-0.21%
Tyco International Group S.A (Bermuda),
Unsec. Unsub. Gtd. Yankee Notes, 6.38%,
06/15/05 3,530,000 3,654,856
- --------------------------------------------------------------------------
</Table>
F-3
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
- --------------------------------------------------------------------------
INDUSTRIAL CONGLOMERATES-(CONTINUED)
URC Holdings Corp., Sr. Notes, 7.88%,
06/30/06 (Acquired 10/08/03; Cost
$849,203)(c) $ 750,000 $ 816,622
==========================================================================
4,471,478
==========================================================================
INTEGRATED OIL & GAS-0.13%
ConocoPhillips, Unsec. Deb., 7.13%, 03/15/28 1,000,000 1,074,380
- --------------------------------------------------------------------------
Repsol International Finance B.V.
(Netherlands), Unsec. Gtd. Global Notes,
7.45%, 07/15/05 1,590,000 1,667,290
==========================================================================
2,741,670
==========================================================================
INTEGRATED TELECOMMUNICATION SERVICES-1.12%
Citizens Communications Co., Sr. Unsec.
Notes, 9.25%, 05/15/11 800,000 840,308
- --------------------------------------------------------------------------
France Telecom S.A. (France), Sr. Unsec.
Global Notes, 8.50%, 03/01/31 930,000 1,169,596
- --------------------------------------------------------------------------
GTE California Inc.-Series F, Unsec. Deb.,
6.75%, 05/15/27 1,000,000 1,012,430
- --------------------------------------------------------------------------
GTE Hawaiian Telephone Co., Inc.-Series A,
Unsec. Deb., 7.00%, 02/01/06 2,655,000 2,716,569
- --------------------------------------------------------------------------
Sprint Capital Corp.,
Sr. Unsec. Gtd. Global Notes, 7.13%,
01/30/06 2,285,000 2,421,026
- --------------------------------------------------------------------------
Unsec. Gtd. Global Notes, 7.90%, 03/15/05 1,865,000 1,938,966
- --------------------------------------------------------------------------
Sprint Corp., Deb. 9.25%, 04/15/22 1,000,000 1,211,410
- --------------------------------------------------------------------------
TELUS Corp. (Canada), Yankee Notes,
7.50%, 06/01/07 1,850,000 2,016,773
- --------------------------------------------------------------------------
8.00%, 06/01/11 1,000,000 1,149,593
- --------------------------------------------------------------------------
Verizon Communications, Inc., Unsec. Deb.,
6.36%, 04/15/06 2,570,000 2,707,032
- --------------------------------------------------------------------------
6.94%, 04/15/28 1,000,000 1,023,040
- --------------------------------------------------------------------------
8.75%, 11/01/21 1,350,000 1,663,902
- --------------------------------------------------------------------------
Verizon New York Inc.-Series A, Sr. Unsec.
Global Deb., 6.88%, 04/01/12 2,400,000 2,585,520
- --------------------------------------------------------------------------
Verizon Virginia Inc.-Series A, Unsec. Global
Deb., 4.63%, 03/15/13 950,000 887,053
==========================================================================
23,343,218
==========================================================================
INVESTMENT BANKING & BROKERAGE-0.26%
Lehman Brothers Inc.,
Sr. Sub. Deb., 11.63%, 05/15/05 2,645,000 2,829,621
- --------------------------------------------------------------------------
Sr. Unsec. Sub. Notes, 7.63%, 06/01/06 1,000,000 1,084,010
- --------------------------------------------------------------------------
Merrill Lynch & Co., Inc.-Series B, Medium
Term Notes, 4.54%, 03/08/05 1,415,000 1,439,027
==========================================================================
5,352,658
==========================================================================
LIFE & HEALTH INSURANCE-0.49%
Lincoln National Corp., Unsec. Deb., 9.13%,
10/01/24 4,870,000 5,151,291
- --------------------------------------------------------------------------
Prudential Holdings, LLC-Series B, Bonds,
7.25%, 12/18/23 (Acquired
01/22/04-01/29/04; Cost $4,717,650)(c)(h) 4,000,000 4,497,480
- --------------------------------------------------------------------------
</Table>
<Table>
- --------------------------------------------------------------------------
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
LIFE & HEALTH INSURANCE-(CONTINUED)
ReliaStar Financial Corp., Unsec. Notes,
8.00%, 10/30/06 $ 600,000 $ 652,386
==========================================================================
10,301,157
==========================================================================
MOVIES & ENTERTAINMENT-0.02%
Walt Disney Co. (The), Global Notes, 4.88%,
07/02/04 470,000 470,630
==========================================================================
MULTI-UTILITIES & UNREGULATED POWER-0.25%
Dominion Resources, Inc.,
Series E, Sr. Unsec. Unsub. Notes,
7.82%, 09/15/04 2,100,000 2,123,898
- --------------------------------------------------------------------------
Series F, Sr. Unsec. Putable Notes, 5.25%,
08/01/15 3,255,000 3,130,985
==========================================================================
5,254,883
==========================================================================
MUNICIPALITIES-0.60%
Harris (County of), Texas; Refunding
Unlimited Road Tax Series 2004 A GO
4.50%, 10/01/09(i) 1,000,000 1,056,250
- --------------------------------------------------------------------------
Industry (City of), California; Urban
Development Agency; (Project 3 TXB) Series
2003 B Tax Allocation, 6.10%,
05/01/24(h)(i) 1,910,000 1,895,675
- --------------------------------------------------------------------------
Maine (State of); Unlimited Tax Series 2004
GO
5.00%, 01/15/09(i) 870,000 938,513
- --------------------------------------------------------------------------
Phoenix (City of), Arizona Civic Improvement
Corp.; Taxable Rental Car Facility Series
2004 RB
3.69%, 07/01/07(h)(i) 1,000,000 1,000,000
- --------------------------------------------------------------------------
4.21%, 07/01/08(h)(i) 1,185,000 1,187,963
- --------------------------------------------------------------------------
6.25%, 07/01/29(h)(i) 1,720,000 1,767,300
- --------------------------------------------------------------------------
Sacramento (County of), California; Taxable
Pension Funding Series 2004 C-1 RB
0.26%, 07/01/30(h)(i)(j) 4,425,000 4,137,375
- --------------------------------------------------------------------------
University of Arizona; Series 2004 A COP
5.25%, 06/01/09(h)(i) 375,000 410,625
==========================================================================
12,393,701
==========================================================================
OIL & GAS DRILLING-0.03%
Transocean Inc. (Cayman Islands), Sr. Unsec.
Unsub. Global Deb., 8.00%, 04/15/27 600,000 708,906
==========================================================================
OIL & GAS REFINING, MARKETING &
TRANSPORTATION-0.03%
Plains All American Pipeline L.P./PAA Finance
Corp., Sr. Notes, 5.63%, 12/15/13 (Acquired
12/03/03; Cost $698,138)(c) 700,000 670,096
==========================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES-1.55%
Bombardier Capital, Inc., Notes, 7.50%,
08/15/04 (Acquired 04/13/04-06/02/04; Cost
$8,206,480)(c) 8,080,000 8,130,500
- --------------------------------------------------------------------------
CIT Group Inc., Sr. Unsec. Unsub. Global
Notes, 7.63%, 08/16/05 675,000 712,355
- --------------------------------------------------------------------------
</Table>
F-4
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
- --------------------------------------------------------------------------
OTHER DIVERSIFIED FINANCIAL SERVICES-(CONTINUED)
General Electric Capital Corp.-Series A,
Medium Term Global Notes, 2.85%, 01/30/06 $ 400,000 $ 400,632
- --------------------------------------------------------------------------
Heller Financial, Inc.-Class A, Sr. Unsec.
Global Notes, 8.00%, 06/15/05 2,425,000 2,544,334
- --------------------------------------------------------------------------
ING Capital Funding Trust III, Gtd. Global
Bonds, 8.44%(f) 900,000 1,050,003
- --------------------------------------------------------------------------
Mizuho JGB Investment LLC-Series A, Bonds,
9.87%, (Acquired 06/16/04; Cost
$1,357,500)(c)(f) 1,200,000 1,354,668
- --------------------------------------------------------------------------
Ohana Military Communities, LLC-Series A,
Class I, Notes, 6.04%, 10/01/34 550,000 536,008
- --------------------------------------------------------------------------
Pemex Finance Ltd. (Cayman Islands),
Sr. Unsec. Global Notes, 8.02%, 05/15/07 2,200,000 2,355,232
- --------------------------------------------------------------------------
Series 1999-2, Class A1, Global Bonds, 9.69%,
08/15/09 2,900,000 3,311,452
- --------------------------------------------------------------------------
Pemex Project Funding Master Trust, Unsec.
Gtd. Unsub. Global Notes, 7.38%, 12/15/14 3,535,000 3,605,700
- --------------------------------------------------------------------------
PLC Trust 2003-1, Sec. Notes, 2.71%, 03/31/06
(Acquired 03/23/04; Cost $1,333,211)(c) 1,315,244 1,316,733
- --------------------------------------------------------------------------
Premium Asset 2004-04 Trust, Sr. Notes,
4.13%, 03/12/09 (Acquired 03/04/04; Cost
$3,572,605)(c) 3,575,000 3,452,502
- --------------------------------------------------------------------------
XTRA, Inc.-Series C, Gtd. Medium Term Notes,
7.70%, 11/02/04 3,475,000 3,525,561
==========================================================================
32,295,680
==========================================================================
PROPERTY & CASUALTY INSURANCE-0.18%
First American Capital Trust I, Gtd. Notes,
8.50%, 04/15/12 1,895,000 2,111,276
- --------------------------------------------------------------------------
Oil Insurance Ltd. (Bermuda), Unsec. Sub.
Deb., 5.15%, 08/15/33 (Acquired 03/23/04;
Cost $908,164)(c) 865,000 866,488
- --------------------------------------------------------------------------
Travelers Property Casualty Corp., Sr. Unsec.
Notes, 6.75%, 11/15/06 700,000 749,231
==========================================================================
3,726,995
==========================================================================
PUBLISHING-0.07%
News America Holdings, Inc., Sr. Unsec. Gtd.
Deb., 7.75%, 01/20/24 1,265,000 1,433,561
==========================================================================
REAL ESTATE-0.10%
EOP Operating L.P., Unsec. Notes, 8.38%,
03/15/06 1,250,000 1,355,088
- --------------------------------------------------------------------------
Spieker Properties, Inc., Medium Term Notes,
8.00%, 07/19/05 600,000 632,388
==========================================================================
1,987,476
==========================================================================
REAL ESTATE MANAGEMENT & DEVELOPMENT-0.10%
Southern Investment UK PLC (United Kingdom),
Sr. Unsec. Unsub. Yankee Notes, 6.80%,
12/01/06 1,925,000 2,020,884
==========================================================================
</Table>
<Table>
- --------------------------------------------------------------------------
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
REGIONAL BANKS-1.10%
Cullen/Frost Capital Trust I, Floating Rate
Notes, 2.86%, 03/01/34 (Acquired 02/06/04;
Cost $3,400,000)(c)(d) $3,400,000 $ 3,437,570
- --------------------------------------------------------------------------
Greater Bay Bancorp-Series B, Sr. Notes,
5.25%, 03/31/08 3,000,000 2,977,710
- --------------------------------------------------------------------------
Popular North America, Inc., Gtd. Notes,
4.70%, 06/30/09 7,175,000 7,173,852
- --------------------------------------------------------------------------
Santander Financial Issuances (Cayman
Islands), Sec. Sub. Floating Rate Euro
Notes, 2.25%(f) 8,000,000 7,975,760
- --------------------------------------------------------------------------
TCF Financial Bank, Sub. Notes, 5.00%,
06/15/14 1,400,000 1,409,319
==========================================================================
22,974,211
==========================================================================
REINSURANCE-0.11%
GE Global Insurance Holding Corp., Unsec.
Notes, 7.50%, 06/15/10 2,000,000 2,257,080
==========================================================================
RESTAURANTS-0.04%
McDonald's Corp., Unsec. Deb., 7.05%,
11/15/25 850,000 909,296
==========================================================================
SOVEREIGN DEBT-0.70%
Japan Bank for International Cooperative
(Japan), Unsec. Gtd. Euro Bonds, 6.50%,
10/06/05 4,600,000 4,815,841
- --------------------------------------------------------------------------
New Brunswick (Province of) (Canada), Sec.
Yankee Deb., 6.75%, 08/15/13 830,000 946,391
- --------------------------------------------------------------------------
Quebec (Province of) (Canada), Sr. Unsec.
Unsub. Global Deb., 5.75%, 02/15/09 1,400,000 1,496,446
- --------------------------------------------------------------------------
Russian Federation (Russia),
Unsec. Unsub. Disc. Bonds,
7.50%, 03/31/30 (Acquired 05/18/04; Cost
$1,260,875)(c)(k) 1,400,000 1,284,500
- --------------------------------------------------------------------------
Unsec. Unsub. REGS Euro Bonds,
8.75%, 07/24/05 2,100,000 2,218,724
- --------------------------------------------------------------------------
10.00%, 06/26/07 1,680,000 1,896,663
- --------------------------------------------------------------------------
United Mexican States (Mexico),
Global Notes, 6.63%, 03/03/15 490,000 482,650
- --------------------------------------------------------------------------
Series A, Medium Term Global Notes, 7.50%,
04/08/33 1,570,000 1,520,938
==========================================================================
14,662,153
==========================================================================
SPECIALTY CHEMICALS-0.08%
ICI Wilmington Inc., Gtd. Notes, 6.95%,
09/15/04 1,575,000 1,588,750
==========================================================================
THRIFTS & MORTGAGE FINANCE-0.16%
Greenpoint Capital Trust I, Gtd. Sub. Notes,
9.10%, 06/01/27 950,000 1,082,782
- --------------------------------------------------------------------------
Sovereign Bancorp, Inc., Sr. Unsec. Notes,
10.50%, 11/15/06 400,000 458,632
- --------------------------------------------------------------------------
Washington Mutual Finance Corp., Sr. Unsec.
Notes, 8.25%, 06/15/05 1,775,000 1,869,235
==========================================================================
3,410,649
==========================================================================
TOBACCO-0.05%
Altria Group, Inc.,
Sr. Unsec. Notes, 7.00%, 11/04/13 700,000 715,267
- --------------------------------------------------------------------------
</Table>
F-5
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
- --------------------------------------------------------------------------
TOBACCO-(CONTINUED)
Unsec. Notes, 6.38%, 02/01/06 $ 350,000 $ 361,193
==========================================================================
1,076,460
==========================================================================
TRUCKING-0.63%
Hertz Corp. (The),
Floating Rate Global Notes,
1.77%, 08/13/04(d) 8,100,000 8,102,025
- --------------------------------------------------------------------------
Notes, 7.00%, 07/01/04 2,000,000 2,002,780
- --------------------------------------------------------------------------
Roadway Corp., Sr. Unsec. Gtd. Global Notes,
8.25%, 12/01/08 2,655,000 2,966,750
==========================================================================
13,071,555
==========================================================================
WIRELESS TELECOMMUNICATION SERVICES-0.37%
TeleCorp PCS, Inc., Sr. Unsec. Gtd. Sub.
Global Notes, 10.63%, 07/15/10 4,355,000 4,975,588
- --------------------------------------------------------------------------
Tritel PCS Inc., Sr. Unsec. Gtd. Sub. Global
Notes, 10.38%, 01/15/11 2,300,000 2,627,750
==========================================================================
7,603,338
==========================================================================
Total Bonds & Notes (Cost $322,965,945) 318,260,420
==========================================================================
U.S. MORTGAGE-BACKED SECURITIES-9.57%
FEDERAL HOME LOAN MORTGAGE CORP.
(FHLMC)-1.80%
Pass Through Ctfs.,
5.50%, 05/01/13 to 12/01/33 4,058,889 4,151,478
- --------------------------------------------------------------------------
7.00%, 06/01/15 to 06/01/32 5,820,950 6,151,448
- --------------------------------------------------------------------------
6.50%, 05/01/16 to 03/01/33 9,898,047 10,335,413
- --------------------------------------------------------------------------
6.00%, 04/01/17 to 01/01/34 11,184,336 11,593,772
- --------------------------------------------------------------------------
8.00%, 01/01/27 1,421,225 1,556,908
- --------------------------------------------------------------------------
7.50%, 12/01/30 to 03/01/32 1,112,528 1,198,867
- --------------------------------------------------------------------------
Pass Through Ctfs., TBA,
5.00%, 07/01/19(l) 2,420,000 2,424,970
==========================================================================
37,412,856
==========================================================================
FEDERAL NATIONAL MORTGAGE ASSOCIATION
(FNMA)-6.61%
Pass Through Ctfs.,
8.50%, 03/01/10 to 10/01/28 2,877,966 3,169,163
- --------------------------------------------------------------------------
6.50%, 04/01/14 to 03/01/34 18,163,941 19,008,462
- --------------------------------------------------------------------------
7.50%, 11/01/15 to 05/01/32 2,075,662 2,222,925
- --------------------------------------------------------------------------
7.00%, 12/01/15 to 09/01/32 7,093,428 7,517,666
- --------------------------------------------------------------------------
6.00%, 01/01/17 to 12/01/33 12,127,445 12,408,848
- --------------------------------------------------------------------------
5.00%, 11/01/17 to 11/01/18 3,249,225 3,262,414
- --------------------------------------------------------------------------
8.00%, 08/01/21 to 10/01/30 1,691,131 1,851,248
- --------------------------------------------------------------------------
5.50%, 07/01/33 to 12/01/33 44,231,427 44,161,405
- --------------------------------------------------------------------------
Pass Through Ctfs., TBA,
5.00%, 07/01/19 to 07/01/34(l) 25,346,640 25,162,589
- --------------------------------------------------------------------------
5.50%, 07/01/19(l) 9,221,190 9,451,926
- --------------------------------------------------------------------------
6.00%, 07/01/34(l) 9,292,800 9,502,311
==========================================================================
137,718,957
==========================================================================
</Table>
<Table>
- --------------------------------------------------------------------------
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
(GNMA)-1.16%
Pass Through Ctfs.,
6.50%, 10/15/08 to 02/15/33 $5,208,947 $ 5,453,956
- --------------------------------------------------------------------------
7.00%, 10/15/08 to 05/15/32 3,350,306 3,562,586
- --------------------------------------------------------------------------
6.00%, 11/15/08 to 10/15/33 7,155,210 7,355,236
- --------------------------------------------------------------------------
8.00%, 08/15/22 to 01/20/31 1,048,629 1,158,466
- --------------------------------------------------------------------------
7.50%, 06/15/23 to 05/15/32 2,618,826 2,832,047
- --------------------------------------------------------------------------
8.50%, 11/15/24 to 02/15/25 123,407 136,969
- --------------------------------------------------------------------------
5.50%, 06/15/33 to 12/15/33 3,700,211 3,704,936
==========================================================================
24,204,196
==========================================================================
Total U.S. Mortgage-Backed Securities
(Cost $197,825,521) 199,336,009
==========================================================================
U.S. GOVERNMENT AGENCY SECURITIES-5.13%
FEDERAL HOME LOAN BANK-4.54%
Unsec. Disc. Notes,
1.25%, 07/01/04(m) 94,498,000 94,498,000
==========================================================================
FEDERAL NATIONAL MORTGAGE ASSOCIATION
(FNMA)-0.59%
Unsec. Disc. Notes,
1.04%, 07/07/04(m) 300,000 300,684
- --------------------------------------------------------------------------
Unsec. Floating Rate Global Notes,
2.88%, 02/17/09(n) 8,675,000 8,628,762
- --------------------------------------------------------------------------
Unsec. Global Notes,
3.38%, 12/15/08 3,525,000 3,420,449
==========================================================================
12,349,895
==========================================================================
Total U.S. Government Agency Securities
(Cost $106,868,373) 106,847,895
==========================================================================
U.S. TREASURY SECURITIES-5.01%
U.S. TREASURY NOTES-3.60%
2.13%, 10/31/04 1,990,000 1,994,120
- --------------------------------------------------------------------------
6.75%, 05/15/05 5,050,000 5,253,972
- --------------------------------------------------------------------------
1.25%, 05/31/05 1,500,000 1,489,805
- --------------------------------------------------------------------------
1.50%, 07/31/05 800,000 794,750
- --------------------------------------------------------------------------
6.50%, 10/15/06 22,165,000 23,938,200
- --------------------------------------------------------------------------
3.50%, 11/15/06 14,800,000 14,998,875
- --------------------------------------------------------------------------
3.13%, 10/15/08 3,100,000 3,038,969
- --------------------------------------------------------------------------
4.75%, 11/15/08 10,680,000 11,160,600
- --------------------------------------------------------------------------
5.00%, 02/15/11 11,825,000 12,384,840
==========================================================================
75,054,131
- --------------------------------------------------------------------------
U.S. TREASURY BONDS-1.38%
7.25%, 05/15/16 to 08/15/22 14,975,000 18,204,680
- --------------------------------------------------------------------------
7.50%, 11/15/16 8,620,000 10,625,497
==========================================================================
28,830,177
- --------------------------------------------------------------------------
U.S. TREASURY STRIPS-0.03%
5.98%, 11/15/23(o) 1,650,000 551,203
==========================================================================
Total U.S. Treasury Securities (Cost
$103,398,216) 104,435,511
==========================================================================
</Table>
F-6
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
- --------------------------------------------------------------------------
ASSET-BACKED SECURITIES-0.93%
OIL & GAS EXPLORATION & PRODUCTION-0.15%
Kern River Funding Corp., Sr. Gtd. Notes,
4.89%, 04/30/18 (Acquired
04/28/03-05/20/03; Cost $3,361,729)(c) $3,327,279 $ 3,214,240
==========================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES-0.78%
Citicorp Lease-Series 1999-1, Class A1, Pass
Through Ctfs., 7.22%, 06/15/05 (Acquired
05/08/02-02/25/04; Cost $6,179,945)(c) 5,820,154 6,041,958
- --------------------------------------------------------------------------
Citicorp Lease-Series 1999-1, Class A2, Pass
Through Ctfs., 8.04%, 12/15/19 (Acquired
06/01/00; Cost $3,901,297)(c) 3,950,000 4,512,393
- --------------------------------------------------------------------------
Patron's Legacy 2004-I, Notes 6.67%, 02/14/17
(Acquired 04/30/04; Cost $5,000,000)(c) 5,000,000 4,964,063
- --------------------------------------------------------------------------
Yorkshire Power Pass-Through Asset Trust
(Cayman Islands)-Series 2000-1, Pass
Through Ctfs., 8.25%, 02/15/05 (Acquired
11/12/03; Cost $640,800)(c) 600,000 618,889
==========================================================================
16,137,303
==========================================================================
Total Asset-Backed Securities (Cost
$19,083,771) 19,351,543
==========================================================================
TOTAL INVESTMENTS-101.59% (excluding
investments purchased with cash collateral
from securities loaned) (Cost
$1,964,259,329) 2,116,153,222
==========================================================================
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
INVESTMENTS PURCHASED WITH CASH COLLATERAL
FROM SECURITIES LOANED
MONEY MARKET FUNDS-6.74%
Liquid Assets Portfolio-Institutional
Class(p)(q) 70,211,879 $ 70,211,879
- --------------------------------------------------------------------------
STIC Prime Portfolio-Institutional
Class(p)(q) 70,211,879 70,211,879
==========================================================================
Total Money Market Funds (purchased with
cash collateral from securities loaned)
(Cost $140,423,758) 140,423,758
==========================================================================
TOTAL INVESTMENTS-108.33% (Cost
$2,104,683,087) 2,256,576,980
==========================================================================
OTHER ASSETS LESS LIABILITIES-(8.33%) (173,545,001)
==========================================================================
NET ASSETS-100.00% $2,083,031,979
__________________________________________________________________________
==========================================================================
</Table>
Investment Abbreviations:
<Table>
ADR - American Depositary Receipt
COP - Certificates of Participation
Ctfs - Certificates
Deb. - Debentures
Disc. - Discounted
GO - General Obligation Bonds
Gtd. - Guaranteed
Pfd. - Preferred
RB - Revenue Bonds
REGS - Regulation S
Sec. - Secured
Sr. - Senior
STRIPS - Separately Traded Registered Interest and Principal Security
Sub. - Subordinated
TBA - To Be Announced
Unsec. - Unsecured
Unsub. - Unsubordinated
</Table>
F-7
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) All or a portion of this security has been pledged as collateral for
security lending transactions at June 30, 2004.
(c) Security not registered under the Securities Act of 1933, as amended (e.g.,
the security was purchased in a Rule 144A transaction or a Regulation D
transaction). The security may be resold only pursuant to an exemption from
registration under the 1933 Act, typically to qualified institutional
buyers. The Fund has no rights to demand registration of these securities.
The aggregate market value of these securities at June 30, 2004 was
$58,458,001, which represented 2.81% of the Fund's net assets. These
securities for considered to be illiquid.
(d) Interest rate is redetermined quarterly. Rate shown is rate in effect on
June 30, 2004.
(e) A portion of the principal balance was pledged as collateral to cover margin
requirements for open futures contracts. See Note 1K and Note 8.
(f) Perpetual bond with no specified maturity date.
(g) Interest rate is redetermined semi-annually. Rate shown is rate in effect on
June 30, 2004.
(h) Principal and interest payments are secured by bond insurance provided by
one of the following companies: Ambac Assurance Corp., Financial Guaranty
Insurance Co., Financial Security Assurance Inc., or MBIA Insurance Corp.
(i) Interest does not qualify as exempt interest for federal tax purposes.
(j) Zero coupon bond issued at a discount. The interest rate shown represents
the current yield on June 30, 2004. Bond will convert to a fixed coupon rate
at a specified future date.
(k) Discounted bond at issue. The interest rate represents the coupon rate at
which the bond will accrue at a specified future date.
(l) Security purchased on forward commitment basis. This security is subject to
dollar roll transactions. See Note 1G.
(m) Security traded on a discount basis. The interest rate shown represents the
discount rate at the time of purchase by the Fund.
(n) Interest rate is redetermined monthly. Rate shown is rate in effect on June
30, 2004.
(o) STRIPS are traded on a discount basis. In such cases, the interest rate
shown represents the rate of discount paid or received at the time of
purchase by the Fund.
(p) The money market fund and the Fund are affiliated by having the same
investment advisor. See Note 3.
(q) 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 7.
See accompanying notes which are an integral part of the financial statements.
F-8
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2004
(Unaudited)
<Table>
ASSETS:
Investments, at market value (cost
$1,964,259,329)* $2,116,153,222
- ------------------------------------------------------------
Investments in affiliated money market funds
(cost $140,423,758) 140,423,758
============================================================
Total investments (cost $2,104,683,087) 2,256,576,980
============================================================
Cash 3,989
- ------------------------------------------------------------
Foreign currencies, at value (cost $61) 66
- ------------------------------------------------------------
Receivables for:
Investments sold 32,126,768
- ------------------------------------------------------------
Variation margin 711,271
- ------------------------------------------------------------
Fund shares sold 986,822
- ------------------------------------------------------------
Dividends and interest 8,150,575
- ------------------------------------------------------------
Investments matured (Note 10) 960,286
- ------------------------------------------------------------
Investment for deferred compensation and
retirement plans 192,333
- ------------------------------------------------------------
Other assets 62,112
============================================================
Total assets 2,299,771,202
____________________________________________________________
============================================================
LIABILITIES:
Payables for:
Investments purchased 52,930,499
- ------------------------------------------------------------
Fund shares reacquired 20,569,546
- ------------------------------------------------------------
Deferred compensation and retirement plans 277,822
- ------------------------------------------------------------
Collateral upon return of securities
loaned 140,423,758
- ------------------------------------------------------------
Accrued distribution fees 842,674
- ------------------------------------------------------------
Accrued transfer agent fees 1,363,079
- ------------------------------------------------------------
Accrued operating expenses 331,845
============================================================
Total liabilities 216,739,223
============================================================
Net assets applicable to shares outstanding $2,083,031,979
____________________________________________________________
============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $2,620,917,508
- ------------------------------------------------------------
Undistributed net investment income (7,320,273)
- ------------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities, foreign currencies
and futures contracts (683,444,468)
- ------------------------------------------------------------
Unrealized appreciation of investment
securities, foreign currencies and futures
contracts 152,879,212
============================================================
$2,083,031,979
____________________________________________________________
============================================================
NET ASSETS:
Class A $1,158,862,539
____________________________________________________________
============================================================
Class B $ 681,111,057
____________________________________________________________
============================================================
Class C $ 238,531,140
____________________________________________________________
============================================================
Class R $ 4,517,116
____________________________________________________________
============================================================
Institutional Class $ 10,127
____________________________________________________________
============================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER
SHARE, UNLIMITED NUMBER OF SHARES
AUTHORIZED:
Class A 47,121,079
____________________________________________________________
============================================================
Class B 27,755,412
____________________________________________________________
============================================================
Class C 9,705,412
____________________________________________________________
============================================================
Class R 183,473
____________________________________________________________
============================================================
Institutional Class 412
____________________________________________________________
============================================================
Class A:
Net asset value per share $ 24.59
- ------------------------------------------------------------
Offering price per share:
(Net asset value of $24.59 divided
by 95.25%) $ 25.82
____________________________________________________________
============================================================
Class B:
Net asset value and offering price per
share $ 24.54
____________________________________________________________
============================================================
Class C:
Net asset value and offering price per
share $ 24.58
____________________________________________________________
============================================================
Class R:
Net asset value and offering price per
share $ 24.62
____________________________________________________________
============================================================
Institutional Class:
Net asset value and offering price per
share $ 24.60
____________________________________________________________
============================================================
</Table>
* At June 30, 2004, securities with an aggregate market value of $138,965,781
were on loan to brokers.
See accompanying notes which are an integral part of the financial statements.
F-9
STATEMENT OF OPERATIONS
For the six months ended June 30, 2004
(Unaudited)
<Table>
INVESTMENT INCOME:
Interest $16,127,467
- -------------------------------------------------------------------------
Dividends (net of foreign withholding tax of $174,674) 9,655,289
- -------------------------------------------------------------------------
Dividends from affiliated money market funds* 189,756
=========================================================================
Total investment income 25,972,512
=========================================================================
EXPENSES:
Advisory fees 5,693,782
- -------------------------------------------------------------------------
Administrative services fees 237,671
- -------------------------------------------------------------------------
Custodian fees 224,924
- -------------------------------------------------------------------------
Distribution fees:
Class A 1,540,178
- -------------------------------------------------------------------------
Class B 3,576,013
- -------------------------------------------------------------------------
Class C 1,257,183
- -------------------------------------------------------------------------
Class R 10,328
- -------------------------------------------------------------------------
Transfer agent fees -- Class A, B, C and R 2,186,163
- -------------------------------------------------------------------------
Transfer agent fees -- Institutional Class 20
- -------------------------------------------------------------------------
Trustees' fees 25,632
- -------------------------------------------------------------------------
Other 354,047
=========================================================================
Total expenses 15,105,941
=========================================================================
Less: Fees waived, expenses reimbursed and expense offset
arrangement (109,277)
=========================================================================
Net expenses 14,996,664
=========================================================================
Net investment income 10,975,848
=========================================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES, FOREIGN CURRENCIES AND FUTURES CONTRACTS:
Net realized gain (loss) from:
Investment securities 66,479,696
- -------------------------------------------------------------------------
Foreign currencies (65,552)
- -------------------------------------------------------------------------
Futures contracts (1,023,489)
=========================================================================
65,390,655
=========================================================================
Change in net unrealized appreciation of:
Investment securities 150,188
- -------------------------------------------------------------------------
Foreign currencies 50,055
- -------------------------------------------------------------------------
Futures contracts 979,894
=========================================================================
1,180,137
=========================================================================
Net gain from investment securities, foreign currencies and
futures contracts 66,570,792
=========================================================================
Net increase in net assets resulting from operations $77,546,640
_________________________________________________________________________
=========================================================================
</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-10
STATEMENT OF CHANGES IN NET ASSETS
For the six months ended June 30, 2004 and the year ended December 31, 2003
(Unaudited)
<Table>
<Caption>
JUNE 30, DECEMBER 31,
2004 2003
- ----------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 10,975,848 $ 30,431,107
- ----------------------------------------------------------------------------------------------
Net realized gain from investment securities, foreign
currencies, futures contracts and option contracts 65,390,655 107,782,700
- ----------------------------------------------------------------------------------------------
Change in net unrealized appreciation of investment
securities, foreign currencies and futures contracts 1,180,137 228,117,385
==============================================================================================
Net increase in net assets resulting from operations 77,546,640 366,331,192
==============================================================================================
Distributions to shareholders from net investment income:
Class A (10,537,844) (26,240,036)
- ----------------------------------------------------------------------------------------------
Class B (3,520,959) (8,673,183)
- ----------------------------------------------------------------------------------------------
Class C (1,227,511) (3,288,903)
- ----------------------------------------------------------------------------------------------
Class R (32,412) (48,722)
- ----------------------------------------------------------------------------------------------
Institutional Class (105) (209)
==============================================================================================
Decrease in net assets resulting from distributions (15,318,831) (38,251,053)
==============================================================================================
Share transactions-net:
Class A (173,386,697) (325,786,055)
- ----------------------------------------------------------------------------------------------
Class B (78,435,728) (127,772,946)
- ----------------------------------------------------------------------------------------------
Class C (33,104,292) (75,676,154)
- ----------------------------------------------------------------------------------------------
Class R 594,445 3,149,619
- ----------------------------------------------------------------------------------------------
Institutional Class 105 209
==============================================================================================
Net increase (decrease) in net assets resulting from
share transactions (284,332,167) (526,085,327)
==============================================================================================
Net increase (decrease) in net assets (222,104,358) (198,005,188)
______________________________________________________________________________________________
==============================================================================================
NET ASSETS:
Beginning of period 2,305,136,337 2,503,141,525
==============================================================================================
End of period (including undistributed net investment
income (loss) of $(7,320,273) and $(2,977,290) for 2004
and 2003, respectively) $2,083,031,979 $2,305,136,337
______________________________________________________________________________________________
==============================================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
F-11
NOTES TO FINANCIAL STATEMENTS
June 30, 2004
(Unaudited)
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.
Under the Trust's organizational documents, the Fund's officers, trustees,
employees and agents are indemnified against certain liabilities that may arise
out of performance of their duties to the Fund. Additionally, in the normal
course of business, the Fund enters into contracts that contain a variety of
indemnification clauses. The Fund's maximum exposure under these arrangements is
unknown as this would involve future claims that may be made against the Fund
that have not yet occurred. However, the Fund has not had prior claims or losses
pursuant to these contracts.
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 specific 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"). Futures
contracts are valued at the final settlement price set by an exchange on
which they are principally traded. Listed options are valued at the mean
between the last bid and the ask prices from the exchange on which they are
principally traded. Options not listed on an exchange are valued by an
independent source at the mean between the last bid and ask prices.
Investments in open-end registered investment companies and closed-end
registered investment companies that do not trade on an exchange are valued
at the end of day net asset value per share. Investments in closed-end
registered investment companies that trade on an exchange are valued at the
last sales price as of the close of the customary trading session on the
exchange where the security is principally traded.
Foreign securities (including foreign exchange contracts) are converted
into U.S. dollar amounts using the applicable exchange rates as of the
close of the NYSE. Generally, trading in foreign securities is
substantially completed each day at various times prior to the close of the
NYSE. The values of such securities used in computing the net asset value
of the Fund's shares are determined as of the close of the respective
markets. Events affecting the values of such foreign securities may occur
between the times at which the particular foreign market closes and the
close of the customary trading session of the NYSE which would not
ordinarily be reflected in the computation of the Fund's net asset value.
If 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
F-12
settlement date. Dividend income is recorded on the ex-dividend date. Bond
premiums and discounts are amortized and/or accreted for financial
reporting purposes.
Brokerage commissions and mark ups are considered transaction costs and
are recorded as an increase to the cost basis of securities purchased
and/or a reduction of proceeds on a sale of securities. Such transaction
costs are included in the determination of realized and unrealized gain
(loss) from investment securities reported in the Statement of Operations
and the Statement of Changes in Net Assets and the realized and unrealized
net gains (losses) on securities per share in the Financial Highlights.
Transaction costs are included in the calculation of the Fund's net asset
value and, accordingly, they reduce the Fund's total returns. These
transaction costs are not considered operating expenses and are not
reflected in net investment income reported in the Statement of Operations
and Statement of Changes in Net Assets, or the net investment income per
share and ratios of expenses and net investment income reported in the
Financial Highlights, nor are they limited by any expense limitation
arrangements between the Fund and the advisor.
The Fund 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 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.
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 distributed to shareholders. Therefore, no provision for
federal income taxes is recorded in the financial statements.
E. 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.
F. REPURCHASE AGREEMENTS -- The Fund may enter into repurchase agreements.
Collateral on repurchase agreements, including the Fund's pro-rata interest
in joint repurchase agreements, is taken into possession by the Fund upon
entering into the repurchase agreement. Eligible securities for collateral
are U.S. Government Securities, U.S. Government Agency Securities and/or
Investment Grade Debt Securities. Collateral consisting of U.S. Government
Securities and U.S. Government Agency Securities is marked to market daily
to ensure its market value is at least 102% of the sales price of the
repurchase agreement. Collateral consisting of Investment Grade Debt
Securities is marked to market daily to ensure its market value is at least
105% of the sales price of the repurchase agreement. The investments in
some repurchase agreements, pursuant to an exemptive order from the SEC,
are through participation with other mutual funds, private accounts and
certain non-registered investment companies managed by the investment
advisor or its affiliates ("Joint repurchase agreements"). 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.
G. DOLLAR ROLL TRANSACTIONS -- The Fund may engage in dollar roll transactions
with respect to mortgage-backed securities issued by GNMA, FNMA and FHLMC.
In a dollar roll transaction, the Fund sells a mortgage-backed security
held in the Fund to a financial institution such as a bank or
broker-dealer, and simultaneously agrees to repurchase a substantially
similar security (same type, coupon and maturity) from the institution at
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.
H. 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.
F-13
I. 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.
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 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. 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.
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. 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 six months ended June 30, 2004, AIM waived fees of $3,064.
For the period ended June 30, 2004, at the direction of the trustees of the
Trust, AMVESCAP PLC ("AMVESCAP") has assumed $93,526 of expenses incurred by the
Fund in connection with matters related to both pending regulatory complaints
against INVESCO Funds Group, Inc. ("IFG") alleging market timing and the ongoing
market timing investigations with respect to IFG and AIM, including legal,
audit, shareholder servicing, communication and trustee expenses.
The Fund, pursuant to a master administrative services agreement with AIM,
has agreed to pay AIM for certain administrative costs incurred in providing
accounting services to the Fund. For the six months ended June 30, 2004, AIM was
paid $237,671 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 six
months ended June 30, 2004, AISI retained $1,268,224 for such services and
reimbursed fees for the Institutional Class shares of $15.
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 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 six months ended June 30, 2004, the Class A,
Class B, Class C and Class R shares paid $1,540,178, $3,576,013, $1,257,183 and
$10,328, 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 six months
ended June 30, 2004, AIM Distributors advised the Fund that it retained $106,019
in front-end sales commissions from the sale of Class A shares and $498,
$17,453, $6,669 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-14
NOTE 3--INVESTMENTS IN AFFILIATES
The Fund is permitted, pursuant to an exemptive order from the Securities and
Exchange Commission ("SEC"), to invest cash collateral from securities lending
transactions in affiliated money market funds. The Fund and the money market
funds below have the same investment advisor and therefore, are considered to be
affiliated. 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 tables below show the transactions in and earnings
from investments in affiliated money market funds for the period ended June 30,
2004.
INVESTMENTS OF CASH COLLATERAL FROM SECURITIES LENDING TRANSACTIONS:
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 12/31/03 AT COST FROM SALES (DEPRECIATION) 06/30/04 INCOME* GAIN (LOSS)
- ---------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-Institutional
Class $60,195,599 $212,130,269 $(202,113,989) $ -- $70,211,879 $97,155 $ --
- ---------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-Institutional
Class 60,195,599 212,130,269 (202,113,989) -- 70,211,879 92,601 --
=================================================================================================================================
Total $120,391,198 $424,260,538 $(404,227,978) $ -- $140,423,758 $189,756 $ --
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
* Dividend income is net of fees paid to security lending counterparties of
$586,886.
NOTE 4--EXPENSE OFFSET ARRANGEMENT
The expense offset arrangement is comprised of transfer agency credits which
result from balances in Demand Deposit Accounts (DDA) used by the transfer agent
for clearing shareholder transactions. For the six months ended June 30, 2004,
the Fund received credits in transfer agency fees of $12,672 under an expense
offset arrangement, which resulted in a reduction of the Fund's total expenses
of $12,672.
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. Those Trustees who defer compensation have
the option to select various AIM Funds 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.
Obligations under the deferred compensation and retirement plans represent
unsecured claims against the general assets of the Fund.
During the six months ended June 30, 2004, the Fund paid legal fees of
$3,221 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
Pursuant to an exemptive order from the SEC, 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 is 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 six months ended June 30, 2004, the Fund did not borrow or lend
under the interfund lending facility or borrow under the uncommitted unsecured
revolving credit facility.
Additionally, the Fund is permitted to temporarily carry a negative or
overdrawn balance in its account with SSB, 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 having a market value up to 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.
F-15
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 June 30, 2004, securities with an aggregate value of $138,965,781 were on
loan to brokers. The loans were secured by cash collateral of $140,423,758,
received by the Fund and subsequently invested in affiliated money market funds.
For the six months ended June 30, 2004, the Fund received dividends on cash
collateral net of fees paid to counterparties of $189,756 for securities lending
transactions.
NOTE 8--FUTURES CONTRACTS
On June 30, 2004, $4,150,000 principal amount of corporate obligations were
pledged as collateral to cover margin requirements for open futures contracts.
<Table>
<Caption>
OPEN FUTURES CONTRACTS AT PERIOD END
- ------------------------------------------------------------------------------------------------------------------------
UNREALIZED
NO. OF MONTH/ MARKET APPRECIATION
CONTRACT CONTRACTS COMMITMENT VALUE (DEPRECIATION)
- ------------------------------------------------------------------------------------------------------------------------
Eurodollar GLOBEX2 etrading 43 Dec-04/Long $ 10,479,638 $(55,577)
- ------------------------------------------------------------------------------------------------------------------------
U.S. Treasury 2 Year Notes 275 Sep-04/Long 57,900,391 81,009
- ------------------------------------------------------------------------------------------------------------------------
U.S. Treasury 5 Year Notes 899 Sep-04/Long 97,710,063 796,603
- ------------------------------------------------------------------------------------------------------------------------
U.S. Treasury 30 Year Bond 108 Sep-04/Long 11,488,500 157,859
========================================================================================================================
$177,578,592 $979,894
________________________________________________________________________________________________________________________
========================================================================================================================
</Table>
NOTE 9--TAX INFORMATION
The amount and character of income and gains to be distributed are determined in
accordance with income tax regulations, which may differ from generally accepted
accounting principles. Reclassifications are made to the Fund's capital accounts
to reflect income and gains available for distribution (or available capital
loss carryforward) under income tax regulations. The tax character of
distributions paid during the year and the tax components of net assets will be
reported at the Fund's fiscal year-end.
Capital loss carryforward is calculated and reported as of a specific date.
Results of transactions and other activity after that date may affect the amount
of capital loss carryforward actually available for the Fund to utilize. The
ability to use capital loss carryforward may be limited under the Internal
Revenue Code and related regulations.
The Fund has a capital loss carryforward for tax purposes as of December 31,
2003 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>
* Capital loss carryforward as of the date listed above is reduced for
limitations, if any, to the extent required by the Internal Revenue Code.
F-16
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 six months
ended June 30, 2004 was $491,446,188 and $860,060,967, 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 of $25,012,000 par value, Senior Unsecured 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 $152,009,154
- ----------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (24,892,599)
============================================================================
Net unrealized appreciation of investment securities $127,116,555
____________________________________________________________________________
============================================================================
Cost of investments for tax purposes is $2,129,460,425.
</Table>
NOTE 11--SHARE INFORMATION
The Fund currently offers five different classes of shares: Class A shares,
Class B shares, Class C shares, Class R shares and 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 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
- --------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2004 DECEMBER 31, 2003
---------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
- --------------------------------------------------------------------------------------------------------------------------
Sold:
Class A 4,409,863 $ 107,737,911 14,724,408 $ 317,421,511
- --------------------------------------------------------------------------------------------------------------------------
Class B 1,145,312 27,934,070 2,822,623 61,571,171
- --------------------------------------------------------------------------------------------------------------------------
Class C 394,517 9,643,787 1,078,856 23,496,738
- --------------------------------------------------------------------------------------------------------------------------
Class R 44,070 1,078,515 184,779 4,039,188
==========================================================================================================================
Issued as reinvestment of dividends:
Class A 418,662 10,223,786 1,155,459 25,548,489
- --------------------------------------------------------------------------------------------------------------------------
Class B 133,265 3,248,148 362,180 7,982,445
- --------------------------------------------------------------------------------------------------------------------------
Class C 46,356 1,131,493 134,213 2,951,526
- --------------------------------------------------------------------------------------------------------------------------
Class R 1,319 32,239 2,176 48,722
- --------------------------------------------------------------------------------------------------------------------------
Institutional Class 5 105 9 209
==========================================================================================================================
Automatic conversion of Class B shares to Class A shares:
Class A 1,139,657 27,947,343 1,104,079 24,477,117
- --------------------------------------------------------------------------------------------------------------------------
Class B (1,142,663) (27,947,343) (1,106,931) (24,477,117)
==========================================================================================================================
Reacquired:
Class A (13,071,058) (319,295,737) (31,672,931) (693,233,172)
- --------------------------------------------------------------------------------------------------------------------------
Class B (3,351,414) (81,670,603) (8,005,292) (172,849,445)
- --------------------------------------------------------------------------------------------------------------------------
Class C (1,797,980) (43,879,572) (4,686,941) (102,124,418)
- --------------------------------------------------------------------------------------------------------------------------
Class R (21,064) (516,309) (41,885) (938,291)
==========================================================================================================================
(11,651,153) $(284,332,167) (23,945,198) $(526,085,327)
__________________________________________________________________________________________________________________________
==========================================================================================================================
</Table>
F-17
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
-----------------------------------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, ----------------------------------------------------------------
2004 2003 2002 2001 2000 1999
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning
of period $ 23.93 $ 20.81 $ 25.94 $ 30.10 $ 32.69 $ 28.23
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income 0.16 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) 0.71 3.20 (5.09) (4.14) (2.23) 4.46
=================================================================================================================================
Total from investment
operations 0.87 3.55 (4.60) (3.43) (1.31) 5.28
=================================================================================================================================
Less distributions:
Dividends from net
investment income (0.21) (0.43) (0.53) (0.73) (0.79) (0.82)
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions from net
realized gains -- -- -- -- (0.49) --
=================================================================================================================================
Total distributions (0.21) (0.43) (0.53) (0.73) (1.28) (0.82)
=================================================================================================================================
Net asset value, end of
period $ 24.59 $ 23.93 $ 20.81 $ 25.94 $ 30.10 $ 32.69
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(c) 3.66% 17.23% (17.85)% (11.36)% (4.18)% 19.04%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period
(000s omitted) $1,158,863 $1,297,378 $1,434,164 $2,284,776 $2,507,641 $1,800,350
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to
average net assets 1.03%(d)(e) 1.10% 1.06% 1.01% 0.96% 0.94%
=================================================================================================================================
Ratio of net investment
income to average net
assets 1.33%(d) 1.60% 2.11% 2.60%(b) 2.80% 2.81%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(f) 23% 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 as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Does not include sales charges and is not
annualized for periods less than one year.
(d) Ratios are annualized and based on average daily net assets of
$1,238,912,319.
(e) After fee waivers and reimbursements. Ratio of expenses to average net
assets prior to fee waivers and reimbursements was 1.04% (annualized).
(f) Not annualized for periods less than one year.
F-18
NOTE 12--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS B
----------------------------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, -----------------------------------------------------------------------------
2004 2003 2002 2001 2000 1999
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of
period $ 23.87 $ 20.77 $ 25.88 $ 30.01 $ 32.61 $ 28.18
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income 0.07 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) 0.72 3.17 (5.06) (4.11) (2.23) 4.45
=================================================================================================================================
Total from investment
operations 0.79 3.36 (4.75) (3.61) (1.57) 5.03
=================================================================================================================================
Less distributions:
Dividends from net investment
income (0.12) (0.26) (0.36) (0.52) (0.54) (0.60)
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized
gains -- -- -- -- (0.49) --
=================================================================================================================================
Total distributions (0.12) (0.26) (0.36) (0.52) (1.03) (0.60)
=================================================================================================================================
Net asset value, end of period $ 24.54 $ 23.87 $ 20.77 $ 25.88 $ 30.01 $ 32.61
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(c) 3.32% 16.29% (18.46)% (12.01)% (4.93)% 18.08%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s
omitted) $681,111 $739,424 $766,330 $1,176,679 $1,358,823 $1,183,215
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net
assets 1.78%(d)(e) 1.85% 1.81% 1.76% 1.73% 1.75%
=================================================================================================================================
Ratio of net investment income to
average net assets 0.58%(d) 0.85% 1.36% 1.86%(b) 2.03% 2.00%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(f) 23% 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 as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Does not include sales charges and is not
annualized for periods less than one year.
(d) Ratios are annualized and based on average daily net assets of
$719,132,319.
(e) After fee waivers and reimbursements. Ratio of expenses to average net
assets prior to fee waivers and reimbursements was 1.79% (annualized).
(f) Not annualized for periods less than one year.
F-19
NOTE 12--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS C
-------------------------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, -----------------------------------------------------------------------
2004 2003 2002 2001 2000 1999
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 23.91 $ 20.80 $ 25.92 $ 30.05 $ 32.65 $ 28.21
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.07 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) 0.72 3.18 (5.07) (4.11) (2.23) 4.46
=================================================================================================================================
Total from investment operations 0.79 3.37 (4.76) (3.61) (1.57) 5.04
=================================================================================================================================
Less distributions:
Dividends from net investment
income (0.12) (0.26) (0.36) (0.52) (0.54) (0.60)
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized
gains -- -- -- -- (0.49) --
=================================================================================================================================
Total distributions (0.12) (0.26) (0.36) (0.52) (1.03) (0.60)
=================================================================================================================================
Net asset value, end of period $ 24.58 $ 23.91 $ 20.80 $ 25.92 $ 30.05 $ 32.65
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(c) 3.32% 16.32% (18.46)% (11.99)% (4.93)% 18.09%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s
omitted) $238,531 $264,513 $302,346 $483,644 $365,510 $200,585
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net
assets 1.78%(d)(e) 1.85% 1.81% 1.76% 1.73% 1.75%
=================================================================================================================================
Ratio of net investment income to
average net assets 0.58%(d) 0.85% 1.36% 1.85%(b) 2.03% 2.00%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(f) 23% 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 as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Does not include sales charges and is not
annualized for periods less than one year.
(d) Ratios are annualized and based on average daily net assets of
$252,818,170.
(e) After fee waivers and reimbursements. Ratio of expenses to average net
assets prior to fee waivers and reimbursements was 1.79% (annualized).
(f) Not annualized for periods less than one year.
F-20
NOTE 12--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS R
----------------------------------------------------
JUNE 3, 2002
SIX MONTHS (DATE SALES
ENDED YEAR ENDED COMMENCED) TO
JUNE 30, DECEMBER 31, DECEMBER 31,
2004 2003 2002
- ------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 23.95 $20.83 $ 23.73
- ------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.13 0.30(a) 0.22(a)
- ------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.72 3.19 (2.78)
==================================================================================================================
Total from investment operations 0.85 3.49 (2.56)
==================================================================================================================
Less distributions from net investment income (0.18) (0.37) (0.34)
==================================================================================================================
Net asset value, end of period $ 24.62 $23.95 $ 20.83
__________________________________________________________________________________________________________________
==================================================================================================================
Total return(b) 3.57% 16.92% (10.82)%
__________________________________________________________________________________________________________________
==================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 4,517 $3,812 $ 293
__________________________________________________________________________________________________________________
==================================================================================================================
Ratio of expenses to average net assets 1.28%(c)(d) 1.35% 1.33%(e)
==================================================================================================================
Ratio of net investment income to average net assets 1.08%(c) 1.35% 1.83%(e)
__________________________________________________________________________________________________________________
==================================================================================================================
Portfolio turnover rate(f) 23% 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 as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Not annualized for periods less than one year.
(c) Ratios are annualized and based on average daily net assets of
$4,153,721.
(d) After fee waivers and reimbursements. Ratio of expenses to average net
assets prior to fee waivers and reimbursements was 1.29% (annualized).
(e) Annualized.
(f) Not annualized for periods less than one year.
F-21
NOTE 12--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
INSTITUTIONAL CLASS
--------------------------------------------------
MARCH 15, 2002
SIX MONTHS (DATE SALES
ENDED YEAR ENDED COMMENCED) TO
JUNE 30, DECEMBER 31, DECEMBER 31,
2004 2003 2002
- ----------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $23.94 $20.82 $ 25.81
- ----------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.20 0.44(a) 0.44(a)
- ----------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.72 3.20 (4.83)
================================================================================================================
Total from investment operations 0.92 3.64 (4.39)
================================================================================================================
Less distributions from net investment income (0.26) (0.52) (0.60)
================================================================================================================
Net asset value, end of period $24.60 $23.94 $ 20.82
________________________________________________________________________________________________________________
================================================================================================================
Total return(b) 3.84% 17.71% (17.16)%
________________________________________________________________________________________________________________
================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 10 $ 10 $ 8
________________________________________________________________________________________________________________
================================================================================================================
Ratio of expenses to average net assets
With fee waivers and/or expense reimbursements 0.69%(c) 0.68% 0.67%(d)
- ----------------------------------------------------------------------------------------------------------------
With fee waivers and/or expense reimbursements 0.99%(c) 1.13% 0.80%(d)
================================================================================================================
Ratio of net investment income to average net assets 1.67%(c) 2.02% 2.50%(d)
________________________________________________________________________________________________________________
================================================================================================================
Portfolio turnover rate(e) 23% 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 as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Not annualized for periods less than one year.
(c) Ratios are annualized and based on average daily net assets of $9,996.
(d) Annualized.
(e) Not annualized for periods less than one year.
NOTE 13--LEGAL PROCEEDINGS
The mutual fund industry as a whole is currently subject to regulatory inquiries
and litigation related to a wide range of issues. These issues include, among
others, market timing activity, late trading, fair value pricing, excessive or
improper advisory and/or distribution fees, mutual fund sales practices,
including revenue sharing and directed-brokerage arrangements, investments in
securities of other registered investment companies and issues related to
Section 529 college savings plans.
As described more fully below, INVESCO Funds Group, Inc. ("IFG"), the former
investment advisor to the INVESCO Funds, is the subject of three regulatory
actions concerning market timing activity in the INVESCO Funds. In addition, IFG
and A I M Advisors, Inc. ("AIM"), the Fund's investment advisor, are the subject
of a number of regulatory inquiries and civil lawsuits, as described more fully
below. Both IFG and AIM are indirect wholly owned subsidiaries of AMVESCAP PLC
("AMVESCAP"). Additional regulatory actions and/or civil lawsuits related to the
above or other issues may be filed against IFG, AIM and/or related entities and
individuals in the future. Additional regulatory inquiries related to the above
or other issues also may be received by IFG, AIM and/or related entities and
individuals in the future.
As a result of the regulatory actions and inquiries and civil lawsuits
discussed below, 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.
Regulatory Actions Pending Against 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 former capacity as the
chief executive officer of IFG. Mr. Cunningham also formerly held the positions
of Chief Operating Officer and Senior Vice President of A I M Management Group
Inc. ("AIM Management"), 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. There
can be no assurance that the SEC, NYAG or State of Colorado will not file
additional charges against IFG or Mr. Cunningham or civil proceedings against
other current or former officers or employees of IFG.
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
F-22
NOTE 13--LEGAL PROCEEDINGS (CONTINUED)
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.
Response of AMVESCAP
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 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. AMVESCAP has retained outside counsel to represent its subsidiaries in
connection with the market timing regulatory inquiries and certain other
matters. As part of this representation, this outside counsel has been
conducting a review of IFG's and AIM's conduct with respect to market timing and
related matters. In addition, AMVESCAP has retained separate 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.
At the direction of the trustees of the AIM and INVESCO Funds, AMVESCAP has
agreed to pay all of the expenses incurred by the AIM and INVESCO Funds related
to the market timing investigations, including expenses incurred in connection
with the pending regulatory complaints against IFG alleging market timing and
the ongoing market timing investigations with respect to IFG and AIM.
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, including
but not limited to A I M Capital Management, Inc. ("AIM Capital"), AIM Funds
Management Inc., INVESCO Institutional (N.A.), Inc. ("IINA"), INVESCO Global
Asset Management (N.A.), Inc. and INVESCO Senior Secured Management, Inc., from
serving as an investment advisor to any investment company registered under the
Investment Company Act of 1940, including the Fund. The Fund has been informed
by AIM that, if AIM is so barred, 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.
Regulatory Inquiries Concerning IFG
IFG, certain related entities, certain of their current and former officers
and/or certain of the INVESCO Funds have received regulatory inquiries in the
form of subpoenas or other oral or written requests for information and/or
documents related to one or more of the following issues, some of which concern
one or more INVESCO Funds: market timing activity, late trading, fair value
pricing, excessive or improper advisory and/or distribution fees, mutual fund
sales practices, including revenue sharing and directed-brokerage arrangements,
and investments in securities of other registered investment companies. These
regulators include the Securities and Exchange Commission ("SEC"), the NASD,
Inc. ("NASD"), the Florida Department of Financial Services, the Commissioner of
Securities for the State of Georgia, the Attorney General of the State of West
Virginia, the West Virginia Securities Commission, the Colorado Securities
Division and the Bureau of Securities of the State of New Jersey. IFG and
certain of these other parties also have received more limited inquiries from
the United States Department of Labor ("DOL") and the United States Attorney's
Office for the Southern District of New York, some of which concern one or more
INVESCO Funds. IFG is providing full cooperation with respect to these
inquiries.
Regulatory Inquiries Concerning AIM
AIM, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds have received regulatory inquiries in the form
of subpoenas or other oral or written requests for information and/or documents
related to one or more of the following issues, some of which concern one or
more AIM Funds: market timing activity, late trading, fair value pricing,
excessive or improper advisory and/or distribution fees, mutual fund sales
practices, including revenue sharing and directed-brokerage arrangements,
investments in securities of other registered investment companies and issues
related to Section 529 college savings plans. These regulators include the SEC,
the NASD, the Department of Banking for the State of Connecticut, the NYAG, the
Commissioner of Securities for the State of Georgia, the Attorney General of the
State of West Virginia, the West Virginia Securities Commission and the Bureau
of Securities of the State of New Jersey. AIM and certain of these other parties
also have received more limited inquiries from the DOL, the Internal Revenue
Service, the United States Attorney's Office for the Southern District of New
York, the United States Attorney's Office for the Central District of
California, the United States Attorney's Office for the District of
Massachusetts, the Massachusetts Securities Division and the U.S. Postal
Inspection Service, some of which concern one or more AIM Funds. AIM is
providing full cooperation with respect to these inquiries.
Private Civil Actions Alleging Market Timing
Multiple civil 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, AIM
Management, AMVESCAP, certain related entities and/or certain of their current
and former officers) making allegations substantially similar to the allegations
in the three regulatory actions concerning market timing activity in the INVESCO
Funds that have been filed by the SEC, the NYAG and the State of Colorado
against these parties. These 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
F-23
NOTE 13--LEGAL PROCEEDINGS (CONTINUED)
Employee Retirement Income Security Act ("ERISA"); (iii) breach of fiduciary
duty; and/or (iv) breach of contract. These lawsuits were initiated 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; declaration that the advisory agreement is unenforceable or void;
refund of advisory fees; interest; and attorneys' and experts' fees.
The Judicial Panel on Multidistrict Litigation (the "Panel") has ruled that
all actions pending in Federal court that allege market timing and/or late
trading be transferred to the United States District Court for the District of
Maryland for coordinated pre-trial proceedings. All such cases against IFG and
the other AMVESCAP defendants filed to date have been conditionally or finally
transferred to the District of Maryland in accordance with the Panel's
directive. In addition, the proceedings initiated in state court have been
removed by IFG to Federal court and transferred to the District of Maryland. The
plaintiff in one such action continues to seek remand to state court.
Private Civil Actions Alleging Improper Use of Fair Value Pricing
Multiple civil class action lawsuits have been filed against various parties
(including, depending on the lawsuit, certain INVESCO Funds, certain AIM Funds,
IFG and/or AIM) alleging that certain AIM and INVESCO Funds inadequately
employed fair value pricing. These lawsuits allege a variety of theories of
recovery, including but not limited to: (i) violations of various provisions of
the Federal securities laws; (ii) common law breach of duty; and (iii) common
law negligence and gross negligence. These lawsuits have been filed in both
Federal and state courts and seek such remedies as compensatory and punitive
damages; interest; and attorneys' fees and costs.
Private Civil Actions Alleging Excessive Advisory and Distribution Fees
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, IFG, AIM, IINA, A I M Distributors, Inc. ("AIM Distributors")
and/or INVESCO Distributors, Inc. ("INVESCO Distributors")) alleging that the
defendants charged excessive advisory and distribution fees and failed to pass
on to shareholders the perceived savings generated by economies of scale.
Certain of these lawsuits also allege that the defendants adopted unlawful
distribution plans. These lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the Federal
securities laws; (ii) breach of fiduciary duty; and/or (iii) breach of contract.
These lawsuits have been filed in both Federal and state courts and seek such
remedies as damages; injunctive relief; rescission of certain Funds' advisory
agreements and distribution plans; interest; prospective relief in the form of
reduced fees; and attorneys' and experts' fees.
Private Civil Actions Alleging Improper Distribution Fees Charged to Closed
Funds
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, IFG, AIM, AIM Distributors and/or certain of the trustees of the
AIM and INVESCO Funds) alleging that the defendants breached their fiduciary
duties by charging distribution fees while funds and/or specific share classes
were closed generally to new investors and/or while other share classes of the
same fund were not charged the same distribution fees. These lawsuits allege a
variety of theories of recovery, including but not limited to: (i) violation of
various provisions of the Federal securities laws; and (ii) breach of fiduciary
duty. These lawsuits have been filed in both Federal and state courts and seek
such remedies as damages; injunctive relief; and attorneys' and experts' fees.
Private Civil Actions Alleging Improper Mutual Fund Sales Practices and
Directed-Brokerage Arrangements
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, AIM Management, IFG, AIM, AIM Investment Services, Inc. ("AIS")
and/or certain of the trustees of the AIM and INVESCO Funds) alleging that the
defendants improperly used the assets of the AIM and INVESCO Funds to pay
brokers to aggressively push the AIM and INVESCO Funds over other mutual funds
and that the defendants concealed such payments from investors by disguising
them as brokerage commissions. These lawsuits allege a variety of theories of
recovery, including but not limited to: (i) violation of various provisions of
the Federal securities laws; (ii) breach of fiduciary duty; and (iii) aiding and
abetting a breach of fiduciary duty. These lawsuits have been filed in Federal
courts and seek such remedies as compensatory and punitive damages; rescission
of certain Funds' advisory agreements and distribution plans and recovery of all
fees paid; an accounting of all fund-related fees, commissions and soft dollar
payments; restitution of all unlawfully or discriminatorily obtained fees and
charges; and attorneys' and experts' fees.
At the present time, management of AIM and the Fund are unable to estimate the
impact, if any, that the outcome of the matters described above may have on AIM
or the Fund.
F-24
OTHER INFORMATION
TRUSTEES AND OFFICERS
<Table>
BOARD OF TRUSTEES OFFICERS OFFICE OF THE FUND
Bob R. Baker Robert H. Graham 11 Greenway Plaza
Frank S. Bayley Chairman and President Suite 100
James T. Bunch Houston, TX 77046-1173
Bruce L. Crockett Mark H. Williamson
Albert R. Dowden Executive Vice President INVESTMENT ADVISOR
Edward K. Dunn Jr. A I M Advisors, Inc.
Jack M. Fields Kevin M. Carome 11 Greenway Plaza
Carl Frischling Senior Vice President, Secretary Suite 100
Robert H. Graham and Chief Legal Officer Houston, TX 77046-1173
Gerald J. Lewis
Prema Mathai-Davis Sidney M. Dilgren TRANSFER AGENT
Lewis F. Pennock Vice President and Treasurer AIM Investment Services, Inc.
Ruth H. Quigley P.O. Box 4739
Louis S. Sklar Robert G. Alley Houston, TX 77210-4739
Larry Soll, Ph.D. Vice President
Mark H. Williamson CUSTODIAN
Stuart W. Coco State Street Bank and Trust Company
Vice President 225 Franklin Street
Boston, MA 02110-2801
Melville B. Cox
Vice President COUNSEL TO THE FUND
Ballard Spahr
Karen Dunn Kelley Andrews & Ingersoll, LLP
Vice President 1735 Market Street
Philadelphia, PA 19103-7599
Edgar M. Larsen
Vice President COUNSEL TO THE TRUSTEES
Kramer, Levin, Naftalis & Frankel LLP
919 Third Avenue
New York, NY 10022-3852
DISTRIBUTOR
A I M Distributors, Inc.
11 Greenway Plaza
Suite 100
Houston, TX 77046-1173
</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(4) AIM High Yield Fund
AIM Blue Chip Fund AIM Global Aggressive Growth Fund AIM Income Fund
AIM Capital Development Fund AIM Global Equity Fund(5) AIM Intermediate Government Fund
AIM Charter Fund AIM Global Growth Fund AIM Limited Maturity Treasury Fund
AIM Constellation Fund AIM Global Value Fund AIM Money Market Fund
AIM Dent Demographic Trends Fund AIM International Emerging Growth Fund(6) AIM Short Term Bond Fund
AIM Diversified Dividend Fund 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(7)
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(1) 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 ALLOCATION SOLUTIONS
AIM Premier Equity Fund INVESCO Gold & Precious Metals Fund
AIM Select Equity Fund INVESCO Health Sciences Fund AIM Aggressive Allocation Fund
AIM Small Cap Equity Fund(2) INVESCO Leisure Fund AIM Conservative Allocation Fund
AIM Small Cap Growth Fund(3) INVESCO Multi-Sector Fund AIM Moderate Allocation Fund
AIM Trimark Endeavor Fund INVESCO Technology Fund
AIM Trimark Small Companies Fund INVESCO Utilities Fund
AIM Weingarten Fund
INVESCO Core Equity Fund ===============================================================================
INVESCO Dynamics Fund CONSIDER THE INVESTMENT OBJECTIVES, RISKS, AND CHARGES AND EXPENSES CAREFULLY.
INVESCO Mid-Cap Growth Fund FOR THIS AND OTHER IMPORTANT INFORMATION ABOUT AIM AND INVESCO FUNDS, OBTAIN A
INVESCO Small Company Growth Fund PROSPECTUS FROM YOUR FINANCIAL ADVISOR OR AIMINVESTMENTS.COM AND READ IT
INVESCO S&P 500 Index Fund THOROUGHLY BEFORE INVESTING.
INVESCO Total Return Fund* ===============================================================================
</Table>
* Domestic equity and income fund
(1) 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. (2) 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. (3) 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. (4) AIM European Small Company Fund will close to new investors when
net assets reach $500 million. (5) Effective March 31, 2004, AIM Global Trends
Fund was renamed AIM Global Equity Fund. (6) AIM International Emerging Growth
Fund will close to new investors when net assets reach $500 million. (7)
Effective November 24, 2003, INVESCO International Blue Chip Value Fund was
renamed INVESCO International Core Equity Fund.
If used after October 20, 2004, this report 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 $139 billion in assets. AIM is a subsidiary of
AMVESCAP PLC, one of the world's largest independent financial services
companies with $372 billion in assets under management. Data as of June 30,
2004.
AIMinvestments.com BAL-SAR-1 A I M Distributors, Inc.
<Table>
YOUR GOALS. OUR SOLUTIONS.--Registered Trademark--
- -------------------------------------------------------------------------------------
Mutual Retirement Annuities College Separately Offshore Alternative Cash [AIM INVESTMENTS LOGO APPEARS HERE]
Funds Products Savings Managed Products Investments Management --Registered Trademark--
Plans Accounts
- -------------------------------------------------------------------------------------
</Table>
AIM BASIC BALANCED FUND
Semiannual Report to Shareholders o June 30, 2004
[COVER IMAGE]
YOUR GOALS. OUR SOLUTIONS. [AIM INVESTMENTS LOGO APPEARS HERE]
--Registered Trademark-- --Registered Trademark--
<Table>
===================================================================================================================================
AIM BASIC BALANCED FUND SEEKS LONG-TERM GROWTH OF CAPITAL AND CURRENT INCOME.
o Unless otherwise stated, information presented in this report is as of 6/30/04 and is based on total net assets.
===================================================================================================================================
ABOUT SHARE CLASSES ABOUT INDEXES USED IN THIS REPORT o A direct investment cannot be made in
an index. Unless otherwise indicated,
o Effective 9/30/03, Class B shares are o The unmanaged Lipper Balanced Fund index results include reinvested
not available as an investment for Index represents an average of the 30 dividends, and they do not reflect sales
retirement plans maintained pursuant to largest balanced funds tracked by charges. Performance of an index of
Section 401 of the Internal Revenue Lipper, Inc., an independent mutual fund funds reflects fund expenses;
Code, including 401(k) plans, money performance monitor. It is calculated performance of a market index does not.
purchase pension plans and profit daily, with adjustments for
sharing plans. Plans that have existing distributions as of the ex-dividend o The fund is not managed to track the
accounts invested in Class B shares will dates. performance of any particular index,
continue to be allowed to make including the indexes defined here, and
additional purchases. o The unmanaged Standard & Poor's consequently, the performance of the
Composite Index of 500 Stocks (the S&P fund may deviate significantly from the
o Class R shares are available only to 500--Registered Trademark-- Index) is an performance of the indexes.
certain retirement plans. Please see the index of common stocks frequently used
prospectus for more information. as a general measure of U.S. stock OTHER INFORMATION
market performance.
PRINCIPAL RISKS OF INVESTING IN THE FUND o The average credit quality of the
o The fund uses a blended index composed fund's holdings as of the close of the
o U.S. Treasury securities such as of 60% Russell 1000--Registered reporting period represents the weighted
bills, notes and bonds offer a high Trademark-- Value Index and 40% Lehman average quality rating of the securities
degree of safety, and they guarantee the U.S. Aggregate Bond Index. The unmanaged in the portfolio as assigned by
payment of principal and any applicable Russell 1000--Registered Trademark-- Nationally Recognized Statistical Rating
interest if held to maturity. Fund Index represents the performance of the Organizations based on assessment of the
shares are not insured, and their value stocks of large-capitalization credit quality of the individual
and yield will vary with market companies; the Value segment measures securities.
conditions. the performance of Russell 1000
companies with lower price/book ratios o Effective duration is a measure of a
o International investing presents and lower forecasted growth values. The bond fund's price sensitivity to changes
certain risks not associated with unmanaged Lehman U.S. Aggregate Bond in interest rates. It also takes into
investing solely in the United States. Index, which represents the U.S. account mortgage prepayments, puts,
These include risks relating to investment-grade fixed-rate bond market adjustable coupons and potential call
fluctuations in the value of the U.S. (including government and corporate dates.
dollar relative to the values of other securities, mortgage pass-through
currencies, the custody arrangements securities and asset-backed securities), o The returns shown in the Management's
made for the fund's foreign holdings, is compiled by Lehman Brothers, a global Discussion of Fund Performance are based
differences in accounting, political investment bank. on net asset values calculated for
risks and the lesser degree of public shareholder transactions. Generally
information required to be provided by o The unmanaged MSCI World Index is a accepted accounting principles require
non-U.S. companies. The fund may invest group of global securities tracked by adjustments to be made to the net assets
up to 25% of its assets in the Morgan Stanley Capital International. of the fund at period end for financial
securities of non-U.S. issuers. reporting purposes, and as such, the net
o The unmanaged Lehman U.S. Aggregate asset values for shareholder
o The fund may participate in the Bond Index, which represents the U.S. transactions and the returns based on
initial public offering (IPO) market in investment-grade fixed-rate bond market those net asset values may differ from
some market cycles. Because of the (including government and corporate the net asset values and returns
fund's small asset base, any investment securities, mortgage pass-through reported in the Financial Highlights.
the fund may make in IPOs may securities and asset-backed securities),
significantly affect the fund's total is compiled by Lehman Brothers, a global o Industry classifications used in this
return. As the fund's assets grow, the investment bank. report are generally according to the
impact of IPO investments will decline, Global Industry Classification Standard,
which may reduce the effect of IPO which was developed by and is the
investments on the fund's total return. exclusive property and a service mark of
Morgan Stanley Capital International
Inc. and Standard & Poor's.
A description of the policies and
procedures that the fund uses to
determine how to vote proxies relating
to portfolio securities is available
without charge, upon request, by calling
800-959-4246, or on the AIM Web site,
AIMinvestments.com.
</Table>
=============================================================================
THIS REPORT MUST BE ACCOMPANIED OR PRECEDED BY A CURRENTLY EFFECTIVE FUND
PROSPECTUS, WHICH CONTAINS MORE COMPLETE INFORMATION, INCLUDING SALES CHARGES
AND EXPENSES. READ IT CAREFULLY BEFORE YOU INVEST.
=============================================================================
=====================================================
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
=====================================================
AIMinvestments.com
TO OUR SHAREHOLDERS
DEAR FELLOW SHAREHOLDER IN THE AIM FAMILY OF
FUNDS--Registered Trademark--:
[PHOTO OF The six months covered by this report could be characterized
ROBERT H. as a trendless market. Positive news about employment and a
GRAHAM] strengthening economy were offset by concerns about higher
interest rates, continued violence in Iraq and high oil
ROBERT H. GRAHAM prices. The result: muted performance in both U.S. equity
and fixed-income markets.
The same macroeconomic factors were at work overseas as
well, causing developed international markets to generally
perform in line with that of the United States. In fact, the
MSCI World Index tracked the performance of the S&P 500
Index with six-month returns of 3.52% and 3.44%,
respectively.
The anticipation of higher interest rates hampered bond performance, with
most areas of the fixed-income market turning in flat returns for the six-month
period, as evidenced by the 0.15% return of the Lehman U.S. Aggregate Bond
Index. Considered a good proxy for the U.S. bond market, this index includes
fixed-rate mortgage-backed securities, U.S. agency investments, U.S. Treasuries
of various maturities and U.S. corporate bonds.
In an unremarkable period like the one covered by this report, we encourage
shareholders to look past short-term market performance and remain focused on
their long-term investment goals. Whether markets rise, fall or go sideways, the
only certainty is their unpredictability, especially in the short run.
Historically, markets have risen over the long term, with the S&P 500 Index
returning 13.55% over the past 25 years and the Lehman U.S. Aggregate Bond Index
returning 9.20%.* While past performance cannot guarantee future results, we
believe that staying invested for the long term offers the best opportunity for
capital growth.
For information on how your fund performed and was managed during the six
months covered by this report, please read your fund managers' discussion on the
following pages. We hope you find it informative.
There continues to be increased regulatory focus on mutual funds and other
investment products. For the latest information about ongoing regulatory
matters, please visit our Web site, AIMinvestments.com. We continue to post
updates as information becomes available. We also encourage you to visit our Web
site for investor education and planning information as well as regular
performance updates on our funds.
As always, AIM is committed to building solutions for your investment goals,
and we thank you for your continued participation in AIM
Investments--Servicemark--. If you have any questions, please contact our Client
Service representatives at 800-959-4246.
Sincerely,
/s/ ROBERT H. GRAHAM
- -------------------------
Robert H. Graham
Chairman and President
July 20, 2004
*Average annual total returns, June 30, 1979, to June 30, 2004. Source: Lipper,
Inc.
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
<Table>
INDUSTRIALS, HEALTH CARE, ENERGY U.S. Treasuries of various maturities
SECTORS PACED FUND PERFORMANCE and U.S. corporate instruments.
Class A shares of AIM Basic Balanced continued violence in Iraq and YOUR FUND
Fund returned 3.05% at net asset value persistently high oil prices.
for the six-month reporting period ended The fund's overweight position in
June 30, 2004. (Had the effects of the As the reporting period closed, the industrials in comparison to the Russell
front-end sales charge been included, U.S. Federal Reserve (the Fed) hiked the 1000 Value Index, one of the best
the return would have been lower.) The federal funds target rate by 0.25%--its performing sectors of the index, along
fund's blended index (60% Russell 1000 first rate increase in four years. The with strong stock selection in the
Value Index/40% Lehman U.S. Aggregate Fed's decision came amid signs that the sector, helped fuel positive performance
Bond Index), the Lipper Balanced Fund economy was strengthening and inflation, in the fund's equity portfolio.
Index and the S&P 500 Index returned while still relatively tame, had risen Industrials outperformed the broader
2.41%, 2.25% and 3.44%, respectively. in recent months. market on news of strong GDP growth
The fund outperformed the first two along with growing factory orders and
benchmarks, which have a comparable mix Gross domestic product (GDP) expanded payrolls. While index returns in the
of stocks and bonds, primarily because at an annualized rate of 4.5% in the health care sector were only modestly
of strong performance from its equity first quarter of 2004 and 3.0% during positive, the fund significantly
portfolio. The fund underperformed its the second quarter. What had been a outperformed here as well.
broad market index, the S&P 500 Index, "jobless recovery" produced more than
due to modest returns from its bond 1.2 million new jobs from January The fund's energy holdings
portfolio, which is not part of the S&P through June, according to the U.S. outperformed the energy sector of the
500; the S&P 500 is made up of stocks Department of Labor. S&P 500 Index, the best performing area
only. Results for other share classes of the market. The energy sector
are found in the table on page 3. In the U.S. fixed-rate securities continued to benefit from high commodity
market, high yield issues outperformed prices as well as the ongoing threat of
MARKET CONDITIONS their investment-grade counterparts, on oil supply disruptions at a time of
average, for the reporting period. The increasing global demand.
Equity markets during the period were U.S. investment-grade fixed-rate bond
characterized by a consolidating market market, as measured by the Lehman U.S. The materials and consumer
environment with returns more muted than Aggregate Bond Index, returned 0.15% for discretionary sectors underperformed
those experienced in 2003. Strong the same period. Among the segments of during the reporting period, hurting
macroeconomic news on the industrial and the investment-grade Lehman U.S. fund performance. The materials sector
employment fronts was offset by concerns Aggregate Bond Index, fixed-rate posted a loss, largely on fears of a
over higher interest rates, mortgage-backed securities averaged the slowing Chinese economy. The relative
highest results, followed by U.S. agency underperformance of consumer
investments, discretionary holdings was a function of
the fund's overweight position to the
sector's flat returns. Concerns about
the impact of rising
</Table>
<Table>
====================================================================================================================================
TOP 10 EQUITY HOLDINGS* TOP 10 INDUSTRIES* TOP 10 FIXED INCOME ISSUERS*
1. Tyco International Ltd. 1. U.S. Mortgage-Backed Securities 9.2% 1. U.S. Treasury 6.8%
(Bermuda) 3.0%
2. U.S. Treasury Securities 6.8 2. Federal Home Loan Bank 5.4
2. Fannie Mae 2.2
3. U.S. Government Agency 3. Federal National Mortgage
3. First Data Corp. 2.1 Securities 5.8 Association (FNMA) 5.1
4. Waste Management, Inc. 2.1 4. Other Diversified Financial 4. Federal Home Loan Mortgage
Services 5.0 Corp. (FHLMC) 3.3
5. Cardinal Health, Inc. 2.1
5. Industrial Conglomerates 4.5 5. Government National Mortgage
6. Computer Associates Association (GNMA) 1.2
International, Inc. 2.1 6. Pharmaceuticals 4.1
6. General Motors Acceptance Corp. 0.8
7. Citigroup Inc. 2.0 7. Health Care Distributors 3.5
7. Ford Motor Credit Co. 0.8
8. Cendant Corp. 1.9 8. Data Processing & Outsourced
Services 3.4 8. Hertz Corp. (The) 0.6
9. Aventis S.A. (France) 1.8
9. Advertising 2.8 9. Santander Financial Issuances
10. ACE Ltd. (Cayman Islands) 1.6 (Cayman Islands) 0.4
10. Diversified Banks 2.7
10. Time Warner Cos., Inc. 0.4
TOTAL NUMBER OF HOLDINGS* 304
TOTAL NET ASSETS $174.9 MILLION
*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>
interest rates and high oil prices we saw almost equally attractive R. CANON COLEMAN II
resulted in poor relative performance valuation opportunities in both areas. Mr. Coleman, Chartered
for this sector. Based on our valuation estimates, the [COLEMAN Financial Analyst,
relative valuation advantage smaller PHOTO] joined AMVESCAP in
Among specific holdings that most companies enjoyed during the past 1999. He earned a B.S.
benefited fund performance were several years also appears to have been and an M.S. in
manufacturing conglomerate Tyco and corrected by the significant accounting from the University of
pharmaceuticals manufacturer Aventis. outperformance of small- and mid-cap Florida and an M.B.A. from The Wharton
Tyco continued to move beyond the stocks in recent periods. As a result of School at the University of
controversy associated with its former these changing opportunities, we have Pennsylvania.
chief executive officer, as investors moved gradually into more economically
focused on accelerating sales growth, defensive sectors such as health care. JAN H. FRIEDLI
margin expansion opportunities and Mr. Friedli began his
significant cash-flow generation. The The fixed-income portfolio performed [FRIEDLI investment career in
strength in Aventis was primarily in line with fixed-income markets, as PHOTO] 1990 and has worked
attributable to the company's recent measured by the Lehman U.S. Aggregate as a portfolio
decision to merge with another French Bond Index, which experienced a manager since 1997.
pharmaceutical manufacturer. difficult quarter as short-term interest He joined AIM in 1999. He graduated from
rates began to trend upward. In this Villanova University with a B.S. in
Detractors from fund performance unfavorable environment, the portfolio computer science. He earned an M.B.A.
included pharmaceuticals manufacturer benefited from its reduced duration from the University of Chicago.
Wyeth and investment banking firm Morgan profile. In addition, the portfolio's
Stanley. Wyeth, maker of both exposure to high-coupon mortgage-backed SCOT W. JOHNSON
prescription drugs and over-the-counter securities also helped contribute to Mr. Johnson, Chartered
health products, saw its stock weaken performance given the defensive nature [JOHNSON Financial Analyst,
because of the perception of increased of their above-market coupon rates and PHOTO] joined AIM in 1994 as
risk related to diet drug litigation. more stable prepayment patterns. a junior portfolio
Morgan Stanley, like many companies in Importantly, the portfolio's credit analyst. He received
the financial sector, declined on fears profile remained very strong with a both his B.A. in economics and an M.B.A.
of rising interest rates. The fund weighted-average AA rating. in finance from Vanderbilt University.
continued to hold both companies at the
end of the period. IN CLOSING MATTHEW W. SEINSHEIMER
Mr. Seinsheimer,
The extremes created in the recent The absence of a long-term investment [SEINSHEIMER Chartered Financial
bear market have largely been erased. As horizon is a major obstacle many face in PHOTO] Analyst, began his
markets have rallied, the abundance of building wealth. Results during this investment career in
compelling valuation opportunities in period were favorable, but normal market 1992 as a fixed-income
economically-sensitive stocks relative volatility limits our ability to measure trader and joined AIM in 1998. He
to more defensive stocks has success. But over longer time periods, received a B.B.A. from Southern
significantly decreased. At the close of we have the potential to turn market Methodist University and an M.B.A. from
the reporting period, volatility into capital appreciation. The University of Texas at Austin.
Our equity strategy is to invest in
quality companies when they are MICHAEL J. SIMON
significantly undervalued by the market. Mr. Simon, Chartered
We believe a long-term investment [SIMON Financial Analyst,
horizon and attractive value content are PHOTO] joined AIM in 2001.
critical to creating wealth. At the Mr. Simon worked as
close of the period the discount between a vice president,
market value and our estimate of equity analyst and portfolio manager.
portfolio intrinsic value remained Mr. Simon, who began his investment
attractive. We will continue to work career in 1989, received a B.B.A. in
hard to grow this portfolio value. Thank finance from Texas Christian University
you for your investment and for sharing and an M.B.A. from the University of
our long-term horizon. Chicago.
See important fund and index BRET W. STANLEY
disclosures inside front cover. Mr. Stanley, Chartered
[STANLEY Financial Analyst, is
PHOTO] lead manager of AIM
Basic Balanced Fund.
Prior to joining AIM
in 1998, he managed equity income and
value portfolios. He began his
investment career in 1988. Mr. Stanley
received a B.B.A. in finance from The
University of Texas at Austin and an
M.S. in finance from the University of
Houston.
Assisted by the Basic Value and Fixed
Income teams
=====================================================================================
FUND VS. INDEXES
Total returns 12/31/03-6/30/04, excluding sales charges. If sales
charges were included, returns would be lower.
CLASS A SHARES 3.05%
CLASS B SHARES 2.72
CLASS C SHARES 2.72
CLASS R SHARES 3.03
S&P 500 INDEX (BROAD MARKET INDEX) 3.44
60% RUSSELL 1000 VALUE INDEX/
40% LEHMAN U.S. AGGREGATE BOND INDEX (STYLE-SPECIFIC INDEX) 2.41
LIPPER BALANCED FUND INDEX (PEER GROUP INDEX) 2.25
Source: Lipper, Inc.
===================================================================================== [RIGHT ARROW GRAPHIC]
FOR A PRESENTATION OF YOUR FUND'S
LONG-TERM PERFORMANCE RECORD, PLEASE
TURN THE PAGE.
</Table>
3
LONG-TERM PERFORMANCE
YOUR FUND'S LONG-TERM PERFORMANCE
================================================================================
Below you will find a presentation of your fund's long-term performance record
for periods ended 6/30/04, the close of the six-month period covered by this
report.
Please read the important disclosure accompanying these tables, which explains
how fund performance is calculated and the sales charges, if any, that apply to
the share class in which you are invested.
================================================================================
<Table>
====================================================================================================================================
AVERAGE ANNUAL TOTAL RETURNS Class R shares' inception date is (CDSC) for the period involved. The CDSC
As of 6/30/04, including applicable 4/30/04. Returns since that date are on Class B shares declines from 5%
sales charges historical returns. All other returns beginning at the time of purchase to 0%
are blended returns of historical Class at the beginning of the seventh year.
CLASS A SHARES R share performance and restated Class A The CDSC on Class C shares is 1% for the
Inception (9/28/01) 5.33% share performance (for periods prior to first year after purchase. Class R
1 Year 9.81 the inception date of Class R shares) at shares do not have a front-end sales
net asset value, adjusted to reflect the charge; returns shown are at net asset
CLASS B SHARES higher Rule 12b-1 fees applicable to value and do not reflect a 0.75% CDSC
Inception (9/28/01) 5.56% Class R shares. Class A shares' that may be imposed on a total
1 Year 9.59 inception date is 9/28/01. redemption of retirement plan assets
within the first year. The performance
CLASS C SHARES The performance data quoted represent of the fund's share classes will differ
Inception (9/28/01) 6.54% past performance and cannot guarantee due to different sales charge structures
1 Year 13.48 comparable future results; current and class expenses.
performance may be lower or higher.
CLASS R SHARES Please visit AIMinvestments.com for the
Inception 7.08% most recent month-end performance.
1 Year 15.15 Performance figures reflect reinvested
distributions, changes in net asset
value and the effect of the maximum
sales charge unless otherwise stated.
Investment return and principal value
will fluctuate so that you may have a
gain or loss when you sell shares.
Class A share performance reflects
the maximum 4.75% sales charge, and
Class B and Class C share performance [ARROW
reflects the applicable contingent BUTTON For More Information Visit
deferred sales charge IMAGE] AIMinvestments.com
====================================================================================================================================
</Table>
4
SUPPLEMENT TO SEMIANNUAL REPORT DATED 6/30/04
AIM BASIC BALANCED FUND
<Table>
===================================================================================================================================
INSTITUTIONAL CLASS SHARES AVERAGE ANNUAL TOTAL RETURNS Please note that past performance is not
For periods ended 6/30/04 indicative of future results. More
The following information has been recent returns may be more or less than
prepared to provide Institutional Class Inception 7.30% those shown. All returns assume
shareholders with a performance overview 1 Year 15.49 reinvestment of distributions at net
specific to their holdings. 6 Months* 3.26 asset value. Investment return and
Institutional Class shares are offered principal value will fluctuate so your
exclusively to institutional investors, *Cumulative total return that has not shares, when redeemed, may be worth more
including defined contribution plans been annualized or less than their original cost. See
that meet certain criteria. full report for information on
comparative benchmarks. Please consult
Institutional Class shares' inception your fund prospectus for more
date is 4/30/04. Returns since that date information. For the most current
are historical returns. All other month-end performance, please call
returns are blended returns of 800-451-4246 or visit
historical Institutional Class share AIMinvestments.com.
performance and restated Class A share
performance (for periods prior to the
inception date of Institutional Class
shares) at net asset value and reflect
the higher Rule 12b-1 fees applicable to
Class A shares. Class A shares'
inception date is 9/28/01. Institutional
Class shares would have had different
returns due to differences in the
expense structure of the Institutional
Class.
Institutional Class shares have no sales
charge; therefore, performance is at
NAV. Performance of Institutional Class
shares will differ from performance of
other share classes due to differing
sales charges and class expenses.
===================================================================================================================================
</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.
<Table>
AIMinvestments.com BBA-INS-2 YOUR GOALS. OUR SOLUTIONS. [AIM INVESTMENTS LOGO APPEARS HERE]
--Registered Trademark-- --Registered Trademark--
</Table>
A I M Distributors, Inc.
FINANCIALS
SCHEDULE OF INVESTMENTS
June 30, 2004
(Unaudited)
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
STOCKS & OTHER EQUITY INTERESTS-65.21%
ADVERTISING-2.71%
Interpublic Group of Cos., Inc. (The)(a) 183,000 $ 2,512,590
- ------------------------------------------------------------------------
Omnicom Group Inc. 29,400 2,231,166
========================================================================
4,743,756
========================================================================
AEROSPACE & DEFENSE-1.05%
Honeywell International Inc. 50,000 1,831,500
========================================================================
ALUMINUM-1.06%
Alcoa Inc. 56,000 1,849,680
========================================================================
APPAREL RETAIL-1.44%
Gap, Inc. (The) 103,900 2,519,575
========================================================================
ASSET MANAGEMENT & CUSTODY BANKS-1.17%
Bank of New York Co., Inc. (The) 69,700 2,054,756
========================================================================
BUILDING PRODUCTS-2.50%
American Standard Cos. Inc.(a) 41,000 1,652,710
- ------------------------------------------------------------------------
Masco Corp. 87,200 2,718,896
========================================================================
4,371,606
========================================================================
COMMUNICATIONS EQUIPMENT-0.69%
Motorola, Inc. 66,300 1,209,975
========================================================================
CONSTRUCTION, FARM MACHINERY & HEAVY
TRUCKS-0.58%
Deere & Co. 14,500 1,017,030
========================================================================
CONSUMER ELECTRONICS-2.22%
Koninklijke (Royal) Philips Electronics
N.V.-New York Shares (Netherlands) 58,700 1,596,640
- ------------------------------------------------------------------------
Sony Corp.-ADR (Japan) 60,000 2,283,000
========================================================================
3,879,640
========================================================================
DATA PROCESSING & OUTSOURCED SERVICES-3.43%
Ceridian Corp.(a) 100,900 2,270,250
- ------------------------------------------------------------------------
First Data Corp. 83,600 3,721,872
========================================================================
5,992,122
========================================================================
DEPARTMENT STORES-0.85%
May Department Stores Co. (The) 54,000 1,484,460
========================================================================
DIVERSIFIED BANKS-1.32%
Bank One Corp. 45,400 2,315,400
========================================================================
DIVERSIFIED CHEMICALS-0.43%
Dow Chemical Co. (The) 18,500 752,950
========================================================================
</Table>
<Table>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
<Caption>
DIVERSIFIED COMMERCIAL SERVICES-1.93%
Cendant Corp. 138,200 $ 3,383,136
========================================================================
ELECTRIC UTILITIES-0.23%
FirstEnergy Corp. 10,600 396,546
========================================================================
ENVIRONMENTAL SERVICES-2.10%
Waste Management, Inc. 120,000 3,678,000
========================================================================
FOOD RETAIL-2.45%
Kroger Co. (The)(a) 123,900 2,254,980
- ------------------------------------------------------------------------
Safeway Inc.(a) 80,000 2,027,200
========================================================================
4,282,180
========================================================================
GENERAL MERCHANDISE STORES-1.42%
Target Corp. 58,400 2,480,248
========================================================================
HEALTH CARE DISTRIBUTORS-3.51%
Cardinal Health, Inc. 52,200 3,656,610
- ------------------------------------------------------------------------
McKesson Corp. 72,500 2,488,925
========================================================================
6,145,535
========================================================================
HEALTH CARE EQUIPMENT-1.41%
Baxter International Inc. 50,500 1,742,755
- ------------------------------------------------------------------------
Waters Corp.(a) 15,000 716,700
========================================================================
2,459,455
========================================================================
HEALTH CARE FACILITIES-1.28%
HCA Inc. 53,800 2,237,542
========================================================================
HEALTH CARE SERVICES-0.52%
IMS Health Inc. 38,800 909,472
========================================================================
INDUSTRIAL CONGLOMERATES-4.29%
General Electric Co. 71,100 2,303,640
- ------------------------------------------------------------------------
Tyco International Ltd. (Bermuda) 156,600 5,189,724
========================================================================
7,493,364
========================================================================
INDUSTRIAL MACHINERY-1.60%
Illinois Tool Works Inc. 29,100 2,790,399
========================================================================
INSURANCE BROKERS-0.69%
Aon Corp. 42,500 1,209,975
========================================================================
INVESTMENT BANKING & BROKERAGE-2.53%
Merrill Lynch & Co., Inc. 38,000 2,051,240
- ------------------------------------------------------------------------
Morgan Stanley 45,100 2,379,927
========================================================================
4,431,167
========================================================================
</Table>
F-1
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
MANAGED HEALTH CARE-1.51%
Anthem, Inc.(a) 29,500 $ 2,642,020
========================================================================
MOVIES & ENTERTAINMENT-1.48%
Walt Disney Co. (The) 101,500 2,587,235
========================================================================
MULTI-LINE INSURANCE-1.00%
Hartford Financial Services Group, Inc. (The) 25,500 1,752,870
========================================================================
OIL & GAS DRILLING-1.92%
Pride International, Inc.(a) 49,200 841,812
- ------------------------------------------------------------------------
Transocean Inc. (Cayman Islands)(a) 86,900 2,514,886
========================================================================
3,356,698
========================================================================
OIL & GAS EQUIPMENT & SERVICES-1.75%
Halliburton Co. 66,500 2,012,290
- ------------------------------------------------------------------------
Schlumberger Ltd. (Netherlands) 16,400 1,041,564
========================================================================
3,053,854
========================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES-3.00%
Citigroup Inc. 74,000 3,441,000
- ------------------------------------------------------------------------
J.P. Morgan Chase & Co. 39,000 1,512,030
- ------------------------------------------------------------------------
Zurich RegCaPS Funding Trust III, 1.71%
Floating Rate Pfd. (Acquired 06/03/04; Cost
$292,263)(b)(c) 300 292,500
========================================================================
5,245,530
========================================================================
PACKAGED FOODS & MEATS-1.00%
Kraft Foods Inc.-Class A 55,000 1,742,400
========================================================================
PHARMACEUTICALS-4.14%
Aventis S.A. (France) 40,700 3,079,768
- ------------------------------------------------------------------------
Pfizer Inc. 62,200 2,132,216
- ------------------------------------------------------------------------
Sanofi-Synthelabo S.A. (France) 3,500 222,376
- ------------------------------------------------------------------------
Wyeth 49,700 1,797,152
========================================================================
7,231,512
========================================================================
PROPERTY & CASUALTY INSURANCE-1.63%
ACE Ltd. (Cayman Islands) 67,600 2,858,128
========================================================================
SYSTEMS SOFTWARE-2.05%
Computer Associates International, Inc. 127,800 3,586,068
========================================================================
THRIFTS & MORTGAGE FINANCE-2.32%
Fannie Mae 53,400 3,810,624
- ------------------------------------------------------------------------
Fannie Mae-Series K, 3.00% Pfd. 4,850 242,985
========================================================================
4,053,609
========================================================================
Total Stocks & Other Equity Interests
(Cost $95,789,869) 114,029,393
========================================================================
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
- ------------------------------------------------------------------------
</Table>
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
- ------------------------------------------------------------------------
BONDS & NOTES-14.05%
ADVERTISING-0.08%
Interpublic Group of Cos., Inc. (The), Sr.
Unsec. Notes, 7.88%, 10/15/05 $ 130,000 $ 138,258
========================================================================
AEROSPACE & DEFENSE-0.02%
Lockheed Martin Corp.-Series A, Medium Term
Notes, 8.66%, 11/30/06 35,000 38,775
========================================================================
BROADCASTING & CABLE TV-0.81%
Continental Cablevision, Inc., Sr. Unsec.
Deb., 9.50%, 08/01/13 100,000 112,039
- ------------------------------------------------------------------------
Cox Communications, Inc., Unsec. Notes,
6.88%, 06/15/05 65,000 67,586
- ------------------------------------------------------------------------
7.50%, 08/15/04 100,000 100,731
- ------------------------------------------------------------------------
Cox Radio, Inc., Sr. Unsec. Notes, 6.63%,
02/15/06 75,000 78,994
- ------------------------------------------------------------------------
Rogers Cable Inc. (Canada)-Series B, Sr. Sec.
Yankee Notes, 10.00%, 03/15/05 160,000 167,200
- ------------------------------------------------------------------------
TCI Communications, Inc., Sr. Notes, 8.65%,
09/15/04 200,000 202,582
- ------------------------------------------------------------------------
Time Warner Cos., Inc.,
Notes, 7.98%, 08/15/04 150,000 151,177
- ------------------------------------------------------------------------
Sr. Unsec. Gtd. Deb.,
6.88%, 06/15/18 300,000 315,081
- ------------------------------------------------------------------------
7.57%, 02/01/24 65,000 70,361
- ------------------------------------------------------------------------
Unsec. Notes, 7.75%, 06/15/05 150,000 157,018
========================================================================
1,422,769
========================================================================
CONSUMER FINANCE-2.22%
Associates Corp. of North America, Sr. Global
Deb., 6.95%, 11/01/18 325,000 361,390
- ------------------------------------------------------------------------
Capital One Bank, Sr. Global Notes, 8.25%,
06/15/05 225,000 237,193
- ------------------------------------------------------------------------
Capital One Financial Corp.,
Sr. Unsec. Notes, 7.25%, 05/01/06 275,000 290,771
- ------------------------------------------------------------------------
Unsec. Notes, 7.13%, 08/01/08 150,000 160,831
- ------------------------------------------------------------------------
DaimlerChrysler N.A. Holding Corp.-Series D,
Gtd. Medium Term Notes, 3.40%, 12/15/04 50,000 50,297
- ------------------------------------------------------------------------
Ford Motor Credit Co.,
Floating Rate Global Notes, 3.05%,
10/25/04(c) 175,000 175,373
- ------------------------------------------------------------------------
Notes, 6.75%, 05/15/05 100,000 103,264
- ------------------------------------------------------------------------
Unsec. Global Notes,
6.50%, 01/25/07 55,000 57,876
- ------------------------------------------------------------------------
6.88%, 02/01/06 450,000 472,657
- ------------------------------------------------------------------------
7.50%, 03/15/05 275,000 284,133
- ------------------------------------------------------------------------
7.75%, 03/15/05 220,000 227,634
- ------------------------------------------------------------------------
General Motors Acceptance Corp.,
Floating Rate Medium Term Notes,
3.34%, 03/04/05(c) 625,000 625,294
- ------------------------------------------------------------------------
Global Notes,
4.50%, 07/15/06 90,000 91,156
- ------------------------------------------------------------------------
7.50%, 07/15/05 100,000 104,704
- ------------------------------------------------------------------------
</Table>
F-2
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
- ------------------------------------------------------------------------
CONSUMER FINANCE-(CONTINUED)
Medium Term Notes,
5.25%, 05/16/05 $ 55,000 $ 56,130
- ------------------------------------------------------------------------
5.36%, 07/27/04 275,000 275,712
- ------------------------------------------------------------------------
Unsec. Unsub. Global Notes, 6.75%,
01/15/06(d) 300,000 314,328
========================================================================
3,888,743
========================================================================
DIVERSIFIED BANKS-1.40%
AB Spintab, Bonds, 7.50%, (Acquired 02/12/04;
Cost $245,524)(b)(e) 220,000 237,381
- ------------------------------------------------------------------------
American Savings Bank, Notes, 6.63%, 02/15/06
(Acquired 03/05/03; Cost $27,726)(b) 25,000 26,087
- ------------------------------------------------------------------------
Banco Nacional de Comercio Exterior S.N.C.
(Mexico), Notes, 3.88%, 01/21/09 (Acquired
02/25/04; Cost $98,375)(b) 100,000 94,988
- ------------------------------------------------------------------------
BankBoston Capital Trust IV, Gtd. Floating
Rate Notes, 1.97%, 06/08/28(c) 250,000 243,605
- ------------------------------------------------------------------------
Barclays Bank PLC (United Kingdom), Bonds,
8.55% (Acquired 11/05/03; Cost
$123,064)(b)(e) 100,000 119,033
- ------------------------------------------------------------------------
Centura Capital Trust I, Gtd. Notes, 8.85%,
06/01/27 (Acquired 05/22/03; Cost
$75,926)(b) 60,000 68,092
- ------------------------------------------------------------------------
Corporacion Andina de Fomento (Venezuela),
Unsec. Yankee Notes, 8.88%, 06/01/05 200,000 209,578
- ------------------------------------------------------------------------
Daiwa P.B. Ltd. (Cayman Islands), Gtd. Sub.
Floating Rate Medium Term Euro Notes,
2.15%(e)(f) 100,000 99,000
- ------------------------------------------------------------------------
Danske Bank A/S (Denmark), Tier I
Floating Rate Bonds,
5.91% (Acquired 06/07/04; Cost
$100,000)(b)(e) 100,000 101,124
- ------------------------------------------------------------------------
HSBC Capital Funding L.P. (United Kingdom),
Gtd. Bonds, 4.61% (Acquired 11/05/03; Cost
$46,626)(b)(e) 50,000 45,379
- ------------------------------------------------------------------------
Lloyds Bank PLC (United Kingdom)-Series 1,
Unsec. Sub. Floating Rate Euro Notes,
2.19%(e)(f) 140,000 122,312
- ------------------------------------------------------------------------
National Bank of Canada (Canada),
Floating Rate Euro Deb.,
1.31%, 08/29/87(f) 80,000 71,221
- ------------------------------------------------------------------------
National Westminster Bank PLC (United
Kingdom)-Series B, Unsec. Sub.
Floating Rate Euro Notes, 1.38%(e)(f) 150,000 129,461
- ------------------------------------------------------------------------
NBD Bank N.A. Michigan, Unsec. Putable Sub.
Deb., 8.25%, 11/01/04 100,000 122,694
- ------------------------------------------------------------------------
PNC Capital Trust C, Gtd. Floating Rate
Notes, 1.88%, 06/01/28(c) 175,000 164,887
- ------------------------------------------------------------------------
RBS Capital Trust I, Bonds 4.71%(e) 50,000 46,044
- ------------------------------------------------------------------------
Wells Fargo & Co., Sr. Unsec. Global Notes,
3.75%, 10/15/07 275,000 275,476
- ------------------------------------------------------------------------
Wells Fargo Bank, N.A., Unsec. Sub. Global
Notes, 7.80%, 06/15/10 250,000 263,325
========================================================================
2,439,687
========================================================================
</Table>
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
- ------------------------------------------------------------------------
DIVERSIFIED CAPITAL MARKETS-0.13%
UBS Preferred Funding Trust I, Gtd. Global
Bonds, 8.62%(e) $ 185,000 $ 220,995
========================================================================
ELECTRIC UTILITIES-0.53%
AmerenEnergy Generating Co.-Series C, Sr.
Unsec. Global Notes, 7.75%, 11/01/05 20,000 21,320
- ------------------------------------------------------------------------
CenterPoint Energy, Inc.-Series B, Sr. Global
Notes, 5.88%, 06/01/08 45,000 45,548
- ------------------------------------------------------------------------
Cinergy Corp., Unsec. Sub. Global Deb.,
6.25%, 09/01/04 30,000 30,212
- ------------------------------------------------------------------------
Consolidated Edison Co. of New York, Unsec.
Deb., 7.75%, 06/01/26(g) 55,000 58,732
- ------------------------------------------------------------------------
Kansas City Power & Light Co., Sr. Unsec.
Notes, 7.13%, 12/15/05 350,000 370,524
- ------------------------------------------------------------------------
Pacific Gas & Electric Co.,
First Mortgage Floating Rate Bonds,
1.81%, 04/03/06(f) 175,000 175,667
- ------------------------------------------------------------------------
Western Power Distribution Holdings Ltd.
(United Kingdom), Unsec. Unsub. Notes,
6.75%, 12/15/04 (Acquired 01/08/04; Cost
$46,744)(b) 45,000 45,635
- ------------------------------------------------------------------------
Yorkshire Power Finance (Cayman Islands)-
Series B, Sr. Unsec. Gtd. Unsub. Global
Notes, 6.50%, 02/25/08 175,000 178,822
========================================================================
926,460
========================================================================
FOOD RETAIL-0.20%
Kroger Co., Sr. Unsec. Gtd. Notes, 7.38%,
03/01/05 240,000 248,112
- ------------------------------------------------------------------------
Safeway Inc., Sr. Unsec. Notes, 2.50%,
11/01/05 100,000 99,491
========================================================================
347,603
========================================================================
GAS UTILITIES-0.26%
CenterPoint Energy Resources Corp., Unsec.
Deb., 6.50%, 02/01/08 60,000 63,266
- ------------------------------------------------------------------------
Columbia Energy Group-Series C, Notes, 6.80%,
11/28/05 225,000 236,860
- ------------------------------------------------------------------------
NiSource Capital Markets, Inc., Medium Term
Notes, 7.68%, 04/15/05 150,000 155,635
========================================================================
455,761
========================================================================
HEALTH CARE FACILITIES-0.21%
HCA Inc.
Notes, 7.00%, 07/01/07 45,000 47,764
- ------------------------------------------------------------------------
Sr. Sub. Notes, 6.91%, 06/15/05 310,000 320,087
========================================================================
367,851
========================================================================
HOMEBUILDING-0.44%
D.R. Horton, Inc., Sr. Unsec. Notes, 7.88%,
08/15/11 200,000 220,000
- ------------------------------------------------------------------------
Lennar Corp.-Series B, Sr. Unsec. Gtd. Global
Notes, 9.95%, 05/01/10 275,000 306,625
- ------------------------------------------------------------------------
Pulte Homes, Inc., Unsec. Gtd. Notes, 7.30%,
10/24/05 150,000 157,756
- ------------------------------------------------------------------------
</Table>
F-3
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
- ------------------------------------------------------------------------
HOMEBUILDING-(CONTINUED)
Ryland Group, Inc. (The), Sr. Unsec. Unsub.
Notes, 9.75%, 09/01/10 $ 75,000 $ 83,625
========================================================================
768,006
========================================================================
HYPERMARKETS & SUPER CENTERS-0.05%
Wal-Mart Stores, Inc., Unsec. Deb., 8.50%,
09/15/24 85,000 89,372
========================================================================
INDUSTRIAL CONGLOMERATES-0.25%
Tyco International Ltd. (Bermuda), Unsec.
Unsub. Gtd. Yankee Notes, 6.38%, 06/15/05 375,000 388,264
- ------------------------------------------------------------------------
URC Holdings Corp., Sr. Notes, 7.88%,
06/30/06 (Acquired 10/08/03; Cost
$56,614)(b) 50,000 54,441
========================================================================
442,705
========================================================================
INTEGRATED OIL & GAS-0.09%
ConocoPhillips, Unsec. Deb., 7.13%, 03/15/28 100,000 107,438
- ------------------------------------------------------------------------
Repsol International Finance B.V.
(Netherlands), Unsec. Gtd. Global Notes,
7.45%, 07/15/05 45,000 47,187
========================================================================
154,625
========================================================================
INTEGRATED TELECOMMUNICATION SERVICES-1.27%
Citizens Communications Co., Sr. Unsec.
Notes, 9.25%, 05/15/11 50,000 52,519
- ------------------------------------------------------------------------
France Telecom S.A. (France), Sr. Unsec.
Global Notes, 8.50%, 03/01/31 60,000 75,458
- ------------------------------------------------------------------------
GTE California Inc.-Series F, Unsec. Deb.,
6.75%, 05/15/27 100,000 101,243
- ------------------------------------------------------------------------
GTE Hawaiian Telephone Co., Inc.-Series A,
Unsec. Deb., 7.00%, 02/01/06 75,000 76,739
- ------------------------------------------------------------------------
Sprint Capital Corp.,
Sr. Unsec. Gtd. Global Notes, 7.13%,
01/30/06 275,000 291,371
- ------------------------------------------------------------------------
Unsec. Gtd. Global Notes, 7.90%, 03/15/05 205,000 213,130
- ------------------------------------------------------------------------
Sprint Corp., Deb. 9.25%, 04/15/22 90,000 109,027
- ------------------------------------------------------------------------
Telus Corp. (Canada), Yankee Notes,
7.50%, 06/01/07 250,000 272,537
- ------------------------------------------------------------------------
8.00%, 06/01/11 60,000 68,976
- ------------------------------------------------------------------------
Verizon Communications, Inc., Unsec. Deb.,
6.36%, 04/15/06(g) 400,000 421,328
- ------------------------------------------------------------------------
6.94%, 04/15/28 125,000 127,880
- ------------------------------------------------------------------------
8.75%, 11/01/21 85,000 104,764
- ------------------------------------------------------------------------
Verizon New York Inc.-Series A, Sr. Unsec.
Global Deb., 6.88%, 04/01/12 200,000 215,460
- ------------------------------------------------------------------------
Verizon Virginia Inc.-Series A, Unsec. Global
Deb., 4.63%, 03/15/13 100,000 93,374
========================================================================
2,223,806
========================================================================
INVESTMENT BANKING & BROKERAGE-0.10%
Lehman Brothers Inc.,
Sr. Sub. Deb., 11.63%, 05/15/05 75,000 80,235
- ------------------------------------------------------------------------
Sr. Unsec. Sub. Notes, 7.63%, 06/01/06 50,000 54,200
- ------------------------------------------------------------------------
</Table>
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
- ------------------------------------------------------------------------
INVESTMENT BANKING & BROKERAGE-(CONTINUED)
Merrill Lynch & Co., Inc.-Series B,
Medium Term Notes,
4.54%, 03/08/05 $ 40,000 $ 40,679
========================================================================
175,114
========================================================================
LIFE & HEALTH INSURANCE-0.27%
Lincoln National Corp., Unsec. Deb., 9.13%,
10/01/24 135,000 142,798
- ------------------------------------------------------------------------
Prudential Holdings, LLC-Series B, Bonds,
7.25%, 12/18/23 (Acquired
01/22/04-01/29/04; Cost $324,231)(b)(g) 275,000 309,202
- ------------------------------------------------------------------------
ReliaStar Financial Corp., Unsec. Notes,
8.00%, 10/30/06 25,000 27,183
========================================================================
479,183
========================================================================
MOVIES & ENTERTAINMENT-0.04%
Walt Disney Co. (The), Global Notes, 4.88%,
07/02/04 75,000 75,100
========================================================================
MULTI-UTILITIES & UNREGULATED POWER-0.22%
Dominion Resources, Inc.-
Series E, Sr. Unsec. Unsub. Notes, 7.82%,
09/15/04 75,000 75,854
- ------------------------------------------------------------------------
Series F, Sr. Unsec. Putable Notes, 5.25%,
08/01/15 325,000 312,618
========================================================================
388,472
========================================================================
MUNICIPALITIES-0.57%
Harris (County of), Texas; Refunding
Unlimited Tax Road Series 2004 A GO, 4.50%,
10/01/09(h) 100,000 105,625
- ------------------------------------------------------------------------
Industry (City of), California Urban
Development Agency (Project 3 TXB); Series
2003 B Tax Allocation, 6.10%,
05/01/24(g)(h) 150,000 148,875
- ------------------------------------------------------------------------
Maine (State of); Unlimited Tax Series 2004
GO, 5.00%, 01/15/09(h) 55,000 59,331
- ------------------------------------------------------------------------
Phoenix (City of), Arizona Civic Improvement
Corp.; Taxable Rental Car Facility Series
2004 RB,
3.69%, 07/01/07(g)(h) 80,000 80,000
- ------------------------------------------------------------------------
4.21%, 07/01/08(g)(h) 100,000 100,250
- ------------------------------------------------------------------------
6.25%, 07/01/29(g)(h) 115,000 118,163
- ------------------------------------------------------------------------
Sacramento (County of), California; Taxable
Pension Funding Series 2004 C-1 RB, 0.26%,
07/01/30(h)(i) 375,000 350,625
- ------------------------------------------------------------------------
University of Arizona; Series 2004 A COP,
5.25%, 06/01/09(g)(h) 30,000 32,850
========================================================================
995,719
========================================================================
OIL & GAS DRILLING-0.04%
Transocean Inc.(Cayman Islands), Sr. Unsec.
Unsub. Global Deb., 8.00%, 04/15/27 60,000 70,891
========================================================================
</Table>
F-4
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
- ------------------------------------------------------------------------
OIL & GAS REFINING, MARKETING &
TRANSPORTATION-0.03%
Plains All American Pipeline L.P./PAA Finance
Corp., Sr. Notes, 5.63%, 12/15/13 (Acquired
12/03/03; Cost $49,867)(b) $ 50,000 $ 47,864
========================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES-1.33%
Bombardier Capital, Inc. (Canada), Notes,
7.50%, 08/15/04 (Acquired
04/13/04-06/02/04; Cost $609,138)(b) 600,000 603,750
- ------------------------------------------------------------------------
CIT Group Inc., Sr. Unsec. Unsub. Global
Notes, 7.63%, 08/16/05 50,000 52,767
- ------------------------------------------------------------------------
General Electric Capital Corp.-Series A,
Medium Term Global Notes, 2.85%, 01/30/06 20,000 20,032
- ------------------------------------------------------------------------
Heller Financial, Inc.-Class A, Sr. Unsec.
Global Notes, 8.00%, 06/15/05 100,000 104,921
- ------------------------------------------------------------------------
ING Capital Funding Trust III, Gtd. Global
Bonds, 8.44%(e) 125,000 145,834
- ------------------------------------------------------------------------
Mizuho JGB Investment LLC-Series A, Bonds,
9.87%, (Acquired 06/16/04; Cost
$141,406)(b)(e) 125,000 141,111
- ------------------------------------------------------------------------
Ohana Military Communities, LLC-Series A,
Class I, Notes, 6.04%, 10/01/34 50,000 48,728
- ------------------------------------------------------------------------
Pemex Finance Ltd. (Cayman Islands),
Series 1999-2, Class A1, Global Bonds,
9.69%, 08/15/09 180,000 205,538
- ------------------------------------------------------------------------
Sr. Unsec. Global Notes, 8.02%, 05/15/07 150,000 160,584
- ------------------------------------------------------------------------
Pemex Project Funding Master Trust, Unsec.
Gtd. Unsub. Global Notes, 7.38%, 12/15/14 300,000 306,000
- ------------------------------------------------------------------------
PLC Trust 2003-1, Sec. Notes, 2.71%, 03/31/06
(Acquired 03/23/04; Cost $123,445)(b) 121,782 121,920
- ------------------------------------------------------------------------
Premium Asset 2004-04 Trust, Sr. Notes,
4.13%, 03/12/09 (Acquired 03/04/04; Cost
$249,833)(b) 250,000 241,434
- ------------------------------------------------------------------------
XTRA, Inc.-Series C, Gtd. Medium Term Notes,
7.70%, 11/02/04 175,000 177,546
========================================================================
2,330,165
========================================================================
PROPERTY & CASUALTY INSURANCE-0.14%
First American Capital Trust I, Gtd. Notes,
8.50%, 04/15/12 145,000 161,549
- ------------------------------------------------------------------------
Oil Insurance Ltd.(Bermuda), Unsec. Sub.
Deb., 5.15%, 08/15/33 (Acquired 03/23/04;
Cost $78,743)(b) 75,000 75,129
========================================================================
236,678
========================================================================
PUBLISHING-0.05%
News America Holdings, Inc., Sr. Unsec. Gtd.
Deb., 7.75%, 01/20/24 75,000 84,994
========================================================================
REAL ESTATE-0.09%
EOP Operating L.P., Unsec. Notes, 8.38%,
03/15/06 100,000 108,407
- ------------------------------------------------------------------------
Spieker Properties, Inc., Medium Term Notes,
8.00%, 07/19/05 50,000 52,699
========================================================================
161,106
========================================================================
</Table>
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
- ------------------------------------------------------------------------
REAL ESTATE MANAGEMENT & DEVELOPMENT-0.04%
Southern Investments UK PLC (United Kingdom),
Sr. Unsec. Unsub. Yankee Notes, 6.80%,
12/01/06 $ 75,000 $ 78,736
========================================================================
REGIONAL BANKS-1.16%
Cullen/Frost Capital Trust I, Floating Rate
Notes, 2.86%, 03/01/34 (Acquired 02/06/04;
Cost $225,000)(b)(c) 225,000 227,486
- ------------------------------------------------------------------------
Greater Bay Bancorp-Series B, Sr. Notes,
5.25%, 03/31/08 350,000 347,400
- ------------------------------------------------------------------------
Popular North America, Inc., Gtd. Notes,
4.70%, 06/30/09 600,000 599,904
- ------------------------------------------------------------------------
Santander Financial Issuances (Cayman
Islands), Sec. Sub. Floating Rate Euro
Notes, 2.25%(e)(f) 750,000 747,728
- ------------------------------------------------------------------------
TCF Financial Bank, Sub. Notes, 5.00%,
06/15/14 100,000 100,666
========================================================================
2,023,184
========================================================================
REINSURANCE-0.06%
GE Global Insurance Holding Corp., Unsec.
Notes, 7.50%, 06/15/10 100,000 112,854
========================================================================
RESTAURANTS-0.03%
McDonald's Corp., Unsec. Deb., 7.05%,
11/15/25 55,000 58,837
========================================================================
SOVEREIGN DEBT-0.48%
Japan Bank for International Cooperation
(Japan), Unsec. Gtd. Euro Bonds, 6.50%,
10/06/05 100,000 104,692
- ------------------------------------------------------------------------
New Brunswick (Province of) (Canada), Sec.
Yankee Deb., 6.75%, 08/15/13 40,000 45,609
- ------------------------------------------------------------------------
Quebec (Province of) (Canada), Sr. Unsec.
Unsub. Global Deb., 5.75%, 02/15/09 55,000 58,789
- ------------------------------------------------------------------------
Russian Federation (Russia),
Unsec. Unsub. Disc. Bonds, 7.50%, 03/31/30
(Acquired 05/18/04; Cost $103,572)(b)(j) 115,000 105,513
- ------------------------------------------------------------------------
Unsec. Unsub. Euro Bonds-REGS,
10.00%, 06/26/07 (Acquired 05/14/04-
05/18/04; Cost $157,706)(b) 140,000 158,055
- ------------------------------------------------------------------------
8.75%, 07/24/05(b) (Acquired 05/14/04;
Cost $84,888) 175,000 184,894
- ------------------------------------------------------------------------
United Mexican States (Mexico), Global Notes,
6.63%, 03/03/15 60,000 59,100
- ------------------------------------------------------------------------
Series A, Medium Term Global Notes, 7.50%,
04/08/33 120,000 116,250
========================================================================
832,902
========================================================================
SPECIALTY CHEMICALS-0.12%
ICI Wilmington Inc., Gtd. Notes, 6.95%,
09/15/04 200,000 201,746
========================================================================
THRIFTS & MORTGAGE FINANCE-0.14%
Greenpoint Capital Trust I, Gtd. Sub. Notes,
9.10%, 06/01/27 75,000 85,483
- ------------------------------------------------------------------------
Sovereign Bancorp, Inc., Sr. Unsec. Notes,
10.50%, 11/15/06 45,000 51,596
- ------------------------------------------------------------------------
</Table>
F-5
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
- ------------------------------------------------------------------------
THRIFTS & MORTGAGE FINANCE-(CONTINUED)
Washington Mutual Finance Corp., Sr. Unsec.
Notes, 8.25%, 06/15/05 $ 100,000 $ 105,309
========================================================================
242,388
========================================================================
TOBACCO-0.04%
Altria Group, Inc.,
Sr. Unsec. Notes, 7.00%, 11/04/13 40,000 40,872
- ------------------------------------------------------------------------
Unsec. Notes, 6.38%, 02/01/06 20,000 20,640
========================================================================
61,512
========================================================================
TRUCKING-0.67%
Hertz Corp. (The),
Floating Rate Global Notes, 1.77%,
08/13/04(c) 825,000 825,206
- ------------------------------------------------------------------------
Notes, 7.00%, 07/01/04 175,000 175,243
- ------------------------------------------------------------------------
Roadway Corp., Sr. Unsec. Gtd. Global Notes,
8.25%, 12/01/08 150,000 167,613
========================================================================
1,168,062
========================================================================
WIRELESS TELECOMMUNICATION SERVICES-0.47%
TeleCorp PCS, Inc., Sr. Unsec. Gtd. Sub.
Global Notes, 10.63%, 07/15/10 420,000 479,850
- ------------------------------------------------------------------------
Tritel PCS Inc., Sr. Unsec. Gtd. Sub. Global
Notes, 10.38%, 01/15/11 300,000 342,750
========================================================================
822,600
========================================================================
Total Bonds & Notes (Cost $24,754,417) 24,573,523
========================================================================
U.S. MORTGAGE-BACKED SECURITIES-9.16%
FEDERAL HOME LOAN MORTGAGE CORP.
(FHLMC)-3.33%
Pass Through Ctfs.,
6.50%, 01/01/16 to 01/01/31 203,422 212,934
- ------------------------------------------------------------------------
6.00%, 03/01/17 to 11/01/33 2,053,776 2,113,195
- ------------------------------------------------------------------------
5.50%, 12/01/17 to 12/01/33 1,231,838 1,234,743
- ------------------------------------------------------------------------
4.50%, 10/01/18 381,788 374,039
- ------------------------------------------------------------------------
7.00%, 07/01/29 to 06/01/32 429,136 453,355
- ------------------------------------------------------------------------
7.50%, 11/01/30 to 12/01/30 25,781 27,786
- ------------------------------------------------------------------------
5.00%, 10/01/33 490,542 475,195
- ------------------------------------------------------------------------
Pass Through Ctfs., TBA,
5.00%, 07/01/19(k) 924,000 925,897
========================================================================
5,817,144
========================================================================
FEDERAL NATIONAL MORTGAGE ASSOCIATION
(FNMA)-4.64%
Pass Through Ctfs.,
7.50%, 11/01/15 to 05/01/32 121,813 130,541
- ------------------------------------------------------------------------
7.00%, 02/01/16 to 03/01/32 228,356 241,870
- ------------------------------------------------------------------------
6.50%, 10/01/16 to 12/01/33 2,096,232 2,187,176
- ------------------------------------------------------------------------
6.00%, 05/01/17 to 07/01/17 623,855 650,894
- ------------------------------------------------------------------------
5.00%, 02/01/18 20,281 20,360
- ------------------------------------------------------------------------
</Table>
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
- ------------------------------------------------------------------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA)-(CONTINUED)
8.00%, 10/01/30 $ 24,180 $ 26,298
- ------------------------------------------------------------------------
5.50%, 06/01/33 to 12/01/33 1,268,536 1,266,527
- ------------------------------------------------------------------------
Pass Through Ctfs., TBA,
5.00%, 07/01/19 to 07/01/34(k) 1,210,520 1,199,699
- ------------------------------------------------------------------------
5.50%, 07/01/19(k) 1,166,000 1,195,176
- ------------------------------------------------------------------------
6.00%, 07/01/34(k) 1,171,300 1,197,708
========================================================================
8,116,249
========================================================================
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
(GNMA)-1.19%
Pass Through Ctfs.,
7.50%, 06/15/23 to 10/15/31 78,893 85,327
- ------------------------------------------------------------------------
8.50%, 02/15/25 35,769 39,629
- ------------------------------------------------------------------------
8.00%, 08/15/25 22,137 24,411
- ------------------------------------------------------------------------
7.00%, 02/15/31 to 05/15/32 236,012 250,937
- ------------------------------------------------------------------------
6.50%, 05/15/31 to 12/15/33 498,341 521,581
- ------------------------------------------------------------------------
6.00%, 12/15/31 to 02/15/33 673,669 691,823
- ------------------------------------------------------------------------
5.50%, 09/15/33 to 02/15/34 467,386 467,822
========================================================================
2,081,530
========================================================================
Total U.S. Mortgage-Backed Securities
(Cost $15,999,834) 16,014,923
========================================================================
U.S. GOVERNMENT AGENCY SECURITIES-5.83%
FEDERAL HOME LOAN BANK-5.39%
Unsec. Disc. Notes,
1.25%, 07/01/04(l) 9,420,000 9,420,000
========================================================================
FEDERAL NATIONAL MORTGAGE ASSOCIATION
(FNMA)-0.44%
Unsec. Disc. Notes,
1.04%, 07/07/04(l) 30,000 30,069
- ------------------------------------------------------------------------
Unsec. Floating Rate Global Notes,
2.88%, 02/17/09(m) 460,000 457,548
- ------------------------------------------------------------------------
Unsec. Global Notes,
3.38%, 12/15/08 300,000 291,102
========================================================================
778,719
========================================================================
Total U.S. Government Agency Securities
(Cost $10,198,967) 10,198,719
========================================================================
U.S. TREASURY SECURITIES-6.75%
U.S. TREASURY NOTES-5.41%
2.13%, 10/31/04 2,630,000 2,635,445
- ------------------------------------------------------------------------
6.75%, 05/15/05 200,000 208,078
- ------------------------------------------------------------------------
1.25%, 05/31/05 200,000 198,641
- ------------------------------------------------------------------------
6.50%, 10/15/06 2,500,000 2,700,000
- ------------------------------------------------------------------------
3.50%, 11/15/06 400,000 405,375
- ------------------------------------------------------------------------
3.13%, 10/15/08 760,000 745,038
- ------------------------------------------------------------------------
4.75%, 11/15/08 2,100,000 2,194,500
- ------------------------------------------------------------------------
</Table>
F-6
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
- ------------------------------------------------------------------------
U.S. TREASURY NOTES-(CONTINUED)
5.00%, 02/15/11 $ 350,000 $ 366,570
========================================================================
9,453,647
========================================================================
U.S. TREASURY BONDS-1.31%
7.25%, 05/15/16 to 08/15/22 1,000,000 1,215,058
- ------------------------------------------------------------------------
7.50%, 11/15/16 875,000 1,078,574
========================================================================
2,293,632
========================================================================
U.S. TREASURY STRIPS-0.03%
5.98%, 11/15/23(n) 175,000 58,461
========================================================================
Total U.S. Treasury Securities (Cost
$11,953,837) 11,805,740
========================================================================
ASSET-BACKED SECURITIES-0.83%
OIL & GAS EXPLORATION & PRODUCTION-0.13%
Kern River Funding Corp., Sr. Gtd. Notes,
4.89%, 04/30/18 (Acquired 04/28/03; Cost
$238,344)(b) 238,344 230,246
========================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES-0.70%
Citicorp Lease-Series 1999-1, Class A1, Pass
Through Ctfs., 7.22%, 06/15/05 (Acquired
05/08/02-02/25/04; Cost $518,359)(b) 485,013 503,497
- ------------------------------------------------------------------------
</Table>
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
- ------------------------------------------------------------------------
OTHER DIVERSIFIED FINANCIAL SERVICES-(CONTINUED)
Citicorp Lease-Series 1999-1, Class A2, Pass
Through Ctfs., 8.04%, 12/15/19 (Acquired
08/20/02; Cost $166,614)(b) $ 150,000 $ 171,357
- ------------------------------------------------------------------------
Patrons' Legacy 2004-I, Notes 6.67%, 02/14/17
(Acquired 04/30/04; Cost $500,000)(b) 500,000 496,406
- ------------------------------------------------------------------------
Yorkshire Power Pass Through Trust (Cayman
Islands)-Series 2000-1, Pass Through Ctfs.,
8.25%, 02/15/05 (Acquired 11/12/03; Cost
$53,400)(b) 50,000 51,574
========================================================================
1,222,834
========================================================================
Total Asset-Backed Securities (Cost
$1,459,643) 1,453,080
========================================================================
TOTAL INVESTMENTS-101.83% (Cost $160,156,567) 178,075,378
========================================================================
OTHER ASSETS LESS LIABILITIES-(1.83%) (3,203,762)
========================================================================
NET ASSETS-100.00% $174,871,616
________________________________________________________________________
========================================================================
</Table>
Investment Abbreviations:
<Table>
ADR - American Depositary Receipt
COP - Certificates of Participation
Ctfs. - Certificates
Deb. - Debentures
Disc. - Discounted
GO - General Obligation Bonds
Gtd. - Guaranteed
Pfd. - Preferred
RB - Revenue Bonds
</Table>
<Table>
REGS - Regulation S
Sec. - Secured
Sr. - Senior
STRIPS - Separately Traded Registered Interest and Principal Security
Sub. - Subordinated
TBA - To Be Announced
Unsec. - Unsecured
Unsub. - Unsubordinated
</Table>
Notes to Schedule of Investments:
(a) 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 June 30, 2004 was
$4,754,098, which represented 2.72% of the Fund's net assets. These
securities are considered to be illiquid.
(c) Interest rate is redetermined quarterly. Rate shown is rate in effect on
June 30, 2004.
(d) A portion of the principal balance was pledged as collateral to cover margin
requirements for open futures contracts. See Note 1I and Note 6.
(e) Perpetual bond with no specified maturity date.
(f) Interest rate is redetermined semi-annually. Rate shown is rate in effect on
June 30, 2004.
(g) Principal and interest payments are secured by bond insurance provided by
one of the following companies: Ambac Assurance Corp., Financial Guaranty
Insurance Co., Financial Security Assurance Inc., or MBIA Insurance Corp.
(h) Interest on this security is taxable income to the Fund.
(i) Zero coupon bond issued at a discount. The interest rate shown represents
the current yield on June 30, 2004. Bond will convert to a fixed coupon rate
at a specified future date.
(j) Discounted bond at issue. The interest rate represents the interest rate at
which the bond will accrue at a specified future date.
(k) Security purchased on forward commitment basis. This security is subject to
dollar roll transactions. See Note 1F.
(l) Security traded on a discount basis. The interest rate shown represents the
discount rate at the time of the purchase of the Fund.
(m) Interest rate is redetermined monthly. Rate shown is rate in effect on June
30, 2004.
(n) STRIPS are traded on a discount basis. In such cases, the interest rate
shown represents the rate of discount paid or received at the time of
purchase by the Fund.
See accompanying notes which are an integral part of the financial statements.
F-7
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2004
(Unaudited)
<Table>
ASSETS:
Investments, at market value (cost
$160,156,567) $178,075,378
- -----------------------------------------------------------
Cash 280,357
- -----------------------------------------------------------
Receivables for:
Investments sold 1,272,132
- -----------------------------------------------------------
Variation margin 63,985
- -----------------------------------------------------------
Fund shares sold 434,398
- -----------------------------------------------------------
Dividends and interest 636,301
- -----------------------------------------------------------
Investment for deferred compensation and
retirement plans 11,104
- -----------------------------------------------------------
Other assets 37,642
===========================================================
Total assets 180,811,297
___________________________________________________________
===========================================================
LIABILITIES:
Payables for:
Investments purchased 5,191,808
- -----------------------------------------------------------
Fund shares reacquired 480,790
- -----------------------------------------------------------
Deferred compensation and retirement plans 12,761
- -----------------------------------------------------------
Accrued distribution fees 106,338
- -----------------------------------------------------------
Accrued transfer agent fees 104,580
- -----------------------------------------------------------
Accrued operating expenses 43,404
===========================================================
Total liabilities 5,939,681
===========================================================
Net assets applicable to shares outstanding $174,871,616
___________________________________________________________
===========================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $153,267,749
- -----------------------------------------------------------
Undistributed net investment income (117,997)
- -----------------------------------------------------------
Undistributed net realized gain from
investment securities, foreign currencies
and futures contracts 3,712,602
- -----------------------------------------------------------
Unrealized appreciation of investment
securities, foreign currencies and futures
contracts 18,009,262
===========================================================
$174,871,616
___________________________________________________________
===========================================================
NET ASSETS:
Class A $ 64,791,094
___________________________________________________________
===========================================================
Class B $ 82,442,118
___________________________________________________________
===========================================================
Class C $ 27,617,998
___________________________________________________________
===========================================================
Class R $ 10,197
___________________________________________________________
===========================================================
Institutional Class $ 10,209
___________________________________________________________
===========================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER
SHARE, UNLIMITED NUMBER OF SHARES
AUTHORIZED:
Class A 5,484,260
___________________________________________________________
===========================================================
Class B 6,988,439
___________________________________________________________
===========================================================
Class C 2,339,738
___________________________________________________________
===========================================================
Class R 863
___________________________________________________________
===========================================================
Institutional Class 864
___________________________________________________________
===========================================================
Class A:
Net asset value per share $ 11.81
- -----------------------------------------------------------
Offering price per share:
(Net asset value of $11.81 divided by
95.25%) $ 12.40
___________________________________________________________
===========================================================
Class B:
Net asset value and offering price per
share $ 11.80
___________________________________________________________
===========================================================
Class C:
Net asset value and offering price per
share $ 11.80
___________________________________________________________
===========================================================
Class R:
Net asset value and offering price per
share $ 11.82
___________________________________________________________
===========================================================
Institutional Class:
Net asset value and offering price per
share $ 11.82
___________________________________________________________
===========================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
F-8
STATEMENT OF OPERATIONS
For the six months ended June 30, 2004
(Unaudited)
<Table>
INVESTMENT INCOME:
Interest $ 1,017,192
- -------------------------------------------------------------------------
Dividends (net of foreign withholding tax of $9,927) 678,983
=========================================================================
Total investment income 1,696,175
=========================================================================
EXPENSES:
Advisory fees 538,029
- -------------------------------------------------------------------------
Administrative services fees 24,863
- -------------------------------------------------------------------------
Custodian fees 18,003
- -------------------------------------------------------------------------
Distribution fees:
Class A 103,355
- -------------------------------------------------------------------------
Class B 401,059
- -------------------------------------------------------------------------
Class C 131,343
- -------------------------------------------------------------------------
Class R 8
- -------------------------------------------------------------------------
Transfer agent fees -- Class A, B, C and R 250,523
- -------------------------------------------------------------------------
Transfer agent fees -- Institutional Class 2
- -------------------------------------------------------------------------
Trustees' fees 7,533
- -------------------------------------------------------------------------
Other 121,257
=========================================================================
Total expenses 1,595,975
=========================================================================
Less: Fees waived, expenses reimbursed and expense offset
arrangement (23,959)
=========================================================================
Net expenses 1,572,016
=========================================================================
Net investment income 124,159
=========================================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES, FOREIGN CURRENCIES AND FUTURES CONTRACTS:
Net realized gain (loss) from:
Investment securities 7,222,861
- -------------------------------------------------------------------------
Foreign currencies (832)
- -------------------------------------------------------------------------
Futures contracts (88,184)
=========================================================================
7,133,845
=========================================================================
Change in net unrealized appreciation (depreciation) of:
Investment securities (2,800,829)
- -------------------------------------------------------------------------
Foreign currencies 363
- -------------------------------------------------------------------------
Futures contracts 90,088
=========================================================================
(2,710,378)
=========================================================================
Net gain from investment securities, foreign currencies and
futures contracts 4,423,467
=========================================================================
Net increase in net assets resulting from operations $ 4,547,626
_________________________________________________________________________
=========================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
F-9
STATEMENT OF CHANGES IN NET ASSETS
For the six months ended June 30, 2004 and the year ended December 31, 2003
(Unaudited)
<Table>
<Caption>
JUNE 30, DECEMBER 31,
2004 2003
- ------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 124,159 $ 43,727
- ------------------------------------------------------------------------------------------
Net realized gain from investment securities, foreign
currencies and futures contracts 7,133,845 204,356
- ------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities, foreign currencies and futures
contracts (2,710,378) 24,575,727
==========================================================================================
Net increase in net assets resulting from operations 4,547,626 24,823,810
==========================================================================================
Distributions to shareholders from net investment income:
Class A (209,518) (252,338)
- ------------------------------------------------------------------------------------------
Class B (17,586) (76,078)
- ------------------------------------------------------------------------------------------
Class C (5,794) (23,549)
- ------------------------------------------------------------------------------------------
Class R (15) --
- ------------------------------------------------------------------------------------------
Institutional Class (32) --
==========================================================================================
Decrease in net assets resulting from distributions (232,945) (351,965)
==========================================================================================
Share transactions-net:
Class A 9,604,404 12,879,782
- ------------------------------------------------------------------------------------------
Class B 4,031,943 16,497,602
- ------------------------------------------------------------------------------------------
Class C 2,131,106 5,182,557
- ------------------------------------------------------------------------------------------
Class R 10,015 --
- ------------------------------------------------------------------------------------------
Institutional Class 10,032 --
==========================================================================================
Net increase in net assets resulting from share
transactions 15,787,500 34,559,941
==========================================================================================
Net increase in net assets 20,102,181 59,031,786
==========================================================================================
NET ASSETS:
Beginning of period 154,769,435 95,737,649
==========================================================================================
End of period (including undistributed net investment
income of $(117,997) and $(9,211) for 2004 and 2003,
respectively). $174,871,616 $154,769,435
__________________________________________________________________________________________
==========================================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
F-10
NOTES TO FINANCIAL STATEMENTS
June 30, 2004
(Unaudited)
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.
Under the Trust's organizational documents, the Fund's officers, trustees,
employees and agents are indemnified against certain liabilities that may arise
out of performance of their duties to the Fund. Additionally, in the normal
course of business, the Fund enters into contracts that contain a variety of
indemnification clauses. The Fund's maximum exposure under these arrangements is
unknown as this would involve future claims that may be made against the Fund
that have not yet occurred. However, the Fund has not had prior claims or losses
pursuant to these contracts.
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 specific 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"). Futures
contracts are valued at the final settlement price set by an exchange on
which they are principally traded. Listed options are valued at the mean
between the last bid and the ask prices from the exchange on which they are
principally traded. Options not listed on an exchange are valued by an
independent source at the mean between the last bid and ask prices.
Investments in open-end registered investment companies and closed-end
registered investment companies that do not trade on an exchange are valued
at the end of day net asset value per share. Investments in closed-end
registered investment companies that trade on an exchange are valued at the
last sales price as of the close of the customary trading session on the
exchange where the security is principally traded.
Foreign securities (including foreign exchange contracts) are converted
into U.S. dollar amounts using the applicable exchange rates as of the
close of the NYSE. Generally, trading in foreign securities is
substantially completed each day at various times prior to the close of the
NYSE. The values of such securities used in computing the net asset value
of the Fund's shares are determined as of the close of the respective
markets. Events affecting the values of such foreign securities may occur
between the times at which the particular foreign market closes and the
close of the customary trading session of the NYSE which would not
ordinarily be reflected in the computation of the Fund's net asset value.
If 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
F-11
settlement date. Dividend income is recorded on the ex-dividend date. Bond
premiums and discounts are amortized and/or accreted for financial
reporting purposes.
Brokerage commissions and mark ups are considered transaction costs and
are recorded as an increase to the cost basis of securities purchased
and/or a reduction of proceeds on a sale of securities. Such transaction
costs are included in the determination of realized and unrealized gain
(loss) from investment securities reported in the Statement of Operations
and the Statement of Changes in Net Assets and the realized and unrealized
net gains (losses) on securities per share in the Financial Highlights.
Transaction costs are included in the calculation of the Fund's net asset
value and, accordingly, they reduce the Fund's total returns. These
transaction costs are not considered operating expenses and are not
reflected in net investment income reported in the Statement of Operations
and Statement of Changes in Net Assets, or the net investment income per
share and ratios of expenses and net investment income reported in the
Financial Highlights, nor are they limited by any expense limitation
arrangements between the Fund and the advisor. The Fund 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 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.
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 distributed to shareholders. Therefore, no provision for
federal income taxes is recorded in the financial statements.
E. 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.
F. 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.
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 (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.
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
F-12
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.
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 next $4
billion of the Fund's average daily net assets, plus 0.55% of the Fund's average
daily net assets in excess of $5 billion. The Fund's advisor has voluntarily
agreed to waive advisory fees and/or reimburse expenses of Class A, Class B,
Class C, Class R and Institutional Class shares to the extent necessary to limit
Total Annual Fund Operating Expenses (excluding certain items discussed below)
for the Fund's Class A shares to 1.50%. In determining the advisor's obligation
to waive advisory fees and/or reimburse expenses, the following expenses are not
taken into account, and could cause the Total Annual Fund Operating Expenses to
exceed the 1.50% cap: (i) interest; (ii) taxes; (iii) dividend expense on short
sales; (iv) extraordinary items (these are expenses that are not anticipated to
arise from the Fund's day-to-day operations), or items designated as such by the
Fund's board of trustees; (v) expenses related to a merger or reorganization, as
approved by the Fund's board of trustees; and (vi) expenses that the Fund has
incurred but did not actually pay because of an expense offset arrangement.
Currently, the only expense offset arrangements from which the Fund benefits are
in the form of credits that the Fund receives from banks where the Fund or its
transfer agent has deposit accounts in which it holds uninvested cash. Those
credits are used to pay certain expenses incurred by the Fund. Voluntary fee
waivers or reimbursements may be modified or discontinued at any time upon
consultation with the Board of Trustees without further notice to investors. To
the extent that the annualized expense ratio does not exceed the expense
limitation, AIM will retain its ability to be reimbursed for such fee waivers or
reimbursements prior to the end of each fiscal year. 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 six
months ended June 30, 2004, AIM waived fees of $584.
For the period ended June 30, 2004, at the direction of the trustees of the
Trust, AMVESCAP PLC ("AMVESCAP") has assumed $22,444 of expenses incurred by the
Fund in connection with matters related to both pending regulatory complaints
against INVESCO Funds Group, Inc. ("IFG") alleging market timing and the ongoing
market timing investigations with respect to IFG and AIM, including legal,
audit, shareholder servicing, communication and trustee expenses.
The Fund, pursuant to a master administrative services agreement with AIM,
has agreed to pay AIM for certain administrative costs incurred in providing
accounting services to the Fund. For the six months ended June 30, 2004, AIM was
paid $24,863 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 six
months ended June 30, 2004, AISI retained $148,439 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, Class R and 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 0.35% 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.
Pursuant to the Plans, for the six months ended June 30, 2004, the Class A,
Class B, Class C and Class R shares paid $103,355, $401,059, $131,343 and $8,
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 six
months ended June 30, 2004, AIM Distributors advised the Fund that it retained
$29,412 in front-end sales commissions from the sale of Class A shares and $15,
$2,061, $1,278 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--EXPENSE OFFSET ARRANGEMENT
The expense offset arrangement is comprised of transfer agency credits which
result from balances in Demand Deposit Accounts (DDA) used by the transfer agent
for clearing shareholder transactions. For the six months ended June 30, 2004,
the Fund received credits in transfer agency fees of $931, under an expense
offset arrangement, which resulted in a reduction of the Fund's total expenses
of $931.
F-13
NOTE 4--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. Those Trustees who defer compensation have
the option to select various AIM Funds 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.
Obligations under the deferred compensation and retirement plans represent
unsecured claims against the general assets of the Fund.
During the six months ended June 30, 2004, the Fund paid legal fees of
$1,264 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 5--BORROWINGS
Pursuant to an exemptive order from the SEC, 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 is 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 six months ended June 30, 2004, the Fund did not borrow or lend
under the interfund lending facility or borrow under the uncommitted unsecured
revolving credit facility.
Additionally, the Fund is permitted to temporarily carry a negative or
overdrawn balance in its account with SSB, 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 6--FUTURES CONTRACTS
On June 30, 2004, $300,000 principal amount of investment grade corporate
securities were pledged as collateral to cover margin requirements for open
futures contracts.
<Table>
<Caption>
OPEN FUTURES CONTRACTS AT PERIOD END
- -------------------------------------------------------------------------------------------------------------------------
UNREALIZED
NUMBER OF MONTH/ MARKET APPRECIATION
CONTRACT CONTRACTS COMMITMENT VALUE (DEPRECIATION)
- -------------------------------------------------------------------------------------------------------------------------
Eurodollar GLOBEX E-Trade 3 Dec-04/Long $ 731,137 $(3,878)
- -------------------------------------------------------------------------------------------------------------------------
U.S. Treasury 2 Year Notes 10 Sep-04/Long 1,063,750 7,306
- -------------------------------------------------------------------------------------------------------------------------
U.S. Treasury 5 Year Notes 23 Sep-04/Long 4,842,578 72,119
- -------------------------------------------------------------------------------------------------------------------------
U.S. 30 Year Bond 81 Sep-04/Long 8,803,688 14,541
=========================================================================================================================
$15,441,153 $90,088
_________________________________________________________________________________________________________________________
=========================================================================================================================
</Table>
NOTE 7--TAX INFORMATION
The amount and character of income and gains to be distributed are determined in
accordance with income tax regulations, which may differ from generally accepted
accounting principles. Reclassifications are made to the Fund's capital accounts
to reflect income and gains available for distribution (or available capital
loss carryforward) under income tax regulations. The tax character of
distributions paid during the year and the tax components of net assets will be
reported at the Fund's fiscal year-end.
Capital loss carryforward is calculated and reported as of a specific date.
Results of transactions and other activity after that date may affect the amount
of capital loss carryforward actually available for the Fund to utilize. The
ability to use capital loss carryforward may be limited under the Internal
Revenue Code and related regulations.
F-14
The Fund has a capital loss carryforward for tax purposes as of December 31,
2003 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>
* Capital loss carryforward as of the date listed above is reduced for
limitations, if any, to the extent required by the Internal Revenue Code.
NOTE 8--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities
and money market funds) purchased and sold by the Fund during the six months
ended June 30, 2004 was $82,136,542 and $70,659,180, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- ------------------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $19,953,224
- ------------------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (2,104,149)
==========================================================================================
Net unrealized appreciation of investment securities $17,849,075
__________________________________________________________________________________________
==========================================================================================
</Table>
Cost of investments for tax purposes is $160,226,303.
NOTE 9--SHARE INFORMATION
The Fund currently offers five different classes of shares: Class A shares,
Class B shares, Class C shares, Class R shares and 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 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
- ---------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
2004 2003
------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------------------------------------------------------------------------------------
Sold:
Class A 1,140,638 $13,353,532 2,121,267 $ 21,472,774
- ---------------------------------------------------------------------------------------------------------------------
Class B 1,424,960 16,648,422 3,415,758 34,619,858
- ---------------------------------------------------------------------------------------------------------------------
Class C 552,460 6,459,285 1,191,376 12,127,632
- ---------------------------------------------------------------------------------------------------------------------
Class R* 861 10,000 -- --
- ---------------------------------------------------------------------------------------------------------------------
Institutional Class* 861 10,000 -- --
=====================================================================================================================
Issued as reinvestment of dividends:
Class A 16,830 197,108 23,304 235,426
- ---------------------------------------------------------------------------------------------------------------------
Class B 1,392 16,289 7,181 68,294
- ---------------------------------------------------------------------------------------------------------------------
Class C 459 5,381 2,103 20,060
- ---------------------------------------------------------------------------------------------------------------------
Class R* 2 15 -- --
- ---------------------------------------------------------------------------------------------------------------------
Institutional Class* 3 32 -- --
=====================================================================================================================
Automatic conversion of Class B shares to Class A shares:
Class A 312,735 3,676,288 298,876 3,122,514
- ---------------------------------------------------------------------------------------------------------------------
Class B (313,339) (3,676,288) (299,162) (3,122,514)
=====================================================================================================================
Reacquired:
Class A (652,831) (7,622,524) (1,204,717) (11,950,932)
- ---------------------------------------------------------------------------------------------------------------------
Class B (767,948) (8,956,480) (1,513,543) (15,068,036)
- ---------------------------------------------------------------------------------------------------------------------
Class C (370,184) (4,333,560) (698,766) (6,965,135)
=====================================================================================================================
1,346,899 $15,787,500 3,343,677 $ 34,559,941
_____________________________________________________________________________________________________________________
=====================================================================================================================
</Table>
* Class R shares and Institutional Class shares commenced sales on April 30,
2004.
F-15
NOTE 10--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
CLASS A
------------------------------------------------------------
SEPTEMBER 28, 2001
SIX MONTHS YEAR ENDED (DATE OPERATIONS
ENDED DECEMBER 31, COMMENCED) TO
JUNE 30, ------------------ DECEMBER 31,
2004 2003 2002 2001
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 11.50 $ 9.46 $ 10.75 $ 10.00
- --------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.03 0.05 0.11(a) 0.03(a)
- --------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.32 2.05 (1.28) 0.76
==========================================================================================================================
Total from investment operations 0.35 2.10 (1.17) 0.79
==========================================================================================================================
Less dividends from net investment income (0.04) (0.06) (0.12) (0.04)
==========================================================================================================================
Net asset value, end of period $ 11.81 $ 11.50 $ 9.46 $ 10.75
__________________________________________________________________________________________________________________________
==========================================================================================================================
Total return(b) 3.05% 22.35% (10.97)% 7.94%
__________________________________________________________________________________________________________________________
==========================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $64,791 $53,675 $32,414 $10,753
__________________________________________________________________________________________________________________________
==========================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and expense reimbursements 1.48%(c) 1.50% 1.48% 1.43%(d)
- --------------------------------------------------------------------------------------------------------------------------
Without fee waivers and expense reimbursements 1.51%(c) 1.57% 1.67% 2.89%(d)
==========================================================================================================================
Ratio of net investment income to average net assets 0.57%(c) 0.46% 1.15% 1.16%(d)
__________________________________________________________________________________________________________________________
==========================================================================================================================
Portfolio turnover rate(e) 44% 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 and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. 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
$59,384,823.
(d) Annualized.
(e) Not annualized for periods less than one year.
F-16
NOTE 10--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS B
------------------------------------------------------------
SEPTEMBER 28, 2001
SIX MONTHS YEAR ENDED (DATE OPERATIONS
ENDED DECEMBER 31, COMMENCED) TO
JUNE 30, ------------------ DECEMBER 31,
2004 2003 2002 2001
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 11.49 $ 9.46 $ 10.75 $ 10.00
- --------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.01) (0.02) 0.05(a) 0.01(a)
- --------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.32 2.06 (1.29) 0.77
==========================================================================================================================
Total from investment operations 0.31 2.04 (1.24) 0.78
==========================================================================================================================
Less dividends from net investment income (0.00) (0.01) (0.05) (0.03)
==========================================================================================================================
Net asset value, end of period $ 11.80 $ 11.49 $ 9.46 $ 10.75
__________________________________________________________________________________________________________________________
==========================================================================================================================
Total return(b) 2.72% 21.64% (11.56)% 7.76%
__________________________________________________________________________________________________________________________
==========================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $82,442 $76,304 $47,597 $16,067
__________________________________________________________________________________________________________________________
==========================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and expense reimbursements 2.13%(c) 2.15% 2.13% 2.08%(d)
- --------------------------------------------------------------------------------------------------------------------------
Without fee waivers and expense reimbursements 2.16%(c) 2.22% 2.32% 3.54%(d)
==========================================================================================================================
Ratio of net investment income (loss) to average net assets (0.08)%(c) (0.19)% 0.50% 0.52%(d)
__________________________________________________________________________________________________________________________
==========================================================================================================================
Portfolio turnover rate(e) 44% 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 and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. 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
$80,652,443.
(d) Annualized.
(e) Not annualized for periods less than one year.
F-17
NOTE 10--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS C
------------------------------------------------------------
SEPTEMBER 28, 2001
SIX MONTHS YEAR ENDED (DATE OPERATIONS
ENDED DECEMBER 31, COMMENCED) TO
JUNE 30, ------------------ DECEMBER 31,
2004 2003 2002 2001
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 11.49 $ 9.46 $ 10.75 $10.00
- --------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.01) (0.02) 0.05(a) 0.01(a)
- --------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.32 2.06 (1.29) 0.77
==========================================================================================================================
Total from investment operations 0.31 2.04 (1.24) 0.78
==========================================================================================================================
Less distributions from net investment income (0.00) (0.01) (0.05) (0.03)
==========================================================================================================================
Net asset value, end of period $ 11.80 $ 11.49 $ 9.46 $10.75
__________________________________________________________________________________________________________________________
==========================================================================================================================
Total return(b) 2.72% 21.64% (11.57)% 7.76%
__________________________________________________________________________________________________________________________
==========================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $27,618 $24,790 $15,727 $5,168
__________________________________________________________________________________________________________________________
==========================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and expense reimbursements 2.13%(c) 2.15% 2.13% 2.08%(d)
- --------------------------------------------------------------------------------------------------------------------------
Without fee waivers and expense reimbursements 2.16%(c) 2.22% 2.32% 3.54%(d)
==========================================================================================================================
Ratio of net investment income (loss) to average net assets (0.08)%(c) (0.19)% 0.50% 0.52%(d)
__________________________________________________________________________________________________________________________
==========================================================================================================================
Portfolio turnover rate(e) 44% 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 and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. 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
$26,412,902.
(d) Annualized.
(e) Not annualized for periods less than one year.
F-18
NOTE 10--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS R
--------------
APRIL 30, 2004
(DATE SALES
COMMENCED) TO
JUNE 30,
2004
- ----------------------------------------------------------------------------
Net asset value, beginning of period $11.61
- ----------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.01
- ----------------------------------------------------------------------------
Net gains on securities (both realized and unrealized) 0.22
============================================================================
Total from investment operations 0.23
============================================================================
Less dividends from net investment income (0.02)
============================================================================
Net asset value, end of period $11.82
____________________________________________________________________________
============================================================================
Total return(a) 1.96%
____________________________________________________________________________
============================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 10
____________________________________________________________________________
============================================================================
Ratio of expenses to average net assets 1.63%(b)
============================================================================
Ratio of net investment income to average net assets 0.42%(b)
____________________________________________________________________________
============================================================================
Portfolio turnover rate(c) 44%
____________________________________________________________________________
============================================================================
</Table>
(a) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the return based upon that
net asset value may differ from the net asset value and return for
shareholder transactions. Not annualized for period shown.
(b) Ratios are annualized and based on average daily net assets of $9,998.
(c) Not annualized for period shown.
<Table>
<Caption>
INSTITUTIONAL CLASS
-------------------
APRIL 30, 2004
(DATE SALES
COMMENCED) TO
JUNE 30,
2004
- ---------------------------------------------------------------------------------
Net asset value, beginning of period $11.61
- ---------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.02
=================================================================================
Net gains on securities (both realized and unrealized) 0.23
=================================================================================
Total from investment operations 0.25
_________________________________________________________________________________
=================================================================================
Dividends from net investment income (0.04)
=================================================================================
Net asset value, end of period $11.82
_________________________________________________________________________________
=================================================================================
Total return(a) 2.13%
_________________________________________________________________________________
=================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 10
=================================================================================
Ratio of expenses to average net assets: 0.93%(b)
=================================================================================
Ratio of net investment income to average net assets 1.12%(b)
_________________________________________________________________________________
=================================================================================
Portfolio turnover rate(c) 44%
_________________________________________________________________________________
=================================================================================
</Table>
(a) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the return based upon that
net asset value may differ from the net asset value and return for
shareholder transactions. Not annualized for period shown.
(b) Ratios are annualized and based on average daily net assets of $10,004.
(c) Not annualized for period shown.
F-19
NOTE 11--LEGAL PROCEEDINGS
The mutual fund industry as a whole is currently subject to regulatory inquiries
and litigation related to a wide range of issues. These issues include, among
others, market timing activity, late trading, fair value pricing, excessive or
improper advisory and/or distribution fees, mutual fund sales practices,
including revenue sharing and directed-brokerage arrangements, investments in
securities of other registered investment companies and issues related to
Section 529 college savings plans.
As described more fully below, INVESCO Funds Group, Inc. ("IFG"), the former
investment advisor to the INVESCO Funds, is the subject of three regulatory
actions concerning market timing activity in the INVESCO Funds. In addition, IFG
and A I M Advisors, Inc. ("AIM"), the Fund's investment advisor, are the subject
of a number of regulatory inquiries and civil lawsuits, as described more fully
below. Both IFG and AIM are indirect wholly owned subsidiaries of AMVESCAP PLC
("AMVESCAP"). Additional regulatory actions and/or civil lawsuits related to the
above or other issues may be filed against IFG, AIM and/or related entities and
individuals in the future. Additional regulatory inquiries related to the above
or other issues also may be received by IFG, AIM and/or related entities and
individuals in the future.
As a result of the regulatory actions and inquiries and civil lawsuits
discussed below, 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.
Regulatory Actions Pending Against 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 former capacity as the
chief executive officer of IFG. Mr. Cunningham also formerly held the positions
of Chief Operating Officer and Senior Vice President of A I M Management Group
Inc. ("AIM Management"), 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. There
can be no assurance that the SEC, NYAG or State of Colorado will not file
additional charges against IFG or Mr. Cunningham or civil proceedings against
other current or former officers or employees of IFG.
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.
Response of AMVESCAP
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 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. AMVESCAP has retained outside counsel to represent its subsidiaries in
connection with the market timing regulatory inquiries and certain other
matters. As part of this representation, this outside counsel has been
conducting a review of IFG's and AIM's conduct with respect to market timing and
related matters. In addition, AMVESCAP has retained separate 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.
At the direction of the trustees of the AIM and INVESCO Funds, AMVESCAP has
agreed to pay all of the expenses incurred by the AIM and INVESCO Funds related
to the market timing investigations, including expenses incurred in connection
with the pending regulatory complaints against IFG alleging market timing and
the ongoing market timing investigations with respect to IFG and AIM.
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, including
but not limited to A I M Capital Management, Inc. ("AIM Capital"), AIM Funds
Management Inc., INVESCO Institutional (N.A.), Inc. ("IINA"), INVESCO Global
Asset Management (N.A.), Inc. and INVESCO Senior Secured Management, Inc., from
serving as an investment advisor to any investment company registered under the
Investment Company Act of 1940, including the Fund. The Fund has been informed
by AIM that, if AIM is so barred, 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.
Regulatory Inquiries Concerning IFG
IFG, certain related entities, certain of their current and former officers
and/or certain of the INVESCO Funds have received regulatory inquiries in the
form of subpoenas or other oral or written requests for information and/or
documents related to one or more of the following issues, some of which concern
one or more INVESCO Funds: market timing activity, late trading, fair value
pricing, excessive or improper advisory and/or distribution fees,
F-20
NOTE 11--LEGAL PROCEEDINGS (CONTINUED)
mutual fund sales practices, including revenue sharing and directed-brokerage
arrangements, and investments in securities of other registered investment
companies. These regulators include the Securities and Exchange Commission
("SEC"), the NASD, Inc. ("NASD"), the Florida Department of Financial Services,
the Commissioner of Securities for the State of Georgia, the Attorney General of
the State of West Virginia, the West Virginia Securities Commission, the
Colorado Securities Division and the Bureau of Securities of the State of New
Jersey. IFG and certain of these other parties also have received more limited
inquiries from the United States Department of Labor ("DOL") and the United
States Attorney's Office for the Southern District of New York, some of which
concern one or more INVESCO Funds. IFG is providing full cooperation with
respect to these inquiries.
Regulatory Inquiries Concerning AIM
AIM, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds have received regulatory inquiries in the form
of subpoenas or other oral or written requests for information and/or documents
related to one or more of the following issues, some of which concern one or
more AIM Funds: market timing activity, late trading, fair value pricing,
excessive or improper advisory and/or distribution fees, mutual fund sales
practices, including revenue sharing and directed-brokerage arrangements,
investments in securities of other registered investment companies and issues
related to Section 529 college savings plans. These regulators include the SEC,
the NASD, the Department of Banking for the State of Connecticut, the NYAG, the
Commissioner of Securities for the State of Georgia, the Attorney General of the
State of West Virginia, the West Virginia Securities Commission and the Bureau
of Securities of the State of New Jersey. AIM and certain of these other parties
also have received more limited inquiries from the DOL, the Internal Revenue
Service, the United States Attorney's Office for the Southern District of New
York, the United States Attorney's Office for the Central District of
California, the United States Attorney's Office for the District of
Massachusetts, the Massachusetts Securities Division and the U.S. Postal
Inspection Service, some of which concern one or more AIM Funds. AIM is
providing full cooperation with respect to these inquiries.
Private Civil Actions Alleging Market Timing
Multiple civil 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, AIM
Management, AMVESCAP, certain related entities and/or certain of their current
and former officers) making allegations substantially similar to the allegations
in the three regulatory actions concerning market timing activity in the INVESCO
Funds that have been filed by the SEC, the NYAG and the State of Colorado
against these parties. These 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/or
(iv) breach of contract. These lawsuits were initiated 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; declaration that the advisory
agreement is unenforceable or void; refund of advisory fees; interest; and
attorneys' and experts' fees.
The Judicial Panel on Multidistrict Litigation (the "Panel") has ruled that
all actions pending in Federal court that allege market timing and/or late
trading be transferred to the United States District Court for the District of
Maryland for coordinated pre-trial proceedings. All such cases against IFG and
the other AMVESCAP defendants filed to date have been conditionally or finally
transferred to the District of Maryland in accordance with the Panel's
directive. In addition, the proceedings initiated in state court have been
removed by IFG to Federal court and transferred to the District of Maryland. The
plaintiff in one such action continues to seek remand to state court.
Private Civil Actions Alleging Improper Use of Fair Value Pricing
Multiple civil class action lawsuits have been filed against various parties
(including, depending on the lawsuit, certain INVESCO Funds, certain AIM Funds,
IFG and/or AIM) alleging that certain AIM and INVESCO Funds inadequately
employed fair value pricing. These lawsuits allege a variety of theories of
recovery, including but not limited to: (i) violations of various provisions of
the Federal securities laws; (ii) common law breach of duty; and (iii) common
law negligence and gross negligence. These lawsuits have been filed in both
Federal and state courts and seek such remedies as compensatory and punitive
damages; interest; and attorneys' fees and costs.
Private Civil Actions Alleging Excessive Advisory and Distribution Fees
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, IFG, AIM, IINA, A I M Distributors, Inc. ("AIM Distributors")
and/or INVESCO Distributors, Inc. ("INVESCO Distributors")) alleging that the
defendants charged excessive advisory and distribution fees and failed to pass
on to shareholders the perceived savings generated by economies of scale.
Certain of these lawsuits also allege that the defendants adopted unlawful
distribution plans. These lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the Federal
securities laws; (ii) breach of fiduciary duty; and/or (iii) breach of contract.
These lawsuits have been filed in both Federal and state courts and seek such
remedies as damages; injunctive relief; rescission of certain Funds' advisory
agreements and distribution plans; interest; prospective relief in the form of
reduced fees; and attorneys' and experts' fees.
Private Civil Actions Alleging Improper Distribution Fees Charged to Closed
Funds
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, IFG, AIM, AIM Distributors and/or certain of the trustees of the
AIM and INVESCO Funds) alleging that the defendants breached their fiduciary
duties by charging distribution fees while funds and/or specific share classes
were closed generally to new investors and/or while other share classes of the
same fund were not charged the same distribution fees. These lawsuits allege a
variety of theories of recovery, including but not limited to: (i) violation of
F-21
NOTE 11--LEGAL PROCEEDINGS (CONTINUED)
various provisions of the Federal securities laws; and (ii) breach of fiduciary
duty. These lawsuits have been filed in both Federal and state courts and seek
such remedies as damages; injunctive relief; and attorneys' and experts' fees.
Private Civil Actions Alleging Improper Mutual Fund Sales Practices and
Directed-Brokerage Arrangements
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, AIM Management, IFG, AIM, AIM Investment Services, Inc. ("AIS")
and/or certain of the trustees of the AIM and INVESCO Funds) alleging that the
defendants improperly used the assets of the AIM and INVESCO Funds to pay
brokers to aggressively push the AIM and INVESCO Funds over other mutual funds
and that the defendants concealed such payments from investors by disguising
them as brokerage commissions. These lawsuits allege a variety of theories of
recovery, including but not limited to: (i) violation of various provisions of
the Federal securities laws; (ii) breach of fiduciary duty; and (iii) aiding and
abetting a breach of fiduciary duty. These lawsuits have been filed in Federal
courts and seek such remedies as compensatory and punitive damages; rescission
of certain Funds' advisory agreements and distribution plans and recovery of all
fees paid; an accounting of all fund-related fees, commissions and soft dollar
payments; restitution of all unlawfully or discriminatorily obtained fees and
charges; and attorneys' and experts' fees.
At the present time, management of AIM and the Fund are unable to estimate the
impact, if any, that the outcome of the matters described above may have on AIM
or the Fund.
F-22
OTHER INFORMATION
TRUSTEES AND OFFICERS
<Table>
BOARD OF TRUSTEES OFFICERS OFFICE OF THE FUND
Bob R. Baker Robert H. Graham 11 Greenway Plaza
Chairman and President Suite 100
Frank S. Bayley Houston, TX 77046-1173
Mark H. Williamson
James T. Bunch Executive Vice President INVESTMENT ADVISOR
A I M Advisors, Inc.
Bruce L. Crockett Kevin M. Carome 11 Greenway Plaza
Senior Vice President, Secretary Suite 100
Albert R. Dowden and Chief Legal Officer Houston, TX 77046-1173
Edward K. Dunn Jr. Sidney M. Dilgren TRANSFER AGENT
Vice President and Treasurer AIM Investment Services, Inc.
Jack M. Fields P.O. Box 4739
Robert G. Alley Houston, TX 77210-4739
Carl Frischling Vice President
CUSTODIAN
Robert H. Graham Stuart W. Coco State Street Bank and Trust Company
Vice President 225 Franklin Street
Gerald J. Lewis Boston, MA 02110-2801
Melville B. Cox
Prema Mathai-Davis Vice President COUNSEL TO THE FUND
Ballard Spahr
Lewis F. Pennock Karen Dunn Kelley Andrews & Ingersoll, LLP
Vice President 1735 Market Street
Ruth H. Quigley Philadelphia, PA 19103-7599
Edgar M. Larsen
Louis S. Sklar Vice President COUNSEL TO THE TRUSTEES
Kramer, Levin, Naftalis & Frankel LLP
Larry Soll, Ph.D. 919 Third Avenue
New York, NY 10022-3852
Mark H. Williamson
DISTRIBUTOR
A I M Distributors, Inc.
11 Greenway Plaza
Suite 100
Houston, TX 77046-1173
</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(4) AIM High Yield Fund
AIM Blue Chip Fund AIM Global Aggressive Growth Fund AIM Income Fund
AIM Capital Development Fund AIM Global Equity Fund(5) AIM Intermediate Government Fund
AIM Charter Fund AIM Global Growth Fund AIM Limited Maturity Treasury Fund
AIM Constellation Fund AIM Global Value Fund AIM Money Market Fund
AIM Dent Demographic Trends Fund AIM International Emerging Growth Fund(6) AIM Short Term Bond Fund
AIM Diversified Dividend Fund 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(7)
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(1) 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 ALLOCATION SOLUTIONS
AIM Premier Equity Fund INVESCO Gold & Precious Metals Fund
AIM Select Equity Fund INVESCO Health Sciences Fund AIM Aggressive Allocation Fund
AIM Small Cap Equity Fund(2) INVESCO Leisure Fund AIM Conservative Allocation Fund
AIM Small Cap Growth Fund(3) INVESCO Multi-Sector Fund AIM Moderate Allocation Fund
AIM Trimark Endeavor Fund INVESCO Technology Fund
AIM Trimark Small Companies Fund INVESCO Utilities Fund
AIM Weingarten Fund
INVESCO Core Equity Fund ==============================================================================
INVESCO Dynamics Fund CONSIDER THE INVESTMENT OBJECTIVES, RISKS, AND CHARGES AND EXPENSES CAREFULLY.
INVESCO Mid-Cap Growth Fund FOR THIS AND OTHER IMPORTANT INFORMATION ABOUT AIM AND INVESCO FUNDS, OBTAIN A
INVESCO Small Company Growth Fund PROSPECTUS FROM YOUR FINANCIAL ADVISOR OR AIMINVESTMENTS.COM AND READ IT
INVESCO S&P 500 Index Fund THOROUGHLY BEFORE INVESTING.
INVESCO Total Return Fund* ===============================================================================
</Table>
* Domestic equity and income fund
(1) 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. (2) 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. (3) 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. (4) AIM European Small Company Fund will close to new investors when
net assets reach $500 million. (5) Effective March 31, 2004, AIM Global Trends
Fund was renamed AIM Global Equity Fund. (6) AIM International Emerging Growth
Fund will close to new investors when net assets reach $500 million. (7)
Effective November 24, 2003, INVESCO International Blue Chip Value Fund was
renamed INVESCO International Core Equity Fund.
If used after October 20, 2004, this report 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 $139 billion in assets. AIM is a
subsidiary of AMVESCAP PLC, one of the world's largest independent financial
services companies with $372 billion in assets under management. Data as of June
30, 2004.
AIMinvestments.com BBA-SAR-1 A I M Distributors, Inc.
<Table>
YOUR GOALS. OUR SOLUTIONS.--Registered Trademark--
- -------------------------------------------------------------------------------------
Mutual Retirement Annuities College Separately Offshore Alternative Cash [AIM INVESTMENTS LOGO APPEARS HERE]
Funds Products Savings Managed Products Investments Management --Registered Trademark--
Plans Accounts
- -------------------------------------------------------------------------------------
</Table>
AIM EUROPEAN SMALL COMPANY FUND
Semiannual Report to Shareholders o June 30, 2004
[COVER IMAGE]
[YOUR GOALS. OUR SOLUTIONS.] [AIM INVESTMENTS LOGO APPEARS HERE]
--Registered Trademark-- --Registered Trademark--
<Table>
===================================================================================================================================
AIM EUROPEAN SMALL COMPANY FUND SEEKS TO PROVIDE LONG-TERM GROWTH OF CAPITAL.
o Unless otherwise stated, information presented in this report is as of 6/30/04 and is based on total net assets.
===================================================================================================================================
ABOUT SHARE CLASSES any investment the fund may make in IPOs o A direct investment cannot be made in
may significantly affect the fund's an index. Unless otherwise indicated,
o Effective 9/30/03, Class B shares are total return. As the fund's assets grow, index results include reinvested
not available as an investment for the impact of IPO investments will dividends, and they do not reflect sales
retirement plans maintained pursuant to decline, which may reduce the effect of charges. Performance of an index of
Section 401 of the Internal Revenue IPO investments on the fund's total funds reflects fund expenses;
Code, including 401(k) plans, money return. performance of a market index does not.
purchase pension plans and profit
sharing plans. Plans that have existing ABOUT INDEXES USED IN THIS REPORT o The fund is not managed to track the
accounts invested in Class B shares will performance of any particular index,
continue to be allowed to make o The unmanaged MSCI Europe, Australasia including the indexes defined here, and
additional purchases. and the Far East Index (the MSCI EAFE consequently, the performance of the
--Registered Trademark--) is a group of fund may deviate significantly from the
PRINCIPAL RISKS OF INVESTING IN THE FUND foreign securities tracked by Morgan performance of the indexes.
Stanley Capital International.
o International investing presents OTHER INFORMATION
certain risks not associated with o The unmanaged MSCI European Small-Cap
investing solely in the United States. Index is a price-only index that is o The returns shown in the Management's
These include risks relating to comprised of a group of small-cap Discussion of Fund Performance are based
fluctuations in the value of the U.S. European securities tracked by Morgan on net asset values calculated for
dollar relative to the values of other Stanley Capital International. shareholder transactions. Generally
currencies, the custody arrangements accepted accounting principles require
made for the fund's foreign holdings, o The unmanaged Lipper European Fund adjustments to be made to the net assets
differences in accounting, political Index represents an average of the 30 of the fund at period end for financial
risks and the lesser degree of public largest global income funds tracked by reporting purposes, and as such, the net
information required to be provided by Lipper, Inc., an independent mutual fund asset values for shareholder
non-U.S. companies. performance monitor. transactions and the returns based on
those net asset values may differ from
o Investing in emerging markets involves o The unmanaged MSCI World Index is a the net asset values and returns
greater risk and potential reward than group of global securities tracked by reported in the Financial Highlights.
investing in more established markets. Morgan Stanley Capital International
that are considered developed markets. o Industry classifications used in this
o Investing in a single-sector or report are generally according to the
single-region mutual fund involves o The unmanaged Lehman U.S. Aggregate Global Industry Classification Standard,
greater risk and potential reward than Bond Index, which represents the U.S. which was developed by and is the
investing in a more diversified fund. investment-grade fixed-rate bond market exclusive property and a service mark of
(including government and corporate Morgan Stanley Capital International
o Investing in small and mid-size securities, mortgage pass-through Inc. and Standard & Poor's.
companies involves risks not associated securities and asset-backed securities),
with investing in more established is compiled by Lehman Brothers, a global A description of the policies and
companies, including business risk, investment bank. procedures that the fund uses to
significant stock price fluctuations and determine how to vote proxies relating
illiquidity. o The unmanaged Standard & Poor's to portfolio securities is available
Composite Index of 500 Stocks (the S&P without charge, upon request, by calling
o The fund may invest up to 35% of its 500 --Registered Trademark-- Index) is 800-959-4246, or on the AIM Web site,
total assets in securities of companies an index of common stocks frequently AIMinvestments.com.
located in developing countries and up used as a general measure of U.S. stock
to 35% of its total assets in market performance.
non-European companies.
o The fund may participate in the
initial public offering (IPO) market in
some market cycles. Because of the
fund's small asset base,
</Table>
================================================================================
THIS REPORT MUST BE ACCOMPANIED OR PRECEDED BY A CURRENTLY EFFECTIVE FUND
PROSPECTUS, WHICH CONTAINS MORE COMPLETE INFORMATION, INCLUDING SALES CHARGES
AND EXPENSES. READ IT CAREFULLY BEFORE YOU INVEST.
================================================================================
=====================================================
Not FDIC Insured May lose value No bank guarantee
=====================================================
AIMinvestments.com
TO OUR SHAREHOLDERS
DEAR FELLOW SHAREHOLDER IN THE AIM FAMILY OF
FUNDS--Registered Trademark-- :
[PHOTO OF The six months covered by this report could be characterized
ROBERT H. as a trendless market. Positive news about employment and a
GRAHAM] strengthening economy were offset by concerns about higher
interest rates, continued violence in Iraq and high oil
ROBERT H. GRAHAM prices. The result: muted performance in both U.S. equity
and fixed-income markets.
The same macroeconomic factors were at work overseas as
well, causing developed international markets to generally
perform in line with that of the United States. In fact, the
MSCI World Index tracked the performance of the S&P
500 Index with six-month returns of 3.52% and 3.44%,
respectively.
The anticipation of higher interest rates hampered bond performance, with
most areas of the fixed- income market turning in flat returns for the six-month
period, as evidenced by the 0.15% return of the Lehman U.S. Aggregate Bond
Index. Considered a good proxy for the U.S. bond market, this index includes
fixed-rate mortgage-backed securities, U.S. agency investments, U.S. Treasuries
of various maturities and U.S. corporate bonds.
In an unremarkable period like the one covered by this report, we encourage
shareholders to look past short-term market performance and remain focused on
their long-term investment goals. Whether markets rise, fall or go sideways, the
only certainty is their unpredictability, especially in the short run.
Historically, markets have risen over the long term, with the S&P 500 Index
returning 13.55% over the past 25 years and the Lehman U.S. Aggregate Bond Index
returning 9.20%.* While past performance cannot guarantee future results, we
believe that staying invested for the long term offers the best opportunity for
capital growth.
For information on how your fund performed and was managed during the six
months covered by this report, please read your fund managers' discussion on the
following pages. We hope you find it informative.
There continues to be increased regulatory focus on mutual funds and other
investment products. For the latest information about ongoing regulatory
matters, please visit our Web site, AIMinvestments.com. We continue to post
updates as information becomes available. We also encourage you to visit our Web
site for investor education and planning information as well as regular
performance updates on our funds.
As always, AIM is committed to building solutions for your investment goals,
and we thank you for your continued participation in AIM Investments
- --Servicemark--. If you have any questions, please contact our Client Service
representatives at 800-959-4246.
Sincerely,
/s/ ROBERT H. GRAHAM
- -------------------------
Robert H. Graham
Chairman and President
July 20, 2004
*Average annual total returns, June 30, 1979, to June 30, 2004. Source: Lipper,
Inc.
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
<Table>
STRENGTH OF EUROPEAN SMALL-CAP Bank of England raised short-term
MARKET BOOSTED FUND PERFORMANCE interest rates many times over the
course of the reporting period. The Bank
For the six-month reporting period ended Madrid, the ongoing conflict in Iraq, of England attributed its decision to a
June 30, 2004, AIM European Small rising oil prices and the possibility of strengthening U.K. economy and the
Company Fund Class A shares returned higher interest rates. increasing possibility of inflationary
13.53% at net asset value. (Had the pressures.
effects of front-end sales charges been Economic growth in the euro zone--the
included, the return would have been 12 countries that use the euro as their YOUR FUND
lower.) Returns for other share classes currency--began to pick up late in 2003
are shown in the table on page 3. For and continued for the first six months Throughout the first half of 2004, the
the same period, the fund outperformed of 2004. The European Commission's investment climate in Europe rewarded
all of its benchmarks including the MSCI industrial confidence indicator companies with strong corporate
EAFE Index, the MSCI European Small-Cap continued to rise in the second quarter earnings. In this environment, we were
Index and the Lipper European Fund of 2004. In June, this indicator reached able to find many high-quality stocks
Index, which returned 4.56%, 8.13% and its highest level since mid-2001. that fit our investment criteria. The
4.08%, respectively. We believe the strength of our investment strategy in
fund's focus on high-quality stocks Euro zone retail sales increased in this market environment is evident by
coupled with strong stock selection the first quarter of 2004, following the fund's outperformance compared to
enabled it to outperform these benchmark declines in the final two months of its benchmark indexes.
indexes. 2003. Household consumption, however,
remained relatively weak. Across Many investors are unaware that Europe
MARKET CONDITIONS countries in the euro area, economic boasts a large array of small-cap
growth rates often reflect differences stocks; in fact, there are more publicly
While European stocks rallied for the in domestic demand: weakest in Germany listed companies with a market cap of
first few months of 2004, market and stronger in Ireland and Spain. less than $3 billion in Europe than in
conditions were volatile during much of During the reporting period, the ECB the United States. Given this large
the reporting period. The European left short-term interest rates at 2%, universe of stocks, we can be quite
Central Bank (ECB) suggested that the stating that this low level of rates selective and consider many factors when
early-year stock market rally reflected provides ongoing support for economic considering investments for the fund.
continued improvement in both actual and recovery in the euro area.
expected earnings of European companies. One consideration for selection is a
In the final months of the six-month Economic performance in the United stock's valuation. A good example is one
reporting period, however, a number of Kingdom remained robust supported by of our best performing stocks during the
events pressured markets including the strength in the housing market and reporting period--Option International,
terrorist attacks in consumer spending. In a departure from a Belgian manufacturer of wireless
the ECB, the modems. When we originally purchased the
stock, it had a valuation
</Table>
<Table>
====================================================================================================================================
TOP 10 EQUITY HOLDINGS* TOP 10 INDUSTRIES*
1. Option International N.V. (Belgium) 2.3% 1. Diversified Commercial Services 6.2%
2. Puma A.G. Rudolf Dassler Sport (Germany) 2.2 2. Industrial Machinery 4.4
3. Savills PLC (United Kingdom) 2.1 3. Publishing 4.0
4. Meda A.B.-Class A (Sweden) 1.7 4. Apparel, Accessories & Luxury Goods 3.5
5. Anglo Irish Bank Corp. PLC (Ireland) 1.6 5. Leisure Products 3.3
6. Sportingbet PLC (United Kingdom) 1.6 6. Construction & Engineering 3.2
7. Aktiv Kapital A.S.A. (Norway) 1.6 7. Restaurants 3.1
8. Bijou Brigitte Modische Accessoires A.G. (Germany) 1.5 8. Specialized Finance 3.1
9. Eiffage S.A. (France) 1.4 9. Home Furnishings 3.1
10. Hunter Douglas N.V. (Netherlands) 1.4 10. Footwear 2.9
*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>
of half that of a Canadian rival, However, our lack of exposure to select BORGE ENDRESEN
despite having signed up Vodafone--the energy stocks, particularly highly Mr. Endresen, Chartered
world's largest wireless operator as a leveraged shipping and exploration [ENDRESEN Financial Analyst, is
customer. companies, that appreciated PHOTO] manager of AIM European
significantly during the reporting Small Company Fund. He
We also consider company fundamentals period, also proved a drag on fund joined AIM in 1999
before selecting stocks for our performance. We were also underexposed and graduated summa cum laude from the
portfolio. Although regional economic to some of the best performing University of Oregon with a B.S. in
conditions are often heralded in the healthcare stocks, as some of these were finance. He also earned an M.B.A. from
news, we focus on individual companies, simply too large to fit our fund's The University of Texas at Austin.
not country or sector trends. A good definition of a small-cap stock.
illustration of this point is Puma, a JASON T. HOLZER
long-time German fund holding. Despite On the currency front, the U.S. dollar Mr. Holzer, Chartered
sluggish economic conditions in Germany, finally showed pockets of strength. [HOLZER Financial Analyst, is
Puma, an apparel and footwear During the reporting period, the dollar PHOTO] lead manager of AIM
manufacturer, continues to gain market appreciated slightly compared to the European Small Company
share worldwide. The company reported euro but was still weak compared to the Fund. Mr. Holzer joined
that consolidated first quarter 2004 British pound. Over all, foreign AIM in 1996. He received a B.A. in
sales grew 29.3% compared to the same exchange proved a slight drag on fund quantitative economics and an M.S. in
period last year. performance. engineering-economic systems from
Stanford University.
Despite the fund's double-digit return IN CLOSING
during the reporting period, a few Assisted by Europe/Canada Team
stocks held back fund performance. Amid In Europe, many positive trends
challenging regulatory conditions in its continued to emerge during the first
home market, Gedeon Richter, a Hungarian half of 2004. Beyond improving economic
pharmaceutical company, witnessed a conditions, the European Union (EU)
decline in its stock price. We sold our welcomed 10 new countries into its fold,
position in Gedeon during the reporting making the EU one of the largest
period. economic entities entity among
industrialized countries. We are pleased
Meanwhile, Vossloh, a German to report these trends and to provide
manufacturer of rail fastening systems, shareholders with double-digit returns
was hard hit after the company during the reporting period.
experienced some contract delays for a
large customer. We no longer own this See important fund and index
position. disclosures inside front cover.
On a sector basis, consumer
discretionary stocks contributed most to
fund performance.
======================================================================================
TOP 10 COUNTRIES* FUND VS. INDEXES
1. United Kingdom 27.9% TOTAL RETURNS 12/31/03-6/30/04, EXCLUDING
SALES CHARGES. IF SALES CHARGES WERE
2. France 11.7 INCLUDED, RETURNS WOULD BE LOWER.
3. Netherlands 9.1 Class A Shares 13.53%
4. Germany 8.5 Class B Shares 13.18
5. Switzerland 6.4 Class C Shares 13.09
6. Norway 6.2 MSCI EAFE Index (Broad Market Index) 4.56
7. Ireland 5.8 MSCI European Small-Cap Index
(Style-Specific Index) 8.13
8. Sweden 3.8
Lipper European Fund Index
9. Spain 2.3 (Peer Group Index) 4.08
Source: Lipper, Inc.
10. Belgium 2.3
TOTAL NUMBER OF HOLDINGS* 104
TOTAL NET ASSETS $75.8 MILLION
====================================================================================== [RIGHT ARROW GRAPHIC]
FOR A PRESENTATION OF YOUR FUND'S
LONG-TERM PERFORMANCE RECORD, PLEASE
TURN THE PAGE.
</Table>
3
LONG-TERM PERFORMANCE
YOUR FUND'S LONG-TERM PERFORMANCE
================================================================================
Below you will find a presentation of your fund's long-term performance record
for the period ended 6/30/04, the close of the six-month period covered by this
report.
Please read the important disclosure accompanying these tables, which explains
how fund performance is calculated and the sales charges, if any, that apply to
the share class in which you are invested.
================================================================================
<Table>
====================================================================================================================================
AVERAGE ANNUAL TOTAL RETURNS Class A share performance reflects
As of 6/30/04, including sales charges the maximum 5.50% sales charge, and
Class A Shares Class B and Class C share performance
Inception (8/31/00) 7.16% reflects the applicable contingent
1 Year 47.51 deferred sales charge (CDSC) for the
Class B Shares period involved. The CDSC on Class B
shares declines from 5% beginning at
Inception (8/31/00) 7.40% the time of purchase to 0% at the
1 Year 49.91 beginning of the seventh year. The
Class C Shares CDSC on Class C shares is 1% for the
Inception (8/31/00) 8.02% first year after purchase. The
1 Year 53.98 performance of the fund's share
classes will differ due to different
The performance data quoted represent sales charge structures and class
past performance and cannot guarantee expenses.
comparable future results; current
performance may be lower or higher. A redemption fee of 2% will be
Please visit AIMinvestments.com for imposed on certain redemptions or
the most recent month-end performance. exchanges out of the fund within 30
Performance figures reflect reinvested days of purchase. Exceptions to the
distributions, changes in net asset redemption fee are listed in the
value and the effect of the maximum fund's prospectus.
sales charge unless otherwise stated.
Investment return and principal value Had the advisor not waived fees [ARROW
will fluctuate so that you may have a and/or reimbursed expenses, performance BUTTON For More Information Visit
gain or loss when you sell shares. would have been lower. IMAGE] AIMinvestments.com
====================================================================================================================================
</Table>
4
FINANCIALS
SCHEDULE OF INVESTMENTS
June 30, 2004
(Unaudited)
<Table>
<Caption>
MARKET
SHARES VALUE
- ----------------------------------------------------------------------
FOREIGN STOCKS & OTHER EQUITY
INTERESTS-92.76%
AUSTRIA-1.94%
Andritz A.G. (Industrial Machinery) 14,760 $ 724,853
- ----------------------------------------------------------------------
VA Technologie A.G. (Industrial Machinery) 13,180 743,859
======================================================================
1,468,712
======================================================================
BELGIUM-2.26%
Option International N.V. (Communications
Equipment)(a) 67,370 1,712,988
======================================================================
BERMUDA-0.85%
Central European Media Enterprises Ltd.-Class
A (Broadcasting & Cable TV)(a) 28,370 644,566
======================================================================
DENMARK-0.96%
Topdanmark A.S. (Multi-Line Insurance)(a) 12,360 732,093
======================================================================
FINLAND-1.73%
Marimekko Oyj (Apparel, Accessories & Luxury
Goods) 63,600 871,001
- ----------------------------------------------------------------------
Nokian Renkaat Oyj (Tires & Rubber) 4,500 439,404
======================================================================
1,310,405
======================================================================
FRANCE-11.65%
Beneteau (Leisure Products) 13,130 843,834
- ----------------------------------------------------------------------
Bricolage (Mr.) S.A. (Home Improvement
Retail)(b) 10,701 352,346
- ----------------------------------------------------------------------
Camaieu (Apparel Retail)(b) 8,727 780,633
- ----------------------------------------------------------------------
Eiffage S.A. (Construction & Engineering)
(Acquired 3/3/04-6/25/04; Cost $945,111)(c) 12,980 1,070,839
- ----------------------------------------------------------------------
Elior (Restaurants) 79,000 746,639
- ----------------------------------------------------------------------
Euler Hermes S.A. (Property & Casualty
Insurance) 14,850 804,065
- ----------------------------------------------------------------------
Imerys S.A. (Construction Materials)(b) 6,760 394,879
- ----------------------------------------------------------------------
Ipsos (Advertising)(a) 6,230 702,388
- ----------------------------------------------------------------------
Neopost S.A. (Office Electronics)(a) 7,000 414,703
- ----------------------------------------------------------------------
Norbert Dentressangle (Air Freight &
Logistics) 10,640 559,892
- ----------------------------------------------------------------------
SMOBY (Leisure Products) 4,200 425,118
- ----------------------------------------------------------------------
Spir Communication (Publishing)(b) 5,230 832,965
- ----------------------------------------------------------------------
Synergie S.A. (Employment Services) 13,130 361,872
- ----------------------------------------------------------------------
Trigano (Leisure Products) 10,200 547,312
======================================================================
8,837,485
======================================================================
GERMANY-8.50%
Bijou Brigitte Modische Accessoires A.G.
(Apparel, Accessories & Luxury Goods) 14,090 1,159,836
- ----------------------------------------------------------------------
DIS Deutscher Industrie Service A.G.
(Employment Services) 22,710 664,676
- ----------------------------------------------------------------------
Gfk A.G. (Diversified Commercial Services) 11,020 385,696
- ----------------------------------------------------------------------
</Table>
<Table>
- ----------------------------------------------------------------------
<Caption>
MARKET
SHARES VALUE
GERMANY-(CONTINUED)
Grenkeleasing A.G. (Specialized Finance) 15,810 $ 633,358
- ----------------------------------------------------------------------
Puma A.G. Rudolf Dassler Sport (Footwear)
(Acquired 7/26/01-8/2/01; Cost $115,336)(c) 6,670 1,698,962
- ----------------------------------------------------------------------
Rheinmetall A.G.-Pfd. (Industrial
Conglomerates) 12,460 509,032
- ----------------------------------------------------------------------
Techem A.G. (Diversified Commercial
Services)(a)(b) 24,730 639,355
- ----------------------------------------------------------------------
Telegate A.G. (Diversified Commercial
Services)(a)(b) 54,530 758,092
======================================================================
6,449,007
======================================================================
GREECE-1.95%
Athens Stock Exchange S.A. (Specialized
Finance)(a) 68,762 526,611
- ----------------------------------------------------------------------
Germanos S.A. (Computer & Electronics Retail) 16,200 469,005
- ----------------------------------------------------------------------
STET Hellas Telecommunications S.A.-ADR
(Wireless Telecommunication Services)(a) 28,560 479,808
======================================================================
1,475,424
======================================================================
IRELAND-5.75%
Anglo Irish Bank Corp. PLC (Diversified
Banks) 79,040 1,238,602
- ----------------------------------------------------------------------
Depfa Bank PLC (Diversified Banks) 56,730 826,036
- ----------------------------------------------------------------------
Grafton Group PLC (Trading Companies &
Distributors)(a)(d) 103,390 827,112
- ----------------------------------------------------------------------
IFG Group PLC (Other Diversified Financial
Services)(a) 349,500 490,148
- ----------------------------------------------------------------------
Qualceram Shires PLC (Home Furnishings)(a) 187,600 503,312
- ----------------------------------------------------------------------
Trintech Group PLC ADR (Internet Software &
Services)(a) 94,600 473,000
======================================================================
4,358,210
======================================================================
ITALY-0.72%
Merloni Elettrodomestici S.p.A. (Household
Appliances)(b) 30,567 544,236
======================================================================
LUXEMBOURG-0.88%
SBS Broadcasting S.A. (Broadcasting & Cable
TV)(a) 21,850 671,014
======================================================================
NETHERLANDS-9.05%
Aalberts Industries N.V. (Industrial
Conglomerates) 34,234 1,027,010
- ----------------------------------------------------------------------
Airspray N.V. (Metal & Glass Containers) 26,500 649,244
- ----------------------------------------------------------------------
Beter Bed Holding N.V. (Specialty Stores) 42,650 571,088
- ----------------------------------------------------------------------
Brunel International N.V. (Employment
Services) 71,300 628,651
- ----------------------------------------------------------------------
Hunter Douglas N.V. (Home Furnishings) 21,910 1,068,770
- ----------------------------------------------------------------------
Nutreco Holding N.V. (Agricultural Products) 28,080 928,000
- ----------------------------------------------------------------------
OPG Groep N.V.-Dutch Ctfs.(Health Care
Distributers) 10,830 581,380
- ----------------------------------------------------------------------
Randstad Holding N.V. (Employment Services) 12,700 348,937
- ----------------------------------------------------------------------
Roto Smeets de Boer N.V. (Commercial
Printing) 15,300 642,220
- ----------------------------------------------------------------------
Stork N.V. (Industrial Machinery) 17,730 415,137
======================================================================
6,860,437
======================================================================
</Table>
F-1
<Table>
<Caption>
MARKET
SHARES VALUE
- ----------------------------------------------------------------------
NORWAY-6.19%
Aktiv Kapital A.S.A. (Specialized Finance)(b) 91,595 $ 1,176,481
- ----------------------------------------------------------------------
Ekornes A.S.A. (Home Furnishings)(b) 37,930 744,466
- ----------------------------------------------------------------------
Expert A.S.A. (Computer & Electronics Retail) 107,140 680,342
- ----------------------------------------------------------------------
Smedvig A.S.A.-Class A (Oil & Gas Drilling) 57,790 635,939
- ----------------------------------------------------------------------
Software Innovation A.S.A. (Application
Software)(a) 59,710 265,412
- ----------------------------------------------------------------------
SuperOffice A.S.A (Application Software) 249,600 756,462
- ----------------------------------------------------------------------
TGS Nopec Geophysical Co. A.S.A. (Oil & Gas
Equipment & Services)(a) 26,740 432,218
======================================================================
4,691,320
======================================================================
SPAIN-2.27%
Corporacion Mapfre S.A. (Multi-Line
Insurance) 45,170 554,704
- ----------------------------------------------------------------------
Gestevision Telecinco S.A. (Broadcasting &
Cable TV)(a) 27,100 405,504
- ----------------------------------------------------------------------
Miquel y Costas & Miquel, S.A. (Paper
Products) 15,298 764,892
======================================================================
1,725,100
======================================================================
SWEDEN-3.80%
Boss Media A.B. (Internet Software &
Services)(a) 206,330 557,396
- ----------------------------------------------------------------------
Elanders A.B.-Class B (Publishing) 47,800 534,334
- ----------------------------------------------------------------------
Meda A.B.-Class A (Pharmaceuticals)(b) 46,000 1,285,532
- ----------------------------------------------------------------------
Telelogic A.B. (Application Software)
(Acquired 10/21/03-1/15/04; $455,890)(a)(c) 292,780 506,513
======================================================================
2,883,775
======================================================================
SWITZERLAND-6.35%
Amazys Holding A.G. (Diversified Commercial
Services)(a) 26,600 979,154
- ----------------------------------------------------------------------
Barry Callebaut A.G. (Packaged Foods & Meats) 3,020 711,711
- ----------------------------------------------------------------------
Geberit A.G. (Building Products) 939 627,428
- ----------------------------------------------------------------------
Leica Geosystems A.G. (Electronic Equipment
Manufacturers)(a) 2,800 582,563
- ----------------------------------------------------------------------
Lindt & Spruengli A.G. (Packaged Foods &
Meats) 488 513,520
- ----------------------------------------------------------------------
SAIA-Burgess Electronics A.G. (Electrical
Equipment & Manufacturers) 1,410 676,990
- ----------------------------------------------------------------------
Saurer A.G. (Industrial Machinery)(a) 14,200 727,812
======================================================================
4,819,178
======================================================================
UNITED KINGDOM-27.91%
Alba PLC (Consumer Electronics) 54,580 801,871
- ----------------------------------------------------------------------
Albemarle & Bond Holdings PLC (Consumer
Finance) 234,800 433,603
- ----------------------------------------------------------------------
Alexon Group PLC (Apparel, Accessories &
Luxury Goods) 99,000 636,906
- ----------------------------------------------------------------------
Balfour Beatty PLC (Construction &
Engineering) 192,730 930,984
- ----------------------------------------------------------------------
Belhaven Group PLC (The) (Brewers) 78,010 669,065
- ----------------------------------------------------------------------
Cardpoint PLC (Electronic Equipment
Manufacturers)(a) 270,562 635,016
- ----------------------------------------------------------------------
</Table>
<Table>
- ----------------------------------------------------------------------
<Caption>
MARKET
SHARES VALUE
UNITED KINGDOM-(CONTINUED)
Cattles PLC (Consumer Finance) 81,080 $ 467,629
- ----------------------------------------------------------------------
Dawson Holdings PLC (Distributors) 204,130 586,803
- ----------------------------------------------------------------------
Domino Printing Sciences PLC (Industrial
Machinery) 160,610 694,169
- ----------------------------------------------------------------------
Enterprise Inns PLC (Restaurants) 70,820 740,887
- ----------------------------------------------------------------------
Haynes Publishing Group PLC (Publishing) 28,500 161,781
- ----------------------------------------------------------------------
Homeserve PLC (Diversified Commercial
Services) 59,200 721,108
- ----------------------------------------------------------------------
Hornby PLC (Leisure Products) 32,580 694,715
- ----------------------------------------------------------------------
Inchcape PLC (Distributors) 16,870 538,053
- ----------------------------------------------------------------------
Johnston Press PLC (Publishing) 64,210 661,806
- ----------------------------------------------------------------------
Kensington Group PLC (Thrifts & Mortgage
Finance) 69,190 556,157
- ----------------------------------------------------------------------
Kier Group PLC (Construction & Engineering) 34,481 399,620
- ----------------------------------------------------------------------
Lambert Howarth Group PLC (Footwear) 102,350 493,471
- ----------------------------------------------------------------------
Mayborn Group PLC (Household Products) 99,400 504,802
- ----------------------------------------------------------------------
McBride PLC (Household Products) 379,030 1,013,723
- ----------------------------------------------------------------------
Parkdean Holidays PLC (Hotels, Resorts &
Cruise Lines) 50,000 198,769
- ----------------------------------------------------------------------
PHS Group PLC (Diversified Commercial
Services) 382,770 571,058
- ----------------------------------------------------------------------
Punch Taverns PLC (Restaurants) 94,400 874,214
- ----------------------------------------------------------------------
Robert Wiseman Dairies PLC (Packaged Foods &
Meats) 93,340 386,126
- ----------------------------------------------------------------------
Savills PLC (Other Diversified Financial
Services) 195,220 1,622,300
- ----------------------------------------------------------------------
SCi Entertainment Group PLC (Home
Entertainment Software)(a) 219,000 481,326
- ----------------------------------------------------------------------
ScS Upholstery PLC (Specialty Stores) 81,400 361,362
- ----------------------------------------------------------------------
SDL PLC (Application Software)(a) 254,400 571,626
- ----------------------------------------------------------------------
Sportingbet PLC (Casinos & Gaming)(a) 648,230 1,179,390
- ----------------------------------------------------------------------
T&F Informa PLC (Publishing) 117,380 862,787
- ----------------------------------------------------------------------
Telecom plus PLC (Integrated
Telecommunication Services) 103,690 515,968
- ----------------------------------------------------------------------
Warner Chilcott PLC (Pharmaceuticals) 43,320 547,774
- ----------------------------------------------------------------------
WS Atkins PLC (Diversified Commercial
Services) 59,295 653,221
======================================================================
21,168,090
======================================================================
Total Foreign Stocks & Other Equity
Interests (Cost $52,145,012) 70,352,040
======================================================================
MONEY MARKET FUNDS-6.74%
Liquid Assets Portfolio-Institutional
Class(e) 2,556,718 2,556,718
- ----------------------------------------------------------------------
STIC Prime Portfolio-Institutional Class(e) 2,556,718 2,556,718
======================================================================
Total Money Market Funds (Cost
$5,113,436) 5,113,436
======================================================================
TOTAL INVESTMENTS-99.50% (excluding
investments purchased with cash collateral
from securities loaned) (Cost $57,258,448) 75,465,476
======================================================================
</Table>
F-2
<Table>
<Caption>
MARKET
SHARES VALUE
- ----------------------------------------------------------------------
INVESTMENTS PURCHASED WITH CASH COLLATERAL
FROM SECURITIES LOANED
MONEY MARKET FUNDS-4.31%
Liquid Assets Portfolio-Institutional
Class(e)(f) 3,264,778 $ 3,264,778
======================================================================
Total Money Market Funds (purchased with
cash collateral from securities loaned)
(Cost $3,264,778) 3,264,778
======================================================================
TOTAL INVESTMENTS-103.81% (Cost $60,523,226) 78,730,254
======================================================================
OTHER ASSETS LESS LIABILITIES-(3.81%) (2,890,662)
======================================================================
NET ASSETS-100.00% $75,839,592
______________________________________________________________________
======================================================================
</Table>
Investment Abbreviations:
<Table>
ADR - American Depositary Receipt
Ctfs. - Certificates
Pfd. - Preferred
</Table>
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) All or a portion of this security has been pledged as collateral for
security lending transactions at June 30, 2004.
(c) Security not registered under the Securities Act of 1933, as amended (e.g.,
the security was purchased in a Rule 144A transaction or a Regulation D
transaction). The security may be resold only pursuant to an exemption from
registration under the 1933 Act, typically to qualified institutional
buyers. The Fund has no rights to demand registration of these securities.
The aggregate market value of these securities at June 30, 2004 was
$3,276,314, which represented 4.32% of the Fund's net assets. These
securities are considered to be liquid.
(d) Each unit is comprised of 1 Ordinary share of Euro 0.05, 1 C share and 10 A
shares.
(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 6.
See accompanying notes which are an integral part of the financial statements.
F-3
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2004
(Unaudited)
<Table>
ASSETS:
Investments, at market value (cost
$52,145,012)* $70,352,040
- -----------------------------------------------------------
Investments in affiliated money market funds
(cost $8,378,214) 8,378,214
===========================================================
Total investments (cost $60,523,226) 78,730,254
___________________________________________________________
===========================================================
Foreign currencies, at value (cost $610,478) 615,255
- -----------------------------------------------------------
Receivables for:
Investments sold 133,092
- -----------------------------------------------------------
Fund shares sold 863,428
- -----------------------------------------------------------
Dividends 176,040
- -----------------------------------------------------------
Amount due from advisor 15,619
- -----------------------------------------------------------
Investment for deferred compensation and
retirement plans 17,325
- -----------------------------------------------------------
Other assets 33,087
===========================================================
Total assets 80,584,100
___________________________________________________________
===========================================================
LIABILITIES:
Payables for:
Investments purchased 1,119,347
- -----------------------------------------------------------
Fund shares reacquired 233,749
- -----------------------------------------------------------
Deferred compensation and retirement plans 17,324
- -----------------------------------------------------------
Collateral upon return of securities loaned 3,264,778
- -----------------------------------------------------------
Accrued distribution fees 31,102
- -----------------------------------------------------------
Accrued transfer agent fees 25,674
- -----------------------------------------------------------
Accrued operating expenses 52,534
===========================================================
Total liabilities 4,744,508
===========================================================
Net assets applicable to shares outstanding $75,839,592
___________________________________________________________
===========================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $55,030,637
- -----------------------------------------------------------
Undistributed net investment income 93,648
- -----------------------------------------------------------
Undistributed net realized gain from
investment securities and foreign currencies 2,499,025
- -----------------------------------------------------------
Unrealized appreciation of investment
securities and foreign currencies 18,216,282
===========================================================
$75,839,592
___________________________________________________________
===========================================================
NET ASSETS:
Class A $53,171,457
___________________________________________________________
===========================================================
Class B $14,023,794
___________________________________________________________
===========================================================
Class C $ 8,644,341
___________________________________________________________
===========================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER SHARE,
UNLIMITED NUMBER OF SHARES AUTHORIZED:
Class A 3,886,853
___________________________________________________________
===========================================================
Class B 1,046,907
___________________________________________________________
===========================================================
Class C 645,331
___________________________________________________________
===========================================================
Class A:
Net asset value per share $ 13.68
- -----------------------------------------------------------
Offering price per share:
(Net asset value of $13.68 divided by
94.50%) $ 14.48
___________________________________________________________
===========================================================
Class B:
Net asset value and offering price per share $ 13.40
___________________________________________________________
===========================================================
Class C:
Net asset value and offering price per share $ 13.40
___________________________________________________________
===========================================================
</Table>
* At June 30, 2004, securities with an aggregate market value of $2,705,854 were
on loan to brokers.
See accompanying notes which are an integral part of the financial statements.
F-4
STATEMENT OF OPERATIONS
For the six months ended June 30, 2004
(Unaudited)
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $134,982) $ 872,665
- ------------------------------------------------------------------------
Dividends from affiliated money market funds* 24,907
========================================================================
Total investment income 897,572
========================================================================
EXPENSES:
Advisory fees 344,041
- ------------------------------------------------------------------------
Administrative services fees 24,864
- ------------------------------------------------------------------------
Custodian fees 109,132
- ------------------------------------------------------------------------
Distribution fees:
Class A 92,440
- ------------------------------------------------------------------------
Class B 59,016
- ------------------------------------------------------------------------
Class C 39,019
- ------------------------------------------------------------------------
Interest 2,925
- ------------------------------------------------------------------------
Transfer agent fees 101,913
- ------------------------------------------------------------------------
Trustees' fees 6,647
- ------------------------------------------------------------------------
Professional fees 48,199
- ------------------------------------------------------------------------
Other 50,114
========================================================================
Total expenses 878,310
========================================================================
Less: Fees waived, expenses reimbursed, and expense offset
arrangement (90,258)
========================================================================
Net expenses 788,052
========================================================================
Net investment income 109,520
========================================================================
REALIZED AND UNREALIZED GAIN FROM INVESTMENT SECURITIES, AND
FOREIGN CURRENCIES:
Net realized gain from:
Investment securities 6,473,747
- ------------------------------------------------------------------------
Foreign currencies 64,219
========================================================================
6,537,966
========================================================================
Change in net unrealized appreciation of:
Investment securities 724,291
- ------------------------------------------------------------------------
Foreign currencies 6,560
========================================================================
730,851
========================================================================
Net gain from investment securities and foreign currencies 7,268,817
========================================================================
Net increase in net assets resulting from operations $7,378,337
________________________________________________________________________
========================================================================
</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 six months ended June 30, 2004 and the year ended December 31, 2003
(Unaudited)
<Table>
<Caption>
JUNE 30, DECEMBER 31,
2004 2003
- -----------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ 109,520 $ (157,442)
- -----------------------------------------------------------------------------------------
Net realized gain from investment securities and foreign
currencies 6,537,966 4,332,482
- -----------------------------------------------------------------------------------------
Change in net unrealized appreciation of investment
securities and foreign currencies 730,851 14,544,576
=========================================================================================
Net increase in net assets resulting from operations 7,378,337 18,719,616
=========================================================================================
Distributions to shareholders from net investment income:
Class A -- (110,677)
- -----------------------------------------------------------------------------------------
Share transactions-net:
Class A 5,789,710 14,779,957
- -----------------------------------------------------------------------------------------
Class B 3,313,337 653,971
- -----------------------------------------------------------------------------------------
Class C 1,493,882 2,479,060
=========================================================================================
Net increase in net assets resulting from share
transactions 10,596,929 17,912,988
=========================================================================================
Net increase in net assets 17,975,266 36,521,927
=========================================================================================
NET ASSETS:
Beginning of period 57,864,326 21,342,399
=========================================================================================
End of period (including undistributed net investment
income (loss) of $93,648 and $(15,872) for 2004 and
2003, respectively) $75,839,592 $57,864,326
_________________________________________________________________________________________
=========================================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
F-6
NOTES TO FINANCIAL STATEMENTS
June 30, 2004
(Unaudited)
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.
Under the Trust's organizational documents, the Fund's officers, trustees,
employees and agents are indemnified against certain liabilities that may arise
out of performance of their duties to the Fund. Additionally, in the normal
course of business, the Fund enters into contracts that contain a variety of
indemnification clauses. The Fund's maximum exposure under these arrangements is
unknown as this would involve future claims that may be made against the Fund
that have not yet occurred. However, the Fund has not had prior claims or losses
pursuant to these contracts.
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 specific 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"). Futures
contracts are valued at the final settlement price set by an exchange on
which they are principally traded. Listed options are valued at the mean
between the last bid and the ask prices from the exchange on which they are
principally traded. Options not listed on an exchange are valued by an
independent source at the mean between the last bid and ask prices.
Investments in open-end registered investment companies and closed-end
registered investment companies that do not trade on an exchange are valued
at the end of day net asset value per share. Investments in closed-end
registered investment companies that trade on an exchange are valued at the
last sales price as of the close of the customary trading session on the
exchange where the security is principally traded.
Foreign securities (including foreign exchange contracts) are converted
into U.S. dollar amounts using the applicable exchange rates as of the
close of the NYSE. Generally, trading in foreign securities is
substantially completed each day at various times prior to the close of the
NYSE. The values of such securities used in computing the net asset value
of the Fund's shares are determined as of the close of the respective
markets. Events affecting the values of such foreign securities may occur
between the times at which the particular foreign market closes and the
close of the customary trading session of the NYSE which would not
ordinarily be reflected in the computation of the Fund's net asset value.
If 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.
F-7
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions
are accounted for on a trade date basis. Realized gains or losses on sales
are computed on the basis of specific identification of the securities
sold. Interest income is recorded on the accrual basis from settlement
date. Dividend income is recorded on the ex-dividend date.
Brokerage commissions and mark ups are considered transaction costs and
are recorded as an increase to the cost basis of securities purchased
and/or a reduction of proceeds on a sale of securities. Such transaction
costs are included in the determination of realized and unrealized gain
(loss) from investment securities reported in the Statement of Operations
and the Statement of Changes in Net Assets and the realized and unrealized
net gains (losses) on securities per share in the Financial Highlights.
Transaction costs are included in the calculation of the Fund's net asset
value and, accordingly, they reduce the Fund's total returns. These
transaction costs are not considered operating expenses and are not
reflected in net investment income reported in the Statement of Operations
and Statement of Changes in Net Assets, or the net investment income per
share and ratios of expenses and net investment income reported in the
Financial Highlights, nor are they limited by any expense limitation
arrangements between the Fund and the advisor.
The Fund 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 distributed to shareholders. Therefore, no provision for
federal income taxes is recorded in the financial statements.
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.
F. REDEMPTION FEES -- The Fund has 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, including exchanges of shares held less than 30 days. The
redemption fee is accounted for as an addition to shares of beneficial
interest by the Fund and is allocated among the share classes based on the
relative net assets of each class.
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 (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.
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.
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. The Fund's advisor has contractually agreed to waive
advisory fees and/or reimburse expenses of Class A, Class B and Class C shares
to the extent necessary to limit Total Annual Fund Operating Expenses (excluding
certain items discussed below) for the Fund's Class A shares to 2.00%. In
determining the advisor's obligation to waive advisory fees and/or reimburse
expenses, the following expenses are not taken into account, and could cause the
Total Annual Fund Operating Expenses to exceed the caps stated above: (i)
interest; (ii) taxes; (iii) dividend expense on short sales; (iv) extraordinary
items (these are expenses that are not
F-8
anticipated to arise from the Fund's day-to-day operations), or items designated
as such by the Fund's board of trustees; (v) expenses related to a merger or
reorganization, as approved by the Fund's board of trustees; and (vi) expenses
that the Fund has incurred but did not actually pay because of an expense offset
arrangement. Currently, the only expense offset arrangements from which the Fund
benefits are in the form of credits that the Fund receives from banks where the
Fund or its transfer agent has deposit accounts in which it holds uninvested
cash. Those credits are used to pay certain expenses incurred by the Fund. To
the extent that the annualized expense ratio does not exceed the expense
limitation, AIM will retain its ability to be reimbursed for such fee waivers or
reimbursements prior to the end of each fiscal year. 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, if any). For the six months ended June 30, 2004,
AIM waived fees of $70,497.
For the period ended June 30, 2004, at the direction of the trustees of the
Trust, AMVESCAP PLC ("AMVESCAP") has assumed $19,348 of expenses incurred by the
Fund in connection with matters related to both pending regulatory complaints
against INVESCO Funds Group, Inc. ("IFG") alleging market timing and the ongoing
market timing investigations with respect to IFG and AIM, including legal,
audit, shareholder servicing, communication and trustee expenses.
The Fund, pursuant to a master administrative services agreement with AIM,
has agreed to pay AIM for certain administrative costs incurred in providing
accounting services to the Fund. For the six months ended June 30, 2004, AIM was
paid $24,864 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 six months ended June 30, 2004, AISI retained $57,810 for
such services.
The Trust has entered into master distribution agreements with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Class A, Class B and Class C shares of the Fund. The Trust has adopted plans
pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund's Class A,
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 six months
ended June 30, 2004, the Class A, Class B and Class C shares paid $92,440,
$59,016 and $39,019, 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 six
months ended June 30, 2004, AIM Distributors advised the Fund that it retained
$26,461 in front-end sales commissions from the sale of Class A shares and
$7,802, $11,648 and $16,041 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"), to invest daily available cash balances and cash
collateral from securities lending transactions in affiliated money market
funds. The Fund and the money market funds below have the same investment
advisor and therefore, are considered to be affiliated. 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 tables
below show the transactions in and earnings from investments in affiliated money
market funds for the period ended June 30, 2004.
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 12/31/03 AT COST FROM SALES (DEPRECIATION) 06/30/04 INCOME GAIN (LOSS)
- ----------------------------------------------------------------------------------------------------------------------------------
Liquid Asset
Portfolio-
Institutional
Class $1,498,588 $12,797,468 $(11,739,338) $ -- $2,556,718 $ 6,599 $ --
- ----------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-
Institutional
Class 1,498,588 12,797,468 (11,739,338) -- 2,556,718 6,333 --
==================================================================================================================================
Subtotal $2,997,176 $25,594,936 $(23,478,676) $ -- $5,113,436 $12,932 $ --
__________________________________________________________________________________________________________________________________
==================================================================================================================================
</Table>
F-9
INVESTMENTS OF CASH COLLATERAL FROM SECURITIES LENDING TRANSACTIONS:
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 12/31/03 AT COST FROM SALES (DEPRECIATION) 06/30/04 INCOME* GAIN (LOSS)
- -----------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-Institutional
Class $ 117,600 $10,540,981 $ (7,393,803) $ -- $3,264,778 $11,975 $ --
===================================================================================================================================
Total $3,114,776 $36,135,917 $(30,872,479) $ -- $8,378,214 $24,907 $ --
___________________________________________________________________________________________________________________________________
===================================================================================================================================
</Table>
* Dividend income is net of fees paid to security lending counterparties of
$115.
NOTE 4--EXPENSE OFFSET ARRANGEMENT
The expense offset arrangement is comprised of transfer agency credits which
result from balances in Demand Deposit Accounts (DDA) used by the transfer agent
for clearing shareholder transactions. For the six months ended June 30, 2004,
the Fund received credits in transfer agency fees of $413 under an expense
offset arrangement, which resulted in a reduction of the Fund's total expenses
of $413.
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 Funds 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.
Obligations under the deferred compensation and retirement plans represent
unsecured claims against the general assets of the Fund.
During the six months ended June 30, 2004, the Fund paid legal fees of
$1,185 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--PORTFOLIO SECURITIES LOANED
The Fund may lend portfolio securities having a market value up to 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 June 30, 2004, securities with an aggregate value of $2,705,854 were on
loan to brokers. The loans were secured by cash collateral of $3,264,778
received by the Fund and subsequently invested in an affiliated money market
fund. For the six months ended June 30, 2004, the Fund received dividends on
cash collateral net of fees paid to counterparties of $11,975 for securities
lending transactions.
NOTE 7--TAX INFORMATION
The amount and character of income and gains to be distributed are determined in
accordance with income tax regulations, which may differ from generally accepted
accounting principles. Reclassifications are made to the Fund's capital accounts
to reflect income and gains available for distribution (or available capital
loss carryforward) under income tax regulations. The tax character of
distributions paid during the year and the tax components of net assets will be
reported at the Fund's fiscal year-end.
Capital loss carryforward is calculated and reported as of a specific date.
Results of transactions and other activity after that date may affect the amount
of capital loss carryforward actually available for the Fund to utilize. The
ability to use capital loss carryforward may be limited under the Internal
Revenue Code and related regulations.
F-10
The Fund has a capital loss carryforward for tax purposes as of December 31,
2003 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>
* Capital loss carryforward as of the date listed above is reduced for
limitations, if any, to the extent required by the Internal Revenue Code.
NOTE 8--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities
and money market funds) purchased and sold by the Fund during the six months
ended June 30, 2004 was $51,133,909 and $42,313,971, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF
INVESTMENT SECURITIES ON A TAX BASIS
- ---------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $18,398,115
- ---------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (236,009)
===========================================================================
Net unrealized appreciation of investment securities $18,162,106
___________________________________________________________________________
===========================================================================
Cost of investments for tax purposes is $60,568,148.
</Table>
NOTE 9--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
- ----------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2004 DECEMBER 31, 2003
-------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------------------------------------------------------------
Sold:
Class A 2,736,210 $ 36,010,219 7,437,349 $ 64,909,222
- ----------------------------------------------------------------------------------------------------------------------
Class B 547,370 7,089,282 355,346 3,473,696
- ----------------------------------------------------------------------------------------------------------------------
Class C 658,574 8,534,446 2,260,834 19,474,776
======================================================================================================================
Issued as reinvestment of dividends:
Class A -- -- 6,582 76,679
======================================================================================================================
Automatic conversion of Class B shares to Class A shares:
Class A 33,883 448,155 24,199 222,934
- ----------------------------------------------------------------------------------------------------------------------
Class B (34,548) (448,155) (24,613) (222,934)
======================================================================================================================
Reacquired:
Class A (2,377,643) (30,668,664) (5,818,558) (50,428,878)
- ----------------------------------------------------------------------------------------------------------------------
Class B 261,091 (3,327,790) (317,658) (2,596,791)
- ----------------------------------------------------------------------------------------------------------------------
Class C (549,343) (7,040,564) (2,007,635) (16,995,716)
======================================================================================================================
1,275,594 $ 10,596,929* 1,915,846 $ 17,912,988
______________________________________________________________________________________________________________________
======================================================================================================================
</Table>
* Amount is net of redemption fees of $10,847, $2,861, and $1,764 for Class A,
Class B, and Class C, respectively.
F-11
NOTE 10--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
CLASS A
---------------------------------------------------------------------------
AUGUST 31, 2000
SIX MONTHS (DATE OPERATIONS
ENDED YEAR ENDED DECEMBER 31, COMMENCED) TO
JUNE 30, ----------------------------------- DECEMBER 31,
2004 2003 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 12.05 $ 7.37 $ 7.19 $ 9.17 $10.00
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.04 (0.03)(a) (0.04)(a) (0.05)(a) (0.04)(a)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized
and unrealized) 1.59 4.74 0.22 (1.93) (0.74)
=================================================================================================================================
Total from investment operations 1.63 4.71 0.18 (1.98) (0.78)
=================================================================================================================================
Less distributions from net investment income -- (0.03) -- -- (0.05)
=================================================================================================================================
Net asset value, end of period $ 13.68 $ 12.05 $ 7.37 $ 7.19 $ 9.17
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) 13.53% 63.96% 2.50% (21.59)% (7.84)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $53,171 $42,103 $13,597 $ 6,969 $8,606
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and expense reimbursements 2.00%(c) 2.00% 2.01% 2.01% 2.07%(d)
- ---------------------------------------------------------------------------------------------------------------------------------
Without fee waivers and expense reimbursements 2.25%(c) 2.68% 3.05% 4.65% 6.28%(d)
=================================================================================================================================
Ratio of net investment income (loss) to average net
assets 0.52%(c) (0.28)% (0.51)% (0.61)% (1.28)%(d)
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(e) 62% 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 and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. 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
$53,112,916.
(d) Annualized.
(e) Not annualized for periods less than one year.
F-12
NOTE 10--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS B
-------------------------------------------------------------------------
AUGUST 31, 2000
SIX MONTHS (DATE OPERATIONS
ENDED YEAR ENDED DECEMBER 31, COMMENCED) TO
JUNE 30, --------------------------------- DECEMBER 31,
2004 2003 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 11.84 $ 7.27 $ 7.15 $ 9.17 $10.00
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.01) (0.08)(a) (0.09)(a) (0.10)(a) (0.06)(a)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 1.57 4.65 0.21 (1.92) (0.74)
=================================================================================================================================
Total from investment operations 1.56 4.57 0.12 (2.02) (0.80)
=================================================================================================================================
Less dividends from net investment income -- -- -- -- (0.03)
=================================================================================================================================
Net asset value, end of period $ 13.40 $11.84 $ 7.27 $ 7.15 $ 9.17
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) 13.18% 62.86% 1.68% (22.03)% (7.99)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $14,024 $9,415 $5,689 $ 2,330 $2,851
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and expense reimbursements 2.65%(c) 2.65% 2.66% 2.71% 2.77%(d)
- ---------------------------------------------------------------------------------------------------------------------------------
Without fee waivers and expense reimbursements 2.90%(c) 3.33% 3.70% 5.36% 6.98%(d)
=================================================================================================================================
Ratio of net investment income (loss) to average net
assets (0.13)%(c) (0.93)% (1.16)% (1.31)% (1.98)%(d)
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(e) 62% 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 and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. 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
$11,868,020.
(d) Annualized.
(e) Not annualized for periods less than one year.
F-13
NOTE 10--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS C
-------------------------------------------------------------------------
AUGUST 31, 2000
SIX MONTHS (DATE OPERATIONS
ENDED YEAR ENDED DECEMBER 31, COMMENCED) TO
JUNE 30, --------------------------------- DECEMBER 31,
2004 2003 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $11.84 $ 7.27 $ 7.14 $ 9.17 $10.00
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.01) (0.09)(a) (0.09)(a) (0.10)(a) (0.06)(a)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 1.57 4.66 0.22 (1.93) (0.74)
=================================================================================================================================
Total from investment operations 1.56 4.57 0.13 (2.03) (0.80)
=================================================================================================================================
Less dividends from net investment income -- -- -- -- (0.03)
=================================================================================================================================
Net asset value, end of period $13.40 $11.84 $ 7.27 $ 7.14 $ 9.17
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) 13.18% 62.86% 1.82% (22.14)% (7.99)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $8,644 $6,346 $2,057 $ 1,091 $1,073
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets:
With fee waivers 2.65%(c) 2.65% 2.66% 2.71% 2.77%(d)
- ---------------------------------------------------------------------------------------------------------------------------------
Without fee waivers 2.90%(c) 3.33% 3.70% 5.36% 6.98%(d)
=================================================================================================================================
Ratio of net investment income (loss) to average net
assets (0.13)%(c) (0.93)% (1.16)% (1.31)% (1.98)%(d)
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(e) 62% 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 and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. 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
$7,846,762.
(d) Annualized.
(e) Not annualized for periods less than one year.
NOTE 11--LEGAL PROCEEDINGS
The mutual fund industry as a whole is currently subject to regulatory inquiries
and litigation related to a wide range of issues. These issues include, among
others, market timing activity, late trading, fair value pricing, excessive or
improper advisory and/or distribution fees, mutual fund sales practices,
including revenue sharing and directed-brokerage arrangements, investments in
securities of other registered investment companies and issues related to
Section 529 college savings plans.
As described more fully below, INVESCO Funds Group, Inc. ("IFG"), the former
investment advisor to the INVESCO Funds, is the subject of three regulatory
actions concerning market timing activity in the INVESCO Funds. In addition, IFG
and A I M Advisors, Inc. ("AIM"), the Fund's investment advisor, are the subject
of a number of regulatory inquiries and civil lawsuits, as described more fully
below. Both IFG and AIM are indirect wholly owned subsidiaries of AMVESCAP PLC
("AMVESCAP"). Additional regulatory actions and/or civil lawsuits related to the
above or other issues may be filed against IFG, AIM and/or related entities and
individuals in the future. Additional regulatory inquiries related to the above
or other issues also may be received by IFG, AIM and/or related entities and
individuals in the future.
As a result of the regulatory actions and inquiries and civil lawsuits
discussed below, 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.
Regulatory Actions Pending Against 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 former capacity as the
chief executive officer of IFG. Mr. Cunningham also formerly held the positions
of Chief Operating Officer and Senior Vice President of A I M Management Group
Inc. ("AIM Management"), 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. There
can be no assurance that the SEC, NYAG or State of Colorado will not file
additional charges against IFG or Mr. Cunningham or civil proceedings against
other current or former officers or employees of IFG.
F-14
NOTE 11--LEGAL PROCEEDINGS (CONTINUED)
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.
Response of AMVESCAP
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 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. AMVESCAP has retained outside counsel to represent its subsidiaries in
connection with the market timing regulatory inquiries and certain other
matters. As part of this representation, this outside counsel has been
conducting a review of IFG's and AIM's conduct with respect to market timing and
related matters. In addition, AMVESCAP has retained separate 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.
At the direction of the trustees of the AIM and INVESCO Funds, AMVESCAP has
agreed to pay all of the expenses incurred by the AIM and INVESCO Funds related
to the market timing investigations, including expenses incurred in connection
with the pending regulatory complaints against IFG alleging market timing and
the ongoing market timing investigations with respect to IFG and AIM.
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, including
but not limited to A I M Capital Management, Inc. ("AIM Capital"), AIM Funds
Management Inc., INVESCO Institutional (N.A.), Inc. ("IINA"), INVESCO Global
Asset Management (N.A.), Inc. and INVESCO Senior Secured Management, Inc., from
serving as an investment advisor to any investment company registered under the
Investment Company Act of 1940, including the Fund. The Fund has been informed
by AIM that, if AIM is so barred, 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.
Regulatory Inquiries Concerning IFG
IFG, certain related entities, certain of their current and former officers
and/or certain of the INVESCO Funds have received regulatory inquiries in the
form of subpoenas or other oral or written requests for information and/or
documents related to one or more of the following issues, some of which concern
one or more INVESCO Funds: market timing activity, late trading, fair value
pricing, excessive or improper advisory and/or distribution fees, mutual fund
sales practices, including revenue sharing and directed-brokerage arrangements,
and investments in securities of other registered investment companies. These
regulators include the Securities and Exchange Commission ("SEC"), the NASD,
Inc. ("NASD"), the Florida Department of Financial Services, the Commissioner of
Securities for the State of Georgia, the Attorney General of the State of West
Virginia, the West Virginia Securities Commission, the Colorado Securities
Division and the Bureau of Securities of the State of New Jersey. IFG and
certain of these other parties also have received more limited inquiries from
the United States Department of Labor ("DOL") and the United States Attorney's
Office for the Southern District of New York, some of which concern one or more
INVESCO Funds. IFG is providing full cooperation with respect to these
inquiries.
Regulatory Inquiries Concerning AIM
AIM, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds have received regulatory inquiries in the form
of subpoenas or other oral or written requests for information and/or documents
related to one or more of the following issues, some of which concern one or
more AIM Funds: market timing activity, late trading, fair value pricing,
excessive or improper advisory and/or distribution fees, mutual fund sales
practices, including revenue sharing and directed-brokerage arrangements,
investments in securities of other registered investment companies and issues
related to Section 529 college savings plans. These regulators include the SEC,
the NASD, the Department of Banking for the State of Connecticut, the NYAG, the
Commissioner of Securities for the State of Georgia, the Attorney General of the
State of West Virginia, the West Virginia Securities Commission and the Bureau
of Securities of the State of New Jersey. AIM and certain of these other parties
also have received more limited inquiries from the DOL, the Internal Revenue
Service, the United States Attorney's Office for the Southern District of New
York, the United States Attorney's Office for the Central District of
California, the United States Attorney's Office for the District of
Massachusetts, the Massachusetts Securities Division and the U.S. Postal
Inspection Service, some of which concern one or more AIM Funds. AIM is
providing full cooperation with respect to these inquiries.
Private Civil Actions Alleging Market Timing
Multiple civil 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, AIM
Management, AMVESCAP, certain related entities and/or certain of their current
and former officers) making allegations substantially similar to the allegations
in the three regulatory actions concerning market timing activity in the
F-15
NOTE 11--LEGAL PROCEEDINGS (CONTINUED)
INVESCO Funds that have been filed by the SEC, the NYAG and the State of
Colorado against these parties. These 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/or (iv) breach of contract. These lawsuits were initiated 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; declaration that the advisory agreement is unenforceable or void;
refund of advisory fees; interest; and attorneys' and experts' fees.
The Judicial Panel on Multidistrict Litigation (the "Panel") has ruled that
all actions pending in Federal court that allege market timing and/or late
trading be transferred to the United States District Court for the District of
Maryland for coordinated pre-trial proceedings. All such cases against IFG and
the other AMVESCAP defendants filed to date have been conditionally or finally
transferred to the District of Maryland in accordance with the Panel's
directive. In addition, the proceedings initiated in state court have been
removed by IFG to Federal court and transferred to the District of Maryland. The
plaintiff in one such action continues to seek remand to state court.
Private Civil Actions Alleging Improper Use of Fair Value Pricing
Multiple civil class action lawsuits have been filed against various parties
(including, depending on the lawsuit, certain INVESCO Funds, certain AIM Funds,
IFG and/or AIM) alleging that certain AIM and INVESCO Funds inadequately
employed fair value pricing. These lawsuits allege a variety of theories of
recovery, including but not limited to: (i) violations of various provisions of
the Federal securities laws; (ii) common law breach of duty; and (iii) common
law negligence and gross negligence. These lawsuits have been filed in both
Federal and state courts and seek such remedies as compensatory and punitive
damages; interest; and attorneys' fees and costs.
Private Civil Actions Alleging Excessive Advisory and Distribution Fees
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, IFG, AIM, IINA, A I M Distributors, Inc. ("AIM Distributors")
and/or INVESCO Distributors, Inc. ("INVESCO Distributors")) alleging that the
defendants charged excessive advisory and distribution fees and failed to pass
on to shareholders the perceived savings generated by economies of scale.
Certain of these lawsuits also allege that the defendants adopted unlawful
distribution plans. These lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the Federal
securities laws; (ii) breach of fiduciary duty; and/or (iii) breach of contract.
These lawsuits have been filed in both Federal and state courts and seek such
remedies as damages; injunctive relief; rescission of certain Funds' advisory
agreements and distribution plans; interest; prospective relief in the form of
reduced fees; and attorneys' and experts' fees.
Private Civil Actions Alleging Improper Distribution Fees Charged to Closed
Funds
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, IFG, AIM, AIM Distributors and/or certain of the trustees of the
AIM and INVESCO Funds) alleging that the defendants breached their fiduciary
duties by charging distribution fees while funds and/or specific share classes
were closed generally to new investors and/or while other share classes of the
same fund were not charged the same distribution fees. These lawsuits allege a
variety of theories of recovery, including but not limited to: (i) violation of
various provisions of the Federal securities laws; and (ii) breach of fiduciary
duty. These lawsuits have been filed in both Federal and state courts and seek
such remedies as damages; injunctive relief; and attorneys' and experts' fees.
Private Civil Actions Alleging Improper Mutual Fund Sales Practices and
Directed-Brokerage Arrangements
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, AIM Management, IFG, AIM, AIM Investment Services, Inc. ("AIS")
and/or certain of the trustees of the AIM and INVESCO Funds) alleging that the
defendants improperly used the assets of the AIM and INVESCO Funds to pay
brokers to aggressively push the AIM and INVESCO Funds over other mutual funds
and that the defendants concealed such payments from investors by disguising
them as brokerage commissions. These lawsuits allege a variety of theories of
recovery, including but not limited to: (i) violation of various provisions of
the Federal securities laws; (ii) breach of fiduciary duty; and (iii) aiding and
abetting a breach of fiduciary duty. These lawsuits have been filed in Federal
courts and seek such remedies as compensatory and punitive damages; rescission
of certain Funds' advisory agreements and distribution plans and recovery of all
fees paid; an accounting of all fund-related fees, commissions and soft dollar
payments; restitution of all unlawfully or discriminatorily obtained fees and
charges; and attorneys' and experts' fees.
At the present time, management of AIM and the Fund are unable to estimate the
impact, if any, that the outcome of the matters described above may have on AIM
or the Fund.
F-16
OTHER INFORMATION
TRUSTEES AND OFFICERS
<Table>
BOARD OF TRUSTEES OFFICERS OFFICE OF THE FUND
Bob R. Baker Robert H. Graham 11 Greenway Plaza
Chairman and President Suite 100
Frank S. Bayley Houston, TX 77046-1173
Mark H. Williamson
James T. Bunch Executive Vice President INVESTMENT ADVISOR
A I M Advisors, Inc.
Bruce L. Crockett Kevin M. Carome 11 Greenway Plaza
Senior Vice President, Secretary Suite 100
Albert R. Dowden and Chief Legal Officer Houston, TX 77046-1173
Edward K. Dunn Jr. Sidney M. Dilgren TRANSFER AGENT
Vice President and Treasurer AIM Investment Services, Inc.
Jack M. Fields P.O. Box 4739
Robert G. Alley Houston, TX 77210-4739
Carl Frischling Vice President
CUSTODIAN
Robert H. Graham Stuart W. Coco State Street Bank and Trust Company
Vice President 225 Franklin Street
Gerald J. Lewis Boston, MA 02110-2801
Melville B. Cox
Prema Mathai-Davis Vice President COUNSEL TO THE FUND
Ballard Spahr
Lewis F. Pennock Karen Dunn Kelley Andrews & Ingersoll, LLP
Vice President 1735 Market Street
Ruth H. Quigley Philadelphia, PA 19103-7599
Edgar M. Larsen
Louis S. Sklar Vice President COUNSEL TO THE TRUSTEES
Kramer, Levin, Naftalis & Frankel LLP
Larry Soll, Ph.D. 919 Third Avenue
New York, NY 10022-3852
Mark H. Williamson
DISTRIBUTOR
A I M Distributors, Inc.
11 Greenway Plaza
Suite 100
Houston, TX 77046-1173
</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(4) AIM High Yield Fund
AIM Blue Chip Fund AIM Global Aggressive Growth Fund AIM Income Fund
AIM Capital Development Fund AIM Global Equity Fund(5) AIM Intermediate Government Fund
AIM Charter Fund AIM Global Growth Fund AIM Limited Maturity Treasury Fund
AIM Constellation Fund AIM Global Value Fund AIM Money Market Fund
AIM Dent Demographic Trends Fund AIM International Emerging Growth Fund(6) AIM Short Term Bond Fund
AIM Diversified Dividend Fund 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(7)
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(1) 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 ALLOCATION SOLUTIONS
AIM Premier Equity Fund INVESCO Gold & Precious Metals Fund
AIM Select Equity Fund INVESCO Health Sciences Fund AIM Aggressive Allocation Fund
AIM Small Cap Equity Fund(2) INVESCO Leisure Fund AIM Conservative Allocation Fund
AIM Small Cap Growth Fund(3) INVESCO Multi-Sector Fund AIM Moderate Allocation Fund
AIM Trimark Endeavor Fund INVESCO Technology Fund
AIM Trimark Small Companies Fund INVESCO Utilities Fund
AIM Weingarten Fund
INVESCO Core Equity Fund ================================================================================
INVESCO Dynamics Fund CONSIDER THE INVESTMENT OBJECTIVES, RISKS, AND CHARGES AND EXPENSES CAREFULLY.
INVESCO Mid-Cap Growth Fund FOR THIS AND OTHER IMPORTANT INFORMATION ABOUT AIM AND INVESCO FUNDS, OBTAIN A
INVESCO Small Company Growth Fund PROSPECTUS FROM YOUR FINANCIAL ADVISOR OR AIMINVESTMENTS.COM AND READ IT
INVESCO S&P 500 Index Fund THOROUGHLY BEFORE INVESTING.
INVESCO Total Return Fund* ================================================================================
</Table>
* Domestic equity and income fund
(1) 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. (2) 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. (3) 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. (4) AIM European Small Company Fund will close to new investors when
net assets reach $500 million. (5) Effective March 31, 2004, AIM Global Trends
Fund was renamed AIM Global Equity Fund. (6) AIM International Emerging Growth
Fund will close to new investors when net assets reach $500 million. (7)
Effective November 24, 2003, INVESCO International Blue Chip Value Fund was
renamed INVESCO International Core Equity Fund.
If used after October 20, 2004, this report 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 $139 billion in assets. AIM is a subsidiary of
AMVESCAP PLC, one of the world's largest independent financial services
companies with $372 billion in assets under management. Data as of June 30,
2004.
<Table>
AIMinvestments.com ESC-SAR-1 AIM Distributors, Inc.
YOUR GOALS. OUR SOLUTIONS.--Registered Trademark--
- -------------------------------------------------------------------------------------
Mutual Retirement Annuities College Separately Offshore Alternative Cash [AIM INVESTMENTS LOGO APPEARS HERE]
Funds Products Savings Managed Products Investments Management --Registered Trademark--
Plans Accounts
- -------------------------------------------------------------------------------------
</Table>
AIM GLOBAL VALUE FUND
Semiannual Report to Shareholders o June 30, 2004
[COVER IMAGE]
[YOUR GOALS. OUR SOLUTIONS.] [AIM INVESTMENTS LOGO APPEARS HERE]
- --Registered Trademark-- --Registered Trademark--
<Table>
===================================================================================================================================
AIM GLOBAL VALUE FUND SEEKS TO PROVIDE LONG-TERM GROWTH OF CAPITAL.
o Unless otherwise stated, information presented is as of 6/30/04 and is based on total net assets.
===================================================================================================================================
ABOUT SHARE CLASSES ABOUT INDEXES USED IN THIS REPORT the indexes defined here, and
consequently, the performance of the
o Effective 9/30/03, Class B shares are o The unmanaged Lehman U.S. Aggregate fund may deviate significantly from the
not available as an investment for Bond Index, which represents the U.S. performance of the indexes.
retirement plans maintained pursuant to investment-grade fixed-rate bond market
Section 401 of the Internal Revenue (including government and corporate o A direct investment cannot be made in
Code, including 401(k) plans, money securities, mortgage pass-through an index. Unless otherwise indicated,
purchase pension plans and profit securities and asset-backed securities), index results include reinvested
sharing plans. Plans that have existing is compiled by Lehman Brothers, a global dividends, and they do not reflect sales
accounts invested in Class B shares will investment bank. charges. Performance of an index of
continue to be allowed to make funds reflects fund expenses;
additional purchases. o The unmanaged MSCI World Index tracks performance of a market index does not.
the performance of approximately 50
PRINCIPAL RISKS OF INVESTING IN THE FUND countries covered by Morgan Stanley OTHER INFORMATION
Capital International that are
o Investing in emerging markets involves considered developed markets. o The returns shown in the Management's
greater risk and potential reward than Discussion of Fund Performance are based
investing in more established markets. o The unmanaged MSCI World Value Free on net asset values calculated for
Index is a subset of the MSCI World shareholder transactions. Generally
o International investing presents Index, a group of global securities accepted accounting principles require
certain risks not associated with tracked by Morgan Stanley Capital adjustments to be made to the net assets
investing solely in the United States. International; the Value subset measures of the fund at period end for financial
These include risks relating to performance of companies with lower reporting purposes, and as such, the net
fluctuations in the value of the U.S. price-to-earnings ratios and lower asset values for shareholder
dollar relative to the value of other forecasted growth values. transactions and the returns based on
currencies, the custody arrangements those net asset values may differ from
made for the fund's foreign holdings, o The unmanaged Lipper Global Fund Index the net asset values and returns
differences in accounting, political represents an average of the performance reported in the Financial Highlights.
risks and the lesser degree of public of global funds tracked by Lipper, Inc.,
information required to be provided by an independent mutual fund performance o Bloomberg, Inc. is a well-known
non-U.S. companies. monitor. independent financial research and
reporting firm.
o Investing in small and mid-sized o The unmanaged Standard & Poor's Index
companies involves risks not associated of 500 Stocks (the S&P 500 -registered o Industry classifications used in this
with investing in more established trademark-) is an index of common stocks report are generally according to the
companies. Also, small companies have frequently used as a general measure of Global Industry Classification Standard,
business risk, significant stock price U.S. stock market performance. which was developed by and is the
fluctuations, and illiquidity. exclusive property and a service mark of
o The S&P/TSX 60 Index is a large cap Morgan Stanley Capital International
o The fund may participate in the index which tracks the performance of 60 Inc. and Standard & Poor's.
initial public offering (IPO) market in of Canada's largest, publicly listed
some market cycles. Because of the corporations. It is market cap weighted, A description of the policies and
fund's small asset base, any investment with weights adjusted for available procedures that the fund uses to
the fund may make in IPOs may share float, and is balanced across 10 determine how to vote proxies relating
significantly affect the fund's total economic sectors. to portfolio securities is available
return. As the fund's assets grow, the without charge, upon request, by calling
impact of IPO investments will decline, o The fund is not managed to track the 800-959-4246, or on the AIM Web site,
which may reduce the effect of IPO performance of any particular index, AIMinvestments.com.
investments on the fund's total return. including
</Table>
=============================================================================
THIS REPORT MUST BE ACCOMPANIED OR PRECEDED BY A CURRENTLY EFFECTIVE FUND
PROSPECTUS, WHICH CONTAINS MORE COMPLETE INFORMATION, INCLUDING SALES CHARGES
AND EXPENSES. READ IT CAREFULLY BEFORE YOU INVEST.
=============================================================================
=====================================================
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
=====================================================
AIMinvestments.com
TO OUR SHAREHOLDERS
DEAR FELLOW SHAREHOLDER IN THE AIM FAMILY OF
FUNDS--Registered Trademark--:
[PHOTO OF The six months covered by this report could be characterized
ROBERT H. as a trendless market. Positive news about employment and a
GRAHAM] strengthening economy were offset by concerns about higher
interest rates, continued violence in Iraq and high oil
ROBERT H. GRAHAM prices. The result: muted performance in both U.S. equity
and fixed-income markets.
The same macroeconomic factors were at work overseas as
well, causing developed international markets to generally
perform in line with that of the United States. In fact, the
MSCI World Index tracked the performance of the S&P 500
Index with six-month returns of 3.52% and 3.44%,
respectively.
The anticipation of higher interest rates hampered bond performance, with
most areas of the fixed- income market turning in flat returns for the six-month
period, as evidenced by the 0.15% return of the Lehman U.S. Aggregate Bond
Index. Considered a good proxy for the U.S. bond market, this index includes
fixed-rate mortgage-backed securities, U.S. agency investments, U.S. Treasuries
of various maturities and U.S. corporate bonds.
In an unremarkable period like the one covered by this report, we encourage
shareholders to look past short-term market performance and remain focused on
their long-term investment goals. Whether markets rise, fall or go sideways, the
only certainty is their unpredictability, especially in the short run.
Historically, markets have risen over the long term, with the S&P 500 Index
returning 13.55% over the past 25 years and the Lehman U.S. Aggregate Bond Index
returning 9.20%.* While past performance cannot guarantee future results, we
believe that staying invested for the long term offers the best opportunity for
capital growth.
For information on how your fund performed and was managed during the six
months covered by this report, please read your fund managers' discussion on the
following pages. We hope you find it informative.
There continues to be increased regulatory focus on mutual funds and other
investment products. For the latest information about ongoing regulatory
matters, please visit our Web site, AIMinvestments.com. We continue to post
updates as information becomes available. We also encourage you to visit our Web
site for investor education and planning information as well as regular
performance updates on our funds.
As always, AIM is committed to building solutions for your investment goals,
and we thank you for your continued participation in AIM Investments
- --Servicemark--. If you have any questions, please contact our Client Service
representatives at 800-959-4246.
Sincerely,
/s/ ROBERT H. GRAHAM
- -------------------------
Robert H. Graham
Chairman and President
July 20, 2004
*Average annual total returns, June 30, 1979, to June 30, 2004. Source: Lipper,
Inc.
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
<Table>
FUND SEEKS COMPANIES TRADING BELOW INTRINSIC strong in the United Kingdom, supported
VALUE by renewed strength in the housing
market and resilient consumer spending.
For the six months ended June 30, 2004, interest rate hikes. Market and economic
AIM Global Value Fund's Class A shares conditions, however, varied Monetary policy was a factor during
returned 1.53% at net asset value. (Had significantly by region. the reporting period as many central
the effects of front-end sales charges banks raised interest rates. The U.S.
been included, the performance would be In the United States, gross domestic Federal Reserve hiked the federal funds
lower.) The performance of the other product expanded at an annualized rate target rate by 25 basis points (0.25%).
share classes and benchmark indexes is of 4.5% in the first quarter of 2004 and A monetary tightening cycle also was
shown in the table on page 3. For the 3.0% in the second quarter. Corporate underway in the United Kingdom, where
same period, the MSCI World Index, the profits continued to show strength. central banks raised interest rates
MSCI World Value Free Index and the According to Bloomberg, more than 85% of several times during the reporting
Lipper Global Fund Index returned 3.52%, S&P 500 firms reported first-quarter period. Monetary policy remained
4.45% and 3.20%, respectively. 2004 earnings that met or exceeded accommodative in the euro zone, where
expectations. short-term rates were unchanged at 2%.
We believe the fund underperformed
these indexes because of the percentage In Canada, gold companies benefited YOUR FUND
of cash held in its portfolio during the from the ascent of gold prices, and
period. We had sold several stocks that increased oil prices provided a boon to Although the fund produced positive
we believed had reached their price the energy sector. Canadian stocks fared returns for the six-month period, we do
potential, and we did not reinvest the somewhat better than U.S. stocks. For not manage this fund with the goal of
proceeds, as there were few stocks that example, Standard & Poor's large-cap outperforming the market in every
met our criteria during the period. Canadian index (S&P/TS 60) returned environment. Our goal is to minimize
4.06% compared to the S&P 500 Index's risk so that we can profit from periods
MARKET CONDITIONS 3.44%. Because the Canadian market's of market advances while avoiding as
heaviest weightings are in financials much loss as possible during market
World equity markets, represented by the and natural resources, it is more declines.
MSCI World Index, rallied through much interest-rate sensitive than the U.S.
of the first quarter of 2004. This rally market, an advantage when interest rates We seek out companies that trade
enabled many global stocks to produce are rising. below what we believe is their intrinsic
positive returns for the six-month value. We look for companies with clear
reporting period. During the second In the euro zone--the 12 countries potential to achieve their value, such
quarter, most markets gave back some of that use the euro as currency--economic as companies that are restructuring,
their earlier gains because of China's conditions also improved, albeit at a undergoing a management change, or
efforts to slow its economy, high oil slower pace than in many regions. In taking part in the restructuring of an
prices, and looming contrast to the euro zone's sluggish industry. We also focus on companies
recovery, economic activity remained with strong balance sheets, strong cash
positions, and minimal debt.
The fund is able to invest in stocks
of all market capitalizations, but we
focus on
</Table>
<Table>
====================================================================================================================================
TOP 10 EQUITY HOLDINGS* TOP 10 INDUSTRIES* TOP 10 COUNTRIES*
1. Microsoft Corp. 2.5% 1. U.S. Treasury Notes 8.8% U.S.A 38.2%
2. E-L Financial Corp. Ltd. (Canada) 2.0 2. Packaged Foods & Meats 5.4 Canada 24.7
3. Suncor Energy, Inc. (Canada) 2.0 3. Oil & Gas Exploration & Production 4.4 United Kingdom 7.0
4. BMTC Group, Inc.-Class A (Canada) 2.0 4. Integrated Telecommunication Netherlands 1.4
Services 4.2
5. Kraft Foods Inc.-Class A 1.9 Finland 1.2
5. Pharmaceuticals 4.1
6. Pan-Ocean Energy Corp. Ltd. (Canada) 1.9 Germany 1.1
6. Gold 4.1
7. CenturyTel, Inc. 1.8 Switzerland 0.9
7. Thrifts & Mortgage Finance 3.5
8. Newmont Mining Corp. 1.8 Japan 0.8
8. Steel 3.1
9. Barrick Gold Corp. (Canada) 1.8 Taiwan 0.6
9. Integrated Oil & Gas 2.7
10. Algoma Steel Inc. (Canada) 1.8 Australia 0.5
10. Diversified Banks 2.6
*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>
mid- to large-cap stocks. At the close and casualty, life and health insurance ROGER J. MORTIMER
of the period, stocks in the fund's policies. For the three months ended Mr. Mortimer is lead
portfolio were approximately 40% large March 31, 2004, the company reported [MORTIMER portfolio manager of
cap, 23% mid cap and 36% small cap, total net income of $24.0 million PHOTO] AIM Global Value
according to the capitalization sizes compared to $16.9 million for the same Fund. He began his
defined by Lipper, Inc. period last year. We believe its shares investment career in
were still undervalued at the end of the 1986. In 1997, he joined GT Global as a
The fund is also able to invest period. portfolio manager overseeing the
anywhere on the globe, but we focus on management of GT Global Canada Value
developed countries. At the close of the Newmont Mining, the world's largest Class. In 1998, The GT Global Funds were
period, the fund's foreign holdings were gold producer, and Canadian copper acquired by AIM. Mr. Mortimer holds a
invested only in developed markets. mining company Amerigo Resources were B.A. in economics and an M.B.A. from the
among stocks that detracted from fund University of Western Ontario.
We select portfolio holdings on a performance. Newmont's share price fell
stock-by-stock basis; we do not make after it lowered its earnings forecast
sector bets. However, our stock-by-stock because of increased energy costs. Our
selection process did lead us to have confidence in this company led us to
holdings in 10 sectors. The sector that take advantage of the price decline and GLEN HILTON
contributed most to fund performance was purchase additional shares. Mr. Hilton began his
information technology. The fund's [HILTON career in investments
stocks in the consumer discretionary and Amerigo also reported higher PHOTO] in 1995. He joined
materials sectors were the greatest production costs, which it attributed to AIM in 2002. Mr.
detractors to fund performance. an expansion project and maintenance Hilton holds a B.A.
costs at its mine located in Chile. The in economics from
Rayonier Inc. and E-L Financial were fund no longer owns shares in this Loyola University.
among stocks that contributed to fund company.
performance for the period. Rayonier, an
American company in the forest products IN CLOSING
industry, reported that first-quarter
2004 net income increased to $75.5 Throughout the period, we remained
million from $8.2 million in committed to our strategy of purchasing
first-quarter 2003. The increase was stocks of undervalued companies and
attributed to strong performance in its seeking to minimize portfolio risk. We
two core segments, as well as the tax believe that this strategy can enable us
benefits inherent in the real estate to achieve our objective of long-term
investment trust (REIT) structure to growth of capital.
which the company recently converted.
See important fund and index
E-L Financial is a Canadian financial disclosures inside front cover.
services company that underwrites
property
=====================================================================================
FUND VS. INDEXES
Total returns 12/31/03-6/30/04, excluding sales charges. Had sales charges
been included, returns would be lower.
CLASS A SHARES 1.53%
CLASS B SHARES 1.21
CLASS C SHARES 1.21
MSCI WORLD INDEX (BROAD MARKET INDEX) 3.52
MSCI WORLD VALUE FREE INDEX (STYLE-SPECIFIC INDEX) 4.45
LIPPER GLOBAL FUND INDEX (PEER GROUP INDEX) 3.20
Source: Lipper, Inc.
TOTAL NUMBER OF HOLDINGS* 78
TOTAL NET ASSETS $33.8 MILLION
===================================================================================== [RIGHT ARROW GRAPHIC]
FOR A PRESENTATION OF YOUR FUND'S
LONG-TERM PERFORMANCE RECORD, PLEASE
TURN THE PAGE.
</Table>
3
LONG-TERM PERFORMANCE
YOUR FUND'S LONG-TERM PERFORMANCE
================================================================================
Below you will find a presentation of your fund's long-term performance record
for periods ended 6/30/04, the close of the six-month period covered by this
report.
Please read the important disclosure accompanying these tables, which explains
how fund performance is calculated and the sales charges, if any, that apply to
the share class in which you are invested.
================================================================================
<Table>
====================================================================================================================================
AVERAGE ANNUAL TOTAL RETURNS The performance of the fund's share
As of 6/30/04, including applicable classes will differ due to different
sales charges sales charge structures and class
expenses. Had the advisor not waived
CLASS A SHARES fees and/or reimbursed expenses,
Inception (12/29/00) 4.03% performance would have been lower
1 Year 15.98
A redemption fee of 2% will be
CLASS B SHARES imposed on certain redemptions or
Inception (12/29/00) 4.27% exchanges out of the fund within 30 days
1 Year 16.81 of purchase. Exceptions to the
redemption fee are listed in the fund's
CLASS C SHARES prospectus.
Inception (12/29/00) 5.06%
1 Year 20.92
The performance data quoted represent
past performance and cannot guarantee
comparable future results; current
performance may be lower or higher.
Please visit AIMinvestments.com for the
most recent month-end performance.
Performance figures reflect reinvested
distributions, changes in net asset
value and the effect of the maximum
sales charge unless otherwise stated.
Investment return and principal value
will fluctuate so that you may have a
gain or loss when you sell shares.
Class A share performance reflects
the maximum 5.50% sales charge, and
Class B and Class C share performance
reflects the applicable contingent
deferred sales charge (CDSC) for the
period involved. The CDSC on Class B
shares declines from 5% beginning at the
time of purchase to 0% at the beginning [ARROW
of the seventh year. The CDSC on Class C BUTTON For More Information Visit
shares is 1% for the first year after IMAGE] AIMinvestments.com
purchase.
====================================================================================================================================
</Table>
4
FINANCIALS
SCHEDULE OF INVESTMENTS
June 30, 2004
(Unaudited)
<Table>
<Caption>
MARKET
SHARES VALUE
- -----------------------------------------------------------------------
FOREIGN STOCKS & OTHER EQUITY
INTERESTS-38.96%
AUSTRALIA-0.53%
News Corp. Ltd. (The) (Movies &
Entertainment) 11,000 $ 97,503
- -----------------------------------------------------------------------
Perseverance Corp. Ltd. (Gold)(a) 412,200 80,682
=======================================================================
178,185
=======================================================================
CANADA-24.67%
Algoma Steel Inc. (Steel)(a) 72,000 593,592
- -----------------------------------------------------------------------
Aliant Inc. (Integrated Telecommunication
Services) 12,100 250,026
- -----------------------------------------------------------------------
APF Energy Trust (Oil & Gas Exploration &
Production) 39,900 339,714
- -----------------------------------------------------------------------
Barrick Gold Corp. (Gold) 30,100 594,475
- -----------------------------------------------------------------------
BMTC Group, Inc.-Class A (Specialty Stores) 80,000 659,547
- -----------------------------------------------------------------------
Crystallex International Corp. (Gold)(a) 37,200 95,910
- -----------------------------------------------------------------------
E-L Financial Corp. Ltd. (Multi-Line
Insurance) 2,512 677,774
- -----------------------------------------------------------------------
Energy Savings Income Fund (Gas Utilities) 25,800 299,719
- -----------------------------------------------------------------------
Gold Reserve Inc. (Diversified Metals &
Mining)(a) 50,200 154,259
- -----------------------------------------------------------------------
IPSCO, Inc. (Steel) 20,000 450,890
- -----------------------------------------------------------------------
LionOre Mining International Ltd.
(Diversified Metals & Mining)(a) 100,000 452,689
- -----------------------------------------------------------------------
Metalex Ventures Ltd. (Precious Metals &
Mining)(a) 200,000 206,858
- -----------------------------------------------------------------------
Molson Inc.-Class A (Brewers) 22,600 575,565
- -----------------------------------------------------------------------
Pan-Ocean Energy Corp. Ltd. (Oil & Gas
Exploration & Production)(a) 75,000 635,188
- -----------------------------------------------------------------------
Rothmans, Inc. (Tobacco) 10,400 261,043
- -----------------------------------------------------------------------
Stornoway Diamond Corp. (Precious Metal &
Minerals)(a) 161,700 239,960
- -----------------------------------------------------------------------
Suncor Energy, Inc. (Integrated Oil & Gas) 26,200 667,837
- -----------------------------------------------------------------------
Teck Cominco Ltd.-Class B (Diversified Metals
& Mining) 6,400 115,121
- -----------------------------------------------------------------------
TimberWest Forest Corp.-Units (Forest
Products)(b) 44,200 444,567
- -----------------------------------------------------------------------
Westaim Corp. (The) (Industrial
Conglomerates)(a) 97,400 277,399
- -----------------------------------------------------------------------
Yellow Pages Income Fund (Publishing) 40,000 339,966
=======================================================================
8,332,099
=======================================================================
FINLAND-1.24%
Nokia Oyj-ADR (Communications Equipment) 17,800 258,812
- -----------------------------------------------------------------------
UPM-Kymmene Oyj (Paper Products) 8,400 160,213
=======================================================================
419,025
=======================================================================
GERMANY-1.07%
Bayerische Hypo-und Vereinsbank A.G.
(Diversified Banks)(a) 6,020 107,331
- -----------------------------------------------------------------------
Bayerische Motoren Werke A.G. (Automobile
Manufacturers) 5,700 252,813
=======================================================================
360,144
=======================================================================
JAPAN-0.82%
Honda Motor Co., Ltd. (Automobile
Manufacturers) 4,100 198,135
- -----------------------------------------------------------------------
</Table>
<Table>
MARKET
SHARES VALUE
- -----------------------------------------------------------------------
<Caption>
JAPAN-(CONTINUED)
Nippon Unipac Holding (Paper Products) 15 $ 78,690
=======================================================================
276,825
=======================================================================
MEXICO-0.48%
Grupo Aeroportuario del Sureste S.A. de
C.V.-ADR (Airport Services) 8,700 160,950
=======================================================================
NETHERLANDS-1.36%
Akzo Nobel N.V. (Diversified Chemicals) 5,900 217,506
- -----------------------------------------------------------------------
TPG N.V. (Air Freight & Logistics) 10,500 240,473
=======================================================================
457,979
=======================================================================
SWEDEN-0.24%
Skandia Forsakrings A.B. (Life & Health
Insurance) 20,000 83,041
=======================================================================
SWITZERLAND-0.91%
Nestle S.A. (Packaged Foods & Meats) 1,150 307,366
=======================================================================
TAIWAN-0.64%
President Chain Store Corp. (Food Retail) 115,000 216,210
=======================================================================
UNITED KINGDOM-7.00%
Diageo PLC (Distillers & Vintners) 28,600 386,879
- -----------------------------------------------------------------------
GlaxoSmithKline PLC-ADR (Pharmaceuticals) 12,800 530,688
- -----------------------------------------------------------------------
HSBC Holdings PLC (Diversified Banks) 15,000 223,786
- -----------------------------------------------------------------------
HSBC Holdings PLC (Diversified Banks) 8,800 132,569
- -----------------------------------------------------------------------
Man Group PLC (Asset Management & Custody
Banks) 7,260 188,622
- -----------------------------------------------------------------------
Severn Trent PLC (Water Utilities) 27,110 392,619
- -----------------------------------------------------------------------
Standard Chartered PLC (Diversified Banks) 13,000 212,397
- -----------------------------------------------------------------------
Unilever PLC (Packaged Foods & Meats) 30,000 295,289
=======================================================================
2,362,849
=======================================================================
Total Foreign Stocks & Other Equity
Interests (Cost $11,968,550) 13,154,673
=======================================================================
DOMESTIC COMMON STOCKS-29.34%
ADVERTISING-0.22%
Omnicom Group Inc. 1,000 75,890
=======================================================================
APPAREL, ACCESSORIES & LUXURY GOODS-1.34%
Jones Apparel Group, Inc. 11,500 454,020
=======================================================================
ASSET MANAGEMENT & CUSTODY BANKS-0.95%
United Corporations Ltd. 10,000 319,280
=======================================================================
COMPUTER STORAGE & PERIPHERALS-0.64%
ActivCard Corp.(a) 29,700 215,622
=======================================================================
CONSTRUCTION MATERIALS-0.53%
Lafarge North America Inc. 4,100 177,530
=======================================================================
</Table>
F-1
<Table>
<Caption>
MARKET
SHARES VALUE
- -----------------------------------------------------------------------
DIVERSIFIED BANKS-0.59%
Wells Fargo & Co. 3,500 $ 200,305
=======================================================================
DIVERSIFIED METALS & MINING-0.38%
Freeport-McMoRan Copper & Gold, Inc.-Class B 1,500 49,725
- -----------------------------------------------------------------------
Phelps Dodge Corp.(a) 1,000 77,510
=======================================================================
127,235
=======================================================================
GOLD-1.78%
Newmont Mining Corp. 15,500 600,780
=======================================================================
INTEGRATED OIL & GAS-0.70%
Murphy Oil Corp. 3,200 235,840
=======================================================================
INTEGRATED TELECOMMUNICATION SERVICES-3.46%
ALLTEL Corp. 11,200 566,944
- -----------------------------------------------------------------------
CenturyTel, Inc. 20,000 600,800
=======================================================================
1,167,744
=======================================================================
INVESTMENT BANKING & BROKERAGE-0.61%
Merrill Lynch & Co., Inc. 3,800 205,124
=======================================================================
MOVIES & ENTERTAINMENT-0.87%
Walt Disney Co. (The) 11,500 293,135
=======================================================================
OIL & GAS EXPLORATION & PRODUCTION-1.48%
Devon Energy Corp. 7,600 501,600
=======================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES-0.94%
Citigroup Inc. 6,800 316,200
=======================================================================
PACKAGED FOODS & MEATS-3.61%
Kraft Foods Inc.-Class A 20,600 652,608
- -----------------------------------------------------------------------
Lancaster Colony Corp. 13,600 566,304
=======================================================================
1,218,912
=======================================================================
PHARMACEUTICALS-2.57%
Bristol-Myers Squibb Co. 4,400 107,800
- -----------------------------------------------------------------------
Merck & Co. Inc. 6,400 304,000
- -----------------------------------------------------------------------
Schering-Plough Corp. 24,700 456,456
=======================================================================
868,256
=======================================================================
RAILROADS-1.18%
Union Pacific Corp. 6,700 $ 398,315
=======================================================================
</Table>
<Table>
MARKET
SHARES VALUE
- -----------------------------------------------------------------------
<Caption>
REAL ESTATE-0.36%
Rayonier, Inc. 2,760 122,682
=======================================================================
REGIONAL BANKS-1.11%
Commerce Bancshares, Inc. 4,300 197,564
- -----------------------------------------------------------------------
North Fork Bancorp., Inc. 4,700 178,835
=======================================================================
376,399
=======================================================================
SYSTEMS SOFTWARE-2.50%
Microsoft Corp. 29,600 845,376
=======================================================================
THRIFTS & MORTGAGE FINANCE-3.52%
Brookline Bancorp, Inc. 13,400 196,578
- -----------------------------------------------------------------------
First Financial Holdings, Inc. 6,800 195,908
- -----------------------------------------------------------------------
Washington Mutual, Inc. 14,800 571,872
- -----------------------------------------------------------------------
WSFS Financial Corp. 4,600 223,882
=======================================================================
1,188,240
=======================================================================
Total Domestic Common Stocks (Cost
$9,524,375) 9,908,485
=======================================================================
<Caption>
PRINCIPAL
AMOUNT
U.S. TREASURY NOTES-8.83%
1.63%, 04/30/05 to 09/30/05 $1,000,000 995,117
- -----------------------------------------------------------------------
1.25%, 05/31/05 500,000 496,602
- -----------------------------------------------------------------------
1.13%, 06/30/05 500,000 495,469
- -----------------------------------------------------------------------
1.50%, 07/31/05 500,000 496,719
- -----------------------------------------------------------------------
2.00%, 08/31/05 500,000 498,906
=======================================================================
Total U.S. Treasury Notes (Cost
$3,008,831) 2,982,813
=======================================================================
</Table>
<Table>
<Caption>
<Caption>
SHARES
MONEY MARKET FUNDS-20.01%
Liquid Assets Portfolio-Institutional
Class(c) 3,377,409 3,377,409
- -----------------------------------------------------------------------
STIC Prime Portfolio-Institutional Class(c) 3,377,409 3,377,409
=======================================================================
Total Money Market Funds (Cost
$6,754,818) 6,754,818
=======================================================================
TOTAL INVESTMENTS-97.14% (Cost $31,256,574) 32,800,789
=======================================================================
OTHER ASSETS LESS LIABILITIES-2.86% 966,651
=======================================================================
NET ASSETS-100.00% $33,767,440
_______________________________________________________________________
=======================================================================
</Table>
Investment Abbreviations:
<Table>
ADR - American Depositary Receipt
</Table>
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) Each unit represents one common share, one hundred preferred shares and one
subordinate note receipt.
(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-2
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2004
(Unaudited)
<Table>
ASSETS:
Investments, at market value (cost
$24,501,756) $26,045,971
- -----------------------------------------------------------
Investments in affiliated money market funds
(cost $6,754,818) 6,754,818
===========================================================
Total investments (cost $31,256,574) 32,800,789
===========================================================
Foreign currencies, at value (cost $590,489) 604,385
- -----------------------------------------------------------
Receivables for:
Investments sold 569,899
- -----------------------------------------------------------
Fund shares sold 117,083
- -----------------------------------------------------------
Dividends and interest 102,544
- -----------------------------------------------------------
Investment for deferred compensation and
retirement plans 13,589
- -----------------------------------------------------------
Other assets 14,851
===========================================================
Total assets 34,223,140
___________________________________________________________
===========================================================
LIABILITIES:
Payables for:
Investments purchased 252,483
- -----------------------------------------------------------
Fund shares reacquired 3,238
- -----------------------------------------------------------
Foreign currency contracts outstanding 110,971
- -----------------------------------------------------------
Deferred compensation and retirement plans 13,589
- -----------------------------------------------------------
Accrued distribution fees 18,424
- -----------------------------------------------------------
Accrued transfer agent fees 11,568
- -----------------------------------------------------------
Accrued operating expenses 45,427
===========================================================
Total liabilities 455,700
===========================================================
Net assets applicable to shares outstanding $33,767,440
___________________________________________________________
===========================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $30,833,371
- -----------------------------------------------------------
Undistributed net investment income (loss) (166,803)
- -----------------------------------------------------------
Undistributed net realized gain from
investment securities and foreign currencies 1,650,260
- -----------------------------------------------------------
Unrealized appreciation of investment
securities, foreign currencies and foreign
currency contracts 1,450,612
===========================================================
$33,767,440
___________________________________________________________
===========================================================
NET ASSETS:
Class A $16,021,881
___________________________________________________________
===========================================================
Class B $12,006,793
___________________________________________________________
===========================================================
Class C $ 5,738,766
___________________________________________________________
===========================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER SHARE,
UNLIMITED NUMBER OF SHARES AUTHORIZED:
Class A 1,344,210
___________________________________________________________
===========================================================
Class B 1,025,321
___________________________________________________________
===========================================================
Class C 489,724
___________________________________________________________
===========================================================
Class A:
Net asset value per share $ 11.92
- -----------------------------------------------------------
Offering price per share:
(Net asset value of $11.92 divided
by 94.50%) $ 12.61
___________________________________________________________
===========================================================
Class B:
Net asset value and offering price per share $ 11.71
___________________________________________________________
===========================================================
Class C:
Net asset value and offering price per share $ 11.72
___________________________________________________________
===========================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
F-3
STATEMENT OF OPERATIONS
For the six months ended June 30, 2004
(Unaudited)
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $18,438) $ 208,773
- -------------------------------------------------------------------------
Dividends from affiliated money market funds 20,897
- -------------------------------------------------------------------------
Interest 12,155
=========================================================================
Total investment income 241,825
=========================================================================
EXPENSES:
Advisory fees 110,892
- -------------------------------------------------------------------------
Administrative services fees 24,863
- -------------------------------------------------------------------------
Custodian fees 14,067
- -------------------------------------------------------------------------
Distribution fees:
Class A 21,648
- -------------------------------------------------------------------------
Class B 47,269
- -------------------------------------------------------------------------
Class C 21,340
- -------------------------------------------------------------------------
Transfer agent fees 46,628
- -------------------------------------------------------------------------
Professional fees 47,166
- -------------------------------------------------------------------------
Trustees' fees 6,308
- -------------------------------------------------------------------------
Other 41,897
=========================================================================
Total expenses 382,078
=========================================================================
Less: Fees waived, expenses reimbursed and expense offset
arrangement (76,054)
=========================================================================
Net expenses 306,024
=========================================================================
Net investment income (loss) (64,199)
=========================================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES, FOREIGN CURRENCIES AND FOREIGN CURRENCY
CONTRACTS:
Net realized gain (loss) from:
Investment securities 1,291,669
- -------------------------------------------------------------------------
Foreign currencies (65,511)
=========================================================================
1,226,158
=========================================================================
Change in net unrealized appreciation (depreciation) of:
Investment securities (905,360)
- -------------------------------------------------------------------------
Foreign currencies 15,301
- -------------------------------------------------------------------------
Foreign currency contracts (110,971)
=========================================================================
(1,001,030)
=========================================================================
Net gain from investment securities, foreign currencies and
foreign currency contracts 225,128
=========================================================================
Net increase in net assets resulting from operations $ 160,929
_________________________________________________________________________
=========================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
F-4
STATEMENT OF CHANGES IN NET ASSETS
For the six months ended June 30, 2004 and the year ended December 31, 2003
(Unaudited)
<Table>
<Caption>
JUNE 30, DECEMBER 31,
2004 2003
- -----------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (64,199) $ (26,446)
- -----------------------------------------------------------------------------------------
Net realized gain from investment securities, foreign
currencies, foreign currency contracts and option
contracts 1,226,158 3,340,092
- -----------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities foreign currencies and foreign
currency contracts (1,001,030) 760,584
=========================================================================================
Net increase in net assets resulting from operations 160,929 4,074,230
=========================================================================================
Distributions to shareholders from net investment income:
Class A -- (66,253)
- -----------------------------------------------------------------------------------------
Class B -- (20,575)
- -----------------------------------------------------------------------------------------
Class C -- (8,358)
=========================================================================================
Total distributions from net investment income -- (95,186)
=========================================================================================
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)
=========================================================================================
Share transactions-net:
Class A 6,643,576 1,096,605
- -----------------------------------------------------------------------------------------
Class B 4,893,055 1,052,199
- -----------------------------------------------------------------------------------------
Class C 2,871,257 481,030
=========================================================================================
Net increase in net assets resulting from share
transactions 14,407,888 2,629,834
=========================================================================================
Net increase in net assets 14,568,817 6,403,837
=========================================================================================
NET ASSETS:
Beginning of period 19,198,623 12,794,786
=========================================================================================
End of period (including undistributed net investment
income (loss) of $(166,803) and $(102,604) for 2004 and
2003, respectively) $33,767,440 $19,198,623
_________________________________________________________________________________________
=========================================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
F-5
NOTES TO FINANCIAL STATEMENTS
June 30, 2004
(Unaudited)
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Global 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 to achieve long-term growth of capital.
Companies are listed in the Schedule of Investments based on the country in
which they are organized.
Under the Trust's organizational documents, the Fund's officers, trustees,
employees and agents are indemnified against certain liabilities that may arise
out of performance of their duties to the Fund. Additionally, in the normal
course of business, the Fund enters into contracts that contain a variety of
indemnification clauses. The Fund's maximum exposure under these arrangements is
unknown as this would involve future claims that may be made against the Fund
that have not yet occurred. However, the Fund has not had prior claims or losses
pursuant to these contracts.
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 specific 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"). Futures
contracts are valued at the final settlement price set by an exchange on
which they are principally traded. Listed options are valued at the mean
between the last bid and the ask prices from the exchange on which they are
principally traded. Options not listed on an exchange are valued by an
independent source at the mean between the last bid and ask prices.
Investments in open-end registered investment companies and closed-end
registered investment companies that do not trade on an exchange are valued
at the end of day net asset value per share. Investments in closed-end
registered investment companies that trade on an exchange are valued at the
last sales price as of the close of the customary trading session on the
exchange where the security is principally traded.
Foreign securities (including foreign exchange contracts) are converted
into U.S. dollar amounts using the applicable exchange rates as of the
close of the NYSE. Generally, trading in foreign securities is
substantially completed each day at various times prior to the close of the
NYSE. The values of such securities used in computing the net asset value
of the Fund's shares are determined as of the close of the respective
markets. Events affecting the values of such foreign securities may occur
between the times at which the particular foreign market closes and the
close of the customary trading session of the NYSE which would not
ordinarily be reflected in the computation of the Fund's net asset value.
If 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.
F-6
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions
are accounted for on a trade date basis. Realized gains or losses on sales
are computed on the basis of specific identification of the securities
sold. Interest income is recorded on the accrual basis from settlement
date. Dividend income is recorded on the ex-dividend date.
Brokerage commissions and mark ups are considered transaction costs and
are recorded as an increase to the cost basis of securities purchased
and/or a reduction of proceeds on a sale of securities. Such transaction
costs are included in the determination of realized and unrealized gain
(loss) from investment securities reported in the Statement of Operations
and the Statement of Changes in Net Assets and the realized and unrealized
net gains (losses) on securities per share in the Financial Highlights.
Transaction costs are included in the calculation of the Fund's net asset
value and, accordingly, they reduce the Fund's total returns. These
transaction costs are not considered operating expenses and are not
reflected in net investment income reported in the Statement of Operations
and Statement of Changes in Net Assets, or the net investment income per
share and ratios of expenses and net investment income reported in the
Financial Highlights, nor are they limited by any expense limitation
arrangements between the Fund and the advisor.
The Fund 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 distributed to shareholders. Therefore, no provision for
federal income taxes is recorded in the financial statements.
E. REPURCHASE AGREEMENTS -- The Fund may enter into repurchase agreements.
Collateral on repurchase agreements, including the Fund's pro-rata interest
in joint repurchase agreements, is taken into possession by the Fund upon
entering into the repurchase agreement. Eligible securities for collateral
are U.S. Government Securities, U.S. Government Agency Securities and/or
Investment Grade Debt Securities. Collateral consisting of U.S. Government
Securities and U.S. Government Agency Securities is marked to market daily
to ensure its market value is at least 102% of the sales price of the
repurchase agreement. Collateral consisting of Investment Grade Debt
Securities is marked to market daily to ensure its market value is at least
105% of the sales price of the repurchase agreement. The investments in
some repurchase agreements, pursuant to an exemptive order from the SEC,
are through participation with other mutual funds, private accounts and
certain non-registered investment companies managed by the investment
advisor or its affiliates ("Joint repurchase agreements"). 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.
F. REDEMPTION FEES -- The Fund has 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, including exchanges of shares held less than 30 days. The
redemption fee is accounted for as an addition to shares of beneficial
interest by the Fund and is allocated among the share classes based on the
relative net assets of each class.
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 (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.
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. 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-7
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. The Fund's advisor has contractually
agreed to waive advisory fees and/or reimburse expenses of Class A, Class B and
Class C shares to the extent necessary to limit Total Annual Fund Operating
Expenses (excluding certain items discussed below) for the Fund's Class A shares
to 2.00%. In determining the advisor's obligation to waive advisory fees and/or
reimburse expenses, the following expenses are not taken into account, and could
cause the Total Annual Fund Operating Expenses to exceed the caps stated above:
(i) interest; (ii) taxes; (iii) dividend expense on short sales; (iv)
extraordinary items (these are expenses that are not anticipated to arise from
the Fund's day-to-day operations), or items designated as such by the Fund's
board of trustees; (v) expenses related to a merger or reorganization, as
approved by the Fund's board of trustees; and (vi) expenses that the Fund has
incurred but did not actually pay because of an expense offset arrangement.
Currently, the only expense offset arrangements from which the Fund benefits are
in the form of credits that the Fund receives from banks where the Fund or its
transfer agent has deposit accounts in which it holds uninvested cash. Those
credits are used to pay certain expenses incurred by the Fund. To the extent
that the annualized expense ratio does not exceed the expense limitation, AIM
will retain its ability to be reimbursed for such fee waivers or reimbursements
prior to the end of each fiscal year. 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 six months ended June 30, 2004, AIM
waived fees of $57,932.
For the period ended June 30, 2004, at the direction of the trustees of the
Trust, AMVESCAP PLC ("AMVESCAP") has assumed $17,982 of expenses incurred by the
Fund in connection with matters related to both pending regulatory complaints
against INVESCO Funds Group, Inc. ("IFG") alleging market timing and the ongoing
market timing investigations with respect to IFG and AIM, including legal,
audit, shareholder servicing, communication and trustee expenses.
The Fund, pursuant to a master administrative services agreement with AIM,
has agreed to pay AIM for certain administrative costs incurred in providing
accounting services to the Fund. For the six months ended June 30, 2004, AIM was
paid $24,863 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 six months ended June 30, 2004, AISI retained $27,394 for
such services.
The Trust has entered into master distribution agreements with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Class A, Class B and Class C shares of the Fund. The Trust has adopted plans
pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund's Class A,
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 six months
ended June 30, 2004, the Class A, Class B and Class C shares paid $21,648,
$47,269 and $21,340, 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 six months
ended June 30, 2004, AIM Distributors advised the Fund that it retained $14,784
in front-end sales commissions from the sale of Class A shares and $0, $245 and
$295 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. The Fund
and the money market funds below have the same investment advisor and therefore,
are considered to be affiliated. 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 June 30, 2004.
F-8
NOTE 3--INVESTMENTS IN AFFILIATES (CONTINUED)
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 12/31/03 AT COST FROM SALES (DEPRECIATION) 06/30/04 INCOME GAIN (LOSS)
- -------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-Institutional
Class $178,736 $ 7,206,896 $(4,008,223) $ -- $3,377,409 $10,718 $ --
- -------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-Institutional
Class 178,736 7,206,896 (4,008,223) -- 3,377,409 10,179 --
=========================================================================================================================
Total $357,472 $14,413,792 $(8,016,446) $ -- $6,754,818 $20,897 $ --
_________________________________________________________________________________________________________________________
=========================================================================================================================
</Table>
NOTE 4--EXPENSE OFFSET ARRANGEMENT
The expense offset arrangement is comprised of transfer agency credits which
result from balances in Demand Deposit Accounts (DDA) used by the transfer
agency for clearing shareholder transactions. For the six months ended June 30,
2004, the Fund received credits in transfer agency fees of $140 under an expense
offset arrangement, which resulted in a reduction of the Fund's total expenses
of $140.
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. Those Trustees who defer compensation have
the option to select various AIM Funds 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.
Obligations under the deferred compensation and retirement plans represent
unsecured claims against the general assets of the Fund.
During the six months ended June 30, 2004, the Fund paid legal fees of
$1,145 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
Pursuant to an exemptive order from the SEC, 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 is 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 six months ended June 30, 2004, the Fund did not borrow or lend
under the interfund lending facility or borrow under the uncommitted unsecured
revolving credit facility.
Additionally, the Fund is permitted to temporarily carry a negative or
overdrawn balance in its account with SSB, 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--FOREIGN CURRENCY CONTRACTS
<Table>
<Caption>
OPEN FOREIGN CURRENCY CONTRACTS AT PERIOD END
- ---------------------------------------------------------------------------------------------------------------------------------
CONTRACT TO UNREALIZED
----------------------- APPRECIATION
SETTLEMENT DATE CURRENCY DELIVER RECEIVE VALUE (DEPRECIATION)
- ---------------------------------------------------------------------------------------------------------------------------------
07/21/04 CAD 7,350,000 $5,395,330 $5,506,301 $(110,971)
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
F-9
NOTE 8--TAX INFORMATION
The amount and character of income and gains to be distributed are determined in
accordance with income tax regulations, which may differ from generally accepted
accounting principles. Reclassifications are made to the Fund's capital accounts
to reflect income and gains available for distribution (or available capital
loss carryforward) under income tax regulations. The tax character of
distributions paid during the year and the tax components of net assets will be
reported at the Fund's fiscal year-end.
Capital loss carryforward is calculated and reported as of a specific date.
Results of transactions and other activity after that date may affect the amount
of capital loss carryforward actually available for the Fund to utilize. The
ability to use capital loss carryforward may be limited under the Internal
Revenue Code and related regulations.
The Fund did not have a capital loss carryforward for tax purposes as of
December 31, 2003.
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 six months
ended June 30, 2004 was $27,427,439 and $19,966,488, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- ------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $1,788,277
- ------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (350,134)
==============================================================================
Net unrealized appreciation of investment securities $1,438,143
______________________________________________________________________________
==============================================================================
Cost of investments for tax purposes is $31,362,646.
</Table>
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
- ----------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2004 DECEMBER 31, 2003
------------------------ ----------------------
SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------------------------------------------------------
Sold:
Class A 661,574 $ 7,920,581 496,139 $5,108,376
- ----------------------------------------------------------------------------------------------------------------
Class B 530,036 6,257,712 345,035 3,466,255
- ----------------------------------------------------------------------------------------------------------------
Class C 287,504 3,392,239 139,530 1,450,866
================================================================================================================
Issued as reinvestment of dividends:
Class A -- -- 14,310 160,136
- ----------------------------------------------------------------------------------------------------------------
Class B -- -- 8,515 94,004
- ----------------------------------------------------------------------------------------------------------------
Class C -- -- 3,440 37,992
================================================================================================================
Automatic conversion of Class B shares to Class A shares:
Class A 19,549 233,726 14,898 155,309
- ----------------------------------------------------------------------------------------------------------------
Class B (19,879) (233,726) (15,126) (155,309)
================================================================================================================
Reacquired:*
Class A (126,840) (1,510,731) (434,061) (4,327,216)
- ----------------------------------------------------------------------------------------------------------------
Class B (96,282) (1,130,931) (244,204) (2,352,751)
- ----------------------------------------------------------------------------------------------------------------
Class C (44,267) (520,982) (103,345) (1,007,828)
================================================================================================================
1,211,395 $14,407,888 225,131 $2,629,834
________________________________________________________________________________________________________________
================================================================================================================
</Table>
* Amount is net of redemption fees of $560, $420 and $201 for Class A, Class B
and Class C Shares for 2004, respectively.
F-10
NOTE 11--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
CLASS A
-------------------------------------------------------------------------
DECEMBER 29, 2000
SIX MONTHS (DATE OPERATIONS
ENDED YEAR ENDED DECEMBER 31, COMMENCED) TO
JUNE 30, -------------------------------- DECEMBER 31,
2004 2003 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 11.74 $ 9.05 $ 9.85 $10.00 $10.00
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.01)(a) 0.01(a) (0.11)(a) (0.05)(a) --
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.19 2.89 (0.69) (0.10) --
=================================================================================================================================
Total from investment operations 0.18 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 $ 11.92 $11.74 $ 9.05 $ 9.85 $10.00
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) 1.53% 32.15% (8.08)% (1.49)% --
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $16,022 $9,270 $6,321 $8,725 $1,110
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or reimbursements 2.00%(c) 2.00% 2.00% 1.91% 1.80%(d)
- ---------------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or reimbursements 2.59%(c) 3.12% 2.75% 4.44% 76.90%(d)
=================================================================================================================================
Ratio of net investment income (loss) to average net
assets (0.14)%(c) 0.14% (1.16)% (0.52)% 3.91%(d)
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(e) 95% 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 and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. 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
$12,438,381.
(d) Annualized.
(e) Not annualized for periods less than one year.
F-11
NOTE 11--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS B
----------------------------------------------------------
JANUARY 2, 2001
SIX MONTHS YEAR ENDED (DATE SALES
ENDED DECEMBER 31, COMMENCED) TO
JUNE 30, ------------------- DECEMBER 31,
2004 2003 2002 2001
- ------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 11.57 $ 8.94 $ 9.79 $10.00
- ------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.05)(a) (0.05)(a) (0.17)(a) (0.11)(a)
- ------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.19 2.83 (0.68) (0.10)
========================================================================================================================
Total from investment operations 0.14 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 $ 11.71 $11.57 $ 8.94 $ 9.79
________________________________________________________________________________________________________________________
========================================================================================================================
Total return(b) 1.21% 31.26% (8.68)% (2.09)%
________________________________________________________________________________________________________________________
========================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $12,007 $7,075 $4,624 $3,613
________________________________________________________________________________________________________________________
========================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or reimbursements 2.65%(c) 2.65% 2.65% 2.57%(d)
- ------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or reimbursements 3.24%(c) 3.77% 3.40% 5.10%(d)
========================================================================================================================
Ratio of net investment income (loss) to average net assets (0.79)%(c) (0.51)% (1.81)% (1.18)%(d)
________________________________________________________________________________________________________________________
========================================================================================================================
Portfolio turnover rate(e) 95% 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 and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. 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
$9,505,674.
(d) Annualized.
(e) Not annualized for periods less than one year.
F-12
NOTE 11--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS C
-----------------------------------------------------------
JANUARY 11, 2001
SIX MONTHS YEAR ENDED (DATE SALES
ENDED DECEMBER 31, COMMENCED) TO
JUNE 30, ------------------- DECEMBER 31,
2004 2003 2002 2001
- -------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $11.58 $ 8.94 $ 9.79 $10.00
- -------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.05)(a) (0.05)(a) (0.17)(a) (0.11)(a)
- -------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.19 2.84 (0.68) (0.10)
=========================================================================================================================
Total from investment operations 0.14 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 $11.72 $11.58 $ 8.94 $ 9.79
_________________________________________________________________________________________________________________________
=========================================================================================================================
Total return(b) 1.21% 31.37% (8.68)% (2.09)%
_________________________________________________________________________________________________________________________
=========================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $5,739 $2,853 $1,850 $1,312
_________________________________________________________________________________________________________________________
=========================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or reimbursements 2.65%(c) 2.65% 2.65% 2.57%(d)
- -------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or reimbursements 3.24%(c) 3.77% 3.40% 5.10%(d)
=========================================================================================================================
Ratio of net investment income (loss) to average net assets (0.79)%(c) (0.51)% (1.81)% (1.18)%(d)
_________________________________________________________________________________________________________________________
=========================================================================================================================
Portfolio turnover rate(e) 95% 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 and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. 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
$4,291,480.
(d) Annualized.
(e) Not annualized for periods less than one year.
NOTE 12--LEGAL PROCEEDINGS
The mutual fund industry as a whole is currently subject to regulatory inquiries
and litigation related to a wide range of issues. These issues include, among
others, market timing activity, late trading, fair value pricing, excessive or
improper advisory and/or distribution fees, mutual fund sales practices,
including revenue sharing and directed-brokerage arrangements, investments in
securities of other registered investment companies and issues related to
Section 529 college savings plans.
As described more fully below, INVESCO Funds Group, Inc. ("IFG"), the former
investment advisor to the INVESCO Funds, is the subject of three regulatory
actions concerning market timing activity in the INVESCO Funds. In addition, IFG
and A I M Advisors, Inc. ("AIM"), the Fund's investment advisor, are the subject
of a number of regulatory inquiries and civil lawsuits, as described more fully
below. Both IFG and AIM are indirect wholly owned subsidiaries of AMVESCAP PLC
("AMVESCAP"). Additional regulatory actions and/or civil lawsuits related to the
above or other issues may be filed against IFG, AIM and/or related entities and
individuals in the future. Additional regulatory inquiries related to the above
or other issues also may be received by IFG, AIM and/or related entities and
individuals in the future.
As a result of the regulatory actions and inquiries and civil lawsuits
discussed below, 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.
Regulatory Actions Pending Against 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 former capacity as the
chief executive officer of IFG. Mr. Cunningham also formerly held the positions
of Chief Operating Officer and Senior Vice President of A I M Management Group
Inc. ("AIM Management"), 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. There
can be no assurance that the
F-13
NOTE 12--LEGAL PROCEEDINGS (CONTINUED)
SEC, NYAG or State of Colorado will not file additional charges against IFG or
Mr. Cunningham or civil proceedings against other current or former officers or
employees of IFG.
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.
Response of AMVESCAP
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 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. AMVESCAP has retained outside counsel to represent its subsidiaries in
connection with the market timing regulatory inquiries and certain other
matters. As part of this representation, this outside counsel has been
conducting a review of IFG's and AIM's conduct with respect to market timing and
related matters. In addition, AMVESCAP has retained separate 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.
At the direction of the trustees of the AIM and INVESCO Funds, AMVESCAP has
agreed to pay all of the expenses incurred by the AIM and INVESCO Funds related
to the market timing investigations, including expenses incurred in connection
with the pending regulatory complaints against IFG alleging market timing and
the ongoing market timing investigations with respect to IFG and AIM.
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, including
but not limited to A I M Capital Management, Inc. ("AIM Capital"), AIM Funds
Management Inc., INVESCO Institutional (N.A.), Inc. ("IINA"), INVESCO Global
Asset Management (N.A.), Inc. and INVESCO Senior Secured Management, Inc., from
serving as an investment advisor to any investment company registered under the
Investment Company Act of 1940, including the Fund. The Fund has been informed
by AIM that, if AIM is so barred, 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.
Regulatory Inquiries Concerning IFG
IFG, certain related entities, certain of their current and former officers
and/or certain of the INVESCO Funds have received regulatory inquiries in the
form of subpoenas or other oral or written requests for information and/or
documents related to one or more of the following issues, some of which concern
one or more INVESCO Funds: market timing activity, late trading, fair value
pricing, excessive or improper advisory and/or distribution fees, mutual fund
sales practices, including revenue sharing and directed-brokerage arrangements,
and investments in securities of other registered investment companies. These
regulators include the Securities and Exchange Commission ("SEC"), the NASD,
Inc. ("NASD"), the Florida Department of Financial Services, the Commissioner of
Securities for the State of Georgia, the Attorney General of the State of West
Virginia, the West Virginia Securities Commission, the Colorado Securities
Division and the Bureau of Securities of the State of New Jersey. IFG and
certain of these other parties also have received more limited inquiries from
the United States Department of Labor ("DOL") and the United States Attorney's
Office for the Southern District of New York, some of which concern one or more
INVESCO Funds. IFG is providing full cooperation with respect to these
inquiries.
Regulatory Inquiries Concerning AIM
AIM, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds have received regulatory inquiries in the form
of subpoenas or other oral or written requests for information and/or documents
related to one or more of the following issues, some of which concern one or
more AIM Funds: market timing activity, late trading, fair value pricing,
excessive or improper advisory and/or distribution fees, mutual fund sales
practices, including revenue sharing and directed-brokerage arrangements,
investments in securities of other registered investment companies and issues
related to Section 529 college savings plans. These regulators include the SEC,
the NASD, the Department of Banking for the State of Connecticut, the NYAG, the
Commissioner of Securities for the State of Georgia, the Attorney General of the
State of West Virginia, the West Virginia Securities Commission and the Bureau
of Securities of the State of New Jersey. AIM and certain of these other parties
also have received more limited inquiries from the DOL, the Internal Revenue
Service, the United States Attorney's Office for the Southern District of New
York, the United States Attorney's Office for the Central District of
California, the United States Attorney's Office for the District of
Massachusetts, the Massachusetts Securities Division and the U.S. Postal
Inspection Service, some of which concern one or more AIM Funds. AIM is
providing full cooperation with respect to these inquiries.
F-14
NOTE 12--LEGAL PROCEEDINGS (CONTINUED)
Private Civil Actions Alleging Market Timing
Multiple civil 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, AIM
Management, AMVESCAP, certain related entities and/or certain of their current
and former officers) making allegations substantially similar to the allegations
in the three regulatory actions concerning market timing activity in the INVESCO
Funds that have been filed by the SEC, the NYAG and the State of Colorado
against these parties. These 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/or
(iv) breach of contract. These lawsuits were initiated 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; declaration that the advisory
agreement is unenforceable or void; refund of advisory fees; interest; and
attorneys' and experts' fees.
The Judicial Panel on Multidistrict Litigation (the "Panel") has ruled that
all actions pending in Federal court that allege market timing and/or late
trading be transferred to the United States District Court for the District of
Maryland for coordinated pre-trial proceedings. All such cases against IFG and
the other AMVESCAP defendants filed to date have been conditionally or finally
transferred to the District of Maryland in accordance with the Panel's
directive. In addition, the proceedings initiated in state court have been
removed by IFG to Federal court and transferred to the District of Maryland. The
plaintiff in one such action continues to seek remand to state court.
Private Civil Actions Alleging Improper Use of Fair Value Pricing
Multiple civil class action lawsuits have been filed against various parties
(including, depending on the lawsuit, certain INVESCO Funds, certain AIM Funds,
IFG and/or AIM) alleging that certain AIM and INVESCO Funds inadequately
employed fair value pricing. These lawsuits allege a variety of theories of
recovery, including but not limited to: (i) violations of various provisions of
the Federal securities laws; (ii) common law breach of duty; and (iii) common
law negligence and gross negligence. These lawsuits have been filed in both
Federal and state courts and seek such remedies as compensatory and punitive
damages; interest; and attorneys' fees and costs.
Private Civil Actions Alleging Excessive Advisory and Distribution Fees
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, IFG, AIM, IINA, A I M Distributors, Inc. ("AIM Distributors")
and/or INVESCO Distributors, Inc. ("INVESCO Distributors")) alleging that the
defendants charged excessive advisory and distribution fees and failed to pass
on to shareholders the perceived savings generated by economies of scale.
Certain of these lawsuits also allege that the defendants adopted unlawful
distribution plans. These lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the Federal
securities laws; (ii) breach of fiduciary duty; and/or (iii) breach of contract.
These lawsuits have been filed in both Federal and state courts and seek such
remedies as damages; injunctive relief; rescission of certain Funds' advisory
agreements and distribution plans; interest; prospective relief in the form of
reduced fees; and attorneys' and experts' fees.
Private Civil Actions Alleging Improper Distribution Fees Charged to Closed
Funds
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, IFG, AIM, AIM Distributors and/or certain of the trustees of the
AIM and INVESCO Funds) alleging that the defendants breached their fiduciary
duties by charging distribution fees while funds and/or specific share classes
were closed generally to new investors and/or while other share classes of the
same fund were not charged the same distribution fees. These lawsuits allege a
variety of theories of recovery, including but not limited to: (i) violation of
various provisions of the Federal securities laws; and (ii) breach of fiduciary
duty. These lawsuits have been filed in both Federal and state courts and seek
such remedies as damages; injunctive relief; and attorneys' and experts' fees.
Private Civil Actions Alleging Improper Mutual Fund Sales Practices and
Directed-Brokerage Arrangements
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, AIM Management, IFG, AIM, AIM Investment Services, Inc. ("AIS")
and/or certain of the trustees of the AIM and INVESCO Funds) alleging that the
defendants improperly used the assets of the AIM and INVESCO Funds to pay
brokers to aggressively push the AIM and INVESCO Funds over other mutual funds
and that the defendants concealed such payments from investors by disguising
them as brokerage commissions. These lawsuits allege a variety of theories of
recovery, including but not limited to: (i) violation of various provisions of
the Federal securities laws; (ii) breach of fiduciary duty; and (iii) aiding and
abetting a breach of fiduciary duty. These lawsuits have been filed in Federal
courts and seek such remedies as compensatory and punitive damages; rescission
of certain Funds' advisory agreements and distribution plans and recovery of all
fees paid; an accounting of all fund-related fees, commissions and soft dollar
payments; restitution of all unlawfully or discriminatorily obtained fees and
charges; and attorneys' and experts' fees.
At the present time, management of AIM and the Fund are unable to estimate the
impact, if any, that the outcome of the matters described above may have on AIM
or the Fund.
F-15
OTHER INFORMATION
TRUSTEES AND OFFICERS
<Table>
BOARD OF TRUSTEES OFFICERS OFFICE OF THE FUND
Bob R. Baker Robert H. Graham 11 Greenway Plaza
Chairman and President Suite 100
Frank S. Bayley Houston, TX 77046-1173
Mark H. Williamson
James T. Bunch Executive Vice President INVESTMENT ADVISOR
A I M Advisors, Inc.
Bruce L. Crockett Kevin M. Carome 11 Greenway Plaza
Senior Vice President, Secretary Suite 100
Albert R. Dowden and Chief Legal Officer Houston, TX 77046-1173
Edward K. Dunn Jr. Sidney M. Dilgren TRANSFER AGENT
Vice President and Treasurer AIM Investment Services, Inc.
Jack M. Fields P.O. Box 4739
Robert G. Alley Houston, TX 77210-4739
Carl Frischling Vice President
CUSTODIAN
Robert H. Graham Stuart W. Coco State Street Bank and Trust Company
Vice President 225 Franklin Street
Gerald J. Lewis Boston, MA 02110-2801
Melville B. Cox
Prema Mathai-Davis Vice President COUNSEL TO THE FUND
Ballard Spahr
Lewis F. Pennock Karen Dunn Kelley Andrews & Ingersoll, LLP
Vice President 1735 Market Street
Ruth H. Quigley Philadelphia, PA 19103-7599
Edgar M. Larsen
Louis S. Sklar Vice President COUNSEL TO THE TRUSTEES
Kramer, Levin, Naftalis & Frankel LLP
Larry Soll, Ph.D. 919 Third Avenue
New York, NY 10022-3852
Mark H. Williamson
DISTRIBUTOR
A I M Distributors, Inc.
11 Greenway Plaza
Suite 100
Houston, TX 77046-1173
</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(4) AIM High Yield Fund
AIM Blue Chip Fund AIM Global Aggressive Growth Fund AIM Income Fund
AIM Capital Development Fund AIM Global Equity Fund(5) AIM Intermediate Government Fund
AIM Charter Fund AIM Global Growth Fund AIM Limited Maturity Treasury Fund
AIM Constellation Fund AIM Global Value Fund AIM Money Market Fund
AIM Dent Demographic Trends Fund AIM International Emerging Growth Fund(6) AIM Short Term Bond Fund
AIM Diversified Dividend Fund 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(7)
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(1) 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 ALLOCATION SOLUTIONS
AIM Premier Equity Fund INVESCO Gold & Precious Metals Fund
AIM Select Equity Fund INVESCO Health Sciences Fund AIM Aggressive Allocation Fund
AIM Small Cap Equity Fund(2) INVESCO Leisure Fund AIM Conservative Allocation Fund
AIM Small Cap Growth Fund(3) INVESCO Multi-Sector Fund AIM Moderate Allocation Fund
AIM Trimark Endeavor Fund INVESCO Technology Fund
AIM Trimark Small Companies Fund INVESCO Utilities Fund
AIM Weingarten Fund
INVESCO Core Equity Fund ===============================================================================
INVESCO Dynamics Fund CONSIDER THE INVESTMENT OBJECTIVES, RISKS, AND CHARGES AND EXPENSES CAREFULLY.
INVESCO Mid-Cap Growth Fund FOR THIS AND OTHER IMPORTANT INFORMATION ABOUT AIM AND INVESCO FUNDS, OBTAIN A
INVESCO Small Company Growth Fund PROSPECTUS FROM YOUR FINANCIAL ADVISOR OR AIMINVESTMENTS.COM AND READ IT
INVESCO S&P 500 Index Fund THOROUGHLY BEFORE INVESTING.
INVESCO Total Return Fund* ===============================================================================
</Table>
* Domestic equity and income fund
(1) 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. (2) 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. (3) 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. (4) AIM European Small Company Fund will close to new investors when
net assets reach $500 million. (5) Effective March 31, 2004, AIM Global Trends
Fund was renamed AIM Global Equity Fund. (6) AIM International Emerging Growth
Fund will close to new investors when net assets reach $500 million. (7)
Effective November 24, 2003, INVESCO International Blue Chip Value Fund was
renamed INVESCO International Core Equity Fund.
If used after October 20, 2004, this report 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 $139 billion in assets. AIM is a subsidiary of
AMVESCAP PLC, one of the world's largest independent financial services
companies with $372 billion in assets under management. Data as of June 30,
2004.
AIMinvestments.com GLV-SAR-1 A I M Distributors, Inc.
<Table>
YOUR GOALS. OUR SOLUTIONS.--Registered Trademark--
- -------------------------------------------------------------------------------------
Mutual Retirement Annuities College Separately Offshore Alternative Cash [AIM INVESTMENTS LOGO APPEARS HERE]
Funds Products Savings Managed Products Investments Management --Registered Trademark--
Plans Accounts
- -------------------------------------------------------------------------------------
</Table>
AIM INTERNATIONAL EMERGING
GROWTH FUND
Semiannual Report to Shareholders o June 30, 2004
[COVER IMAGE]
YOUR GOALS. OUR SOLUTIONS. [AIM INVESTMENTS LOGO APPEARS HERE]
- --Registered Trademark-- --Registered Trademark--
<Table>
===================================================================================================================================
AIM INTERNATIONAL EMERGING GROWTH FUND SEEKS TO ACHIEVE LONG-TERM GROWTH OF CAPITAL.
o Unless otherwise stated, information presented in this report is as of 6/30/04 and is based on total net assets.
===================================================================================================================================
ABOUT SHARE CLASSES ABOUT INDEXES USED IN THIS REPORT measure of U.S. stock market
performance.
o Effective 9/30/03, Class B shares are o The unmanaged MSCI Europe, Australasia
not available as an investment for and the Far East Index (the MSCI EAFE o A direct investment cannot be made in
retirement plans maintained pursuant to --registered trademark--) is a group of an index. Unless otherwise indicated,
Section 401 of the Internal Revenue foreign securities tracked by Morgan index results include reinvested
Code, including 401(k) plans, money Stanley Capital International. dividends, and they do not reflect sales
purchase pension plans and profit charges. Performance of an index of
sharing plans. Plans that have existing o The unmanaged MSCI All Country (AC) funds reflects fund expenses;
accounts invested in Class B shares will World Free ex-U.S. Growth Index is a performance of a market index does not.
continue to be allowed to make subset of the unmanaged MSCI All Country
additional purchases. (AC) World Free ex-U.S. Index, which o The fund is not managed to track the
represents the performance of securities performance of any particular index,
PRINCIPAL RISKS OF INVESTING IN THE FUND in developed and emerging countries, including the indexes defined here, and
excluding the United States, covered by consequently, the performance of the
o International investing presents Morgan Stanley Capital International. fund may deviate significantly from the
certain risks not associated with The Growth portion measures performance performance of the indexes.
investing solely in the United States. of companies with higher price/earnings
These include risks relating to ratios and higher forecasted growth OTHER INFORMATION
fluctuations in the value of the U.S. values. A "free" index represents
dollar relative to the values of other investable opportunities for global o The returns shown in the Management's
currencies, the custody arrangements investors, taking into account the local Discussion of Fund Performance are based
made for the fund's foreign holdings, market restrictions on share ownership on net asset values calculated for
differences in accounting, political by foreign investors. shareholder transactions. Generally
risks and the lesser degree of public accepted accounting principles require
information required to be provided by o The unmanaged MSCI World Index is a adjustments to be made to the net assets
non-U.S. companies. group of global securities tracked by of the fund at period end for financial
Morgan Stanley Capital International reporting purposes, and as such, the net
o Investing in emerging markets involves that are considered developed markets. asset values for shareholder
greater risk and potential reward than transactions and the returns based on
investing in more established markets. o The unmanaged Lehman U.S. Aggregate those net asset values may differ from
Bond Index, which represents the U.S. the net asset values and returns
o The fund is nondiversified, which investment-grade fixed-rate bond market reported in the Financial Highlights.
increases risks as well as potential (including government and corporate
rewards. securities, mortgage pass-through o Industry classifications used in this
securities and asset-backed securities), report are generally according to the
o Investing in small and mid-size is compiled by Lehman Brothers, a global Global Industry Classification Standard,
companies involves risks not associated investment bank. which was developed by and is the
with investing in more established exclusive property and a service mark of
companies, including business risk, o The unmanaged Lipper International Morgan Stanley Capital International
significant stock price fluctuations and Small Cap Fund Index represents an Inc. and Standard & Poor's.
illiquidity. average of the performance of 10
international small-cap mutual funds A description of the policies and
o The fund may participate in the tracked by Lipper, Inc., an independent procedures that the fund uses to
initial public offering (IPO) market in mutual fund performance monitor. determine how to vote proxies relating
some market cycles. Because of the to portfolio securities is available
fund's small asset base, any investment o The unmanaged Standard & Poor's without charge, upon request, by calling
the fund may make in IPOs may Composite Index of 500 Stocks (the S&P 800-959-4246, or on the AIM Web site,
significantly affect the fund's total 500 --registered trademark-- Index) is AIMinvestments.com.
return. As the fund's assets grow, the an index of common stocks frequently
impact of IPO investments will decline, used as a general
which may reduce the effect of IPO
investments on the fund's total return.
</Table>
================================================================================
THIS REPORT MUST BE ACCOMPANIED OR PRECEDED BY A CURRENTLY EFFECTIVE FUND
PROSPECTUS, WHICH CONTAINS MORE COMPLETE INFORMATION, INCLUDING SALES CHARGES
AND EXPENSES. READ IT CAREFULLY BEFORE YOU INVEST.
================================================================================
=====================================================
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
=====================================================
AIMinvestments.com
TO OUR SHAREHOLDERS
DEAR FELLOW SHAREHOLDER IN THE AIM FAMILY OF FUNDS
--Registered Trademark--:
[PHOTO OF The six months covered by this report could be
ROBERT H. characterized as a trendless market. Positive news
GRAHAM] about employment and a strengthening economy were
offset by concerns about higher interest rates,
ROBERT H. GRAHAM continued violence in Iraq and high oil prices. The
result: muted performance in both U.S. equity and
fixed-income markets.
The same macroeconomic factors were at work
overseas as well, causing developed international
markets to generally perform in line with that of the
United States. In fact, the MSCI World Index tracked
the performance of the S&P 500 Index with six-month
returns of 3.52% and 3.44%, respectively.
The anticipation of higher interest rates hampered bond performance, with
most areas of the fixed- income market turning in flat returns for the six-month
period, as evidenced by the 0.15% return of the Lehman U.S. Aggregate Bond
Index. Considered a good proxy for the U.S. bond market, this index includes
fixed-rate mortgage-backed securities, U.S. agency investments, U.S. Treasuries
of various maturities and U.S. corporate bonds.
In an unremarkable period like the one covered by this report, we encourage
shareholders to look past short-term market performance and remain focused on
their long-term investment goals. Whether markets rise, fall or go sideways, the
only certainty is their unpredictability, especially in the short run.
Historically, markets have risen over the long term, with the S&P 500 Index
returning 13.55% over the past 25 years and the Lehman U.S. Aggregate Bond Index
returning 9.20%.* While past performance cannot guarantee future results, we
believe that staying invested for the long term offers the best opportunity for
capital growth.
For information on how your fund performed and was managed during the six
months covered by this report, please read your fund managers' discussion on the
following pages. We hope you find it informative.
There continues to be increased regulatory focus on mutual funds and other
investment products. For the latest information about ongoing regulatory
matters, please visit our Web site, AIMinvestments.com. We continue to post
updates as information becomes available. We also encourage you to visit our Web
site for investor education and planning information as well as regular
performance updates on our funds.
As always, AIM is committed to building solutions for your investment goals,
and we thank you for your continued participation in AIM Investments
- --Servicemark--. If you have any questions, please contact our Client Service
representatives at 800-959-4246.
Sincerely,
/s/ ROBERT H. GRAHAM
- --------------------------
Robert H. Graham
Chairman and President
July 20, 2004
*Average annual total returns, June 30, 1979, to June 30, 2004. Source: Lipper,
Inc.
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
<Table>
STRENGTH OF FOREIGN SMALL-CAPS BOOSTED Commission's industrial confidence
FUND RETURNS indicator continued to rise in the
second quarter of 2004. In June, this
For the six-month reporting period ended During the second quarter, most foreign indicator reached its highest level
June 30, 2004, AIM International markets gave back some of their earlier since mid-2001. In contrast to the euro
Emerging Growth Fund Class A shares gains amid pressure from China's efforts zone's somewhat sluggish recovery,
returned 7.78% at net asset value. (Had to slow its economy, high oil prices and economic activity remained strong in the
the effects of front-end sales charges looming interest rate hikes. Market and United Kingdom, supported by renewed
been included, the return would have economic conditions, however, varied strength in the housing market and
been lower.) Returns for other share significantly by region. resilient consumer spending.
classes are shown in the table on page
3. For the same period, the fund In Asia, China continued to be the Monetary policy remained
outperformed the MSCI EAFE Index and the region's economic growth engine. accommodative in many regions including
MSCI All Country (AC) World Free ex-U.S. Mounting concern about overinvestment in the euro zone, where rates remained
Growth Index, which returned 4.56% and several sectors led the Chinese unchanged at 2%. The Bank of Canada
2.10%, respectively. We attribute the government to try to slow the economy by reduced its target rate three times
fund's higher return to strong stock adding restrictions on new projects and during the reporting period. A monetary
selection, particularly within our ordering banks to moderate their lending tightening cycle, however, began in some
European and Canadian holdings. practices. Japan, Asia's largest foreign economies. For instance, the
economy, showed signs of recovery with Bank of England raised interest rates
Meanwhile, the fund lagged the Lipper robust activity from exports and an multiple times during the reporting
International Small Cap Fund Index, easing of deflationary pressures. period.
which returned 11.15%. During the
reporting period, the index held a Indian stock markets, however, YOUR FUND
larger position in the strong-performing tumbled on fears the newly elected
Japanese market than did the fund. Congress Party government would be less International small-cap stocks in the
aggressive in carrying out aggregate outperformed their large-cap
MARKET CONDITIONS economic-liberalization programs; counterparts by more than 800 basis
meanwhile, the assassination attempt on points (8%) during the reporting period.
International equity markets, Taiwan president Chen Shui-bian rocked Given the fund's small-cap focus, this
represented by the MSCI EAFE Index, stock markets in Taiwan. trend, which began more than two years
rallied through much of the first ago, continued to provide a boost to the
quarter of 2004. This rally enabled many In the euro zone--the 12 European fund's return.
foreign stocks to produce positive countries that use the euro as
returns for the six-month reporting currency--economic conditions also Beyond capitalization levels, stock
period. improved, albeit at a slower pace than selection also played a role in
in many regions. The European performance. When selecting investments
for the fund, we consider only
"high-quality" stocks. In our view,
high-quality companies have good
return-on-equity,
</Table>
<Table>
===================================================================================================================================
TOP 10 EQUITY HOLDINGS* TOP 10 INDUSTRIES* TOP 10 COUNTRIES*
1. Trican Well Service Ltd. 1. Diversified Banks 6.8% 1. Canada 18.8%
(Canada) 2.1%
2. Industrial Machinery 4.0 2. United Kingdom 11.5
2. Puma A.G. Rudolf Dassler
Sport (Germany) 1.9 3. Oil & Gas Equipment & 3. Japan 7.5
Services 3.7
3. Bijou Brigitte Modische 4. Germany 6.0
Accessoires A.G. (Germany) 1.7 4. Diversified Commerical
Services 3.5 5. France 5.7
4. CryptoLogic Inc. (Canada) 1.7
5. Pharmaceuticals 3.4 6. Netherlands 4.4
5. Hunter Douglas N.V.
(Netherlands) 1.6 6. Construction & Engineering 3.0 7. Taiwan 3.2
6. Aktiv Kapital A.S.A. 7. Wireless Telecommunication 8. Norway 3.2
(Norway) 1.6 Services 2.8
9. Ireland 3.2
7. Techem A.G. (Germany) 1.6 8. Homebuilding 2.7
10. India 2.9
8. Great Canadian Gaming Corp. 9. Broadcasting & Cable TV 2.6
(Canada) 1.5
10. Industrial Conglomerates 2.6
9. Anglo Irish Bank Corp. PLC
(Ireland) 1.5
10. Aalberts Industries N.V.
(Netherlands) 1.4
*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>
low balance sheet leverage and high in their respective markets. Indeed, STEVE CAO
cash-flow levels. Our focus on long-time fund holding Puma reported Mr. Cao, Chartered
high-quality stocks proved particularly consolidated first quarter 2004 sales [CAO Financial Analyst, is
rewarding during the reporting period as growth of 29.3% compared to the same PHOTO] manager of AIM
geopolitical and economic period last year. International Emerging
uncertainties--including the likelihood Growth Fund. He joined
of higher U.S. interest rates, the At the country level, Canadian stocks AIM in 1997. Mr. Cao graduated from
ongoing conflict in Iraq and the contributed most to fund performance. Tianjin Foreign Language Institute with
government imposed slowing of China's Canadian energy equipment and service a B.A. in English. He also received an
economy--rattled foreign markets. companies, in particular, were stand-out M.B.A. from Texas A&M University and is
performers as these firms benefited from a Certified Public Accountant.
Despite regional or sector trends, we a strong exploration and drilling
focus on individual companies. A good environment as well as high oil prices. BORGE ENDRESEN
example of this is our investments in For instance, Trican Well Service, a Mr. Endresen,
two German compa- Canadian oil service company, reported a [ENDRESEN Chartered Financial
52% increase in revenue for the first PHOTO] Analyst, is manager of
quarter of 2004, compared with the same AIM International
... At the country level, period in 2003. Emerging Growth Fund.
Canadian stocks con- He joined AIM in 1999 and graduated
tributed most to fund Asian holdings turned in mixed summa cum laude from the University of
performance. Canadian results. Japanese stocks proved to be Oregon with a B.S. in finance. He also
energy equipment and the best Asian performers for the fund. earned an M.B.A. from The University of
service companies, In particular, Sekisui Chemical, a Texas at Austin.
in particular, were manufacturer of prefab housing as well
stand-out performers ... as plastic and metal pipes, reported JASON T. HOLZER
strong earnings as the Japanese housing Mr. Holzer, Chartered
market finally began to improve. Indian [HOLZER Financial Analyst, is
nies, Bijou Brigitte and Puma. While and Taiwanese holdings, however, PHOTO] co-lead manager of AIM
sluggish economic conditions continue to generally proved a drag on performance International Emerging
plague Germany, these stocks have as election-related events pressured Growth Fund. Mr.
prevailed given strong company stocks in those markets. Holzer joined AIM in 1996. He received a
fundamentals. B.A. in quantitative economics and an
We reduced our exposure to China by M.S. in engineering-economic systems
Both Bijou Brigitte, a costume taking profits and reallocating these from Stanford University.
jewelry retailer, and Puma, an apparel assets to other markets. For instance,
and footwear manufacturer, continued to we have increased our exposure to select BARRETT K. SIDES
gain market share Japanese technology stocks and Mr. Sides is co-lead
re-entered the Malaysian market. [SIDES manager of AIM
======================================= PHOTO] International Emerging
FUND VS. INDEXES IN CLOSING Growth Fund. He joined
AIM in 1990. Mr. Sides
Total returns 12/31/03-6/30/04, Despite market volatility, economic graduated with a B.S. in economics from
excluding sales charges. If sales conditions continued to strengthen Bucknell University. He also received a
charges were included, returns would be overseas, with Asian economies posting master's in international business from
lower. some of the best growth rates worldwide. the University of St. Thomas.
We are also pleased to report that
Class A Shares 7.78% international small-cap stocks continued Assisted by Asia/Latin America Team and
to trade at a discount to their Europe/Canada Team
Class B Shares 7.48 international and American large-cap
peers.
Class C Shares 7.49
We remain committed to the fund's
MSCI EAFE Index (Broad Market investment objective of seeking growth
Index) 4.56 of capital by investing principally in
the stocks of international small and [RIGHT ARROW GRAPHIC]
MSCI All Country (AC) World mid-cap companies.
Free ex-U.S. Growth Index FOR A PRESENTATION OF YOUR FUND'S
(Style-Specific Index) 2.10 See important fund and index LONG-TERM PERFORMANCE RECORD, PLEASE
disclosures inside front cover. TURN THE PAGE.
Lipper International Small
Cap Fund Index (Peer Group
Index) 11.15
Source: Lipper, Inc.
TOTAL NUMBER OF HOLDINGS* 122
TOTAL NET ASSETS $160.1 MILLION
=======================================
</Table>
3
LONG-TERM PERFORMANCE
YOUR FUND'S LONG-TERM PERFORMANCE
================================================================================
Below you will find a presentation of your fund's long-term performance record
for periods ended 6/30/04, the close of the six-month period covered by this
report.
Please read the important disclosure accompanying these tables, which explains
how fund performance is calculated and the sales charges, if any, that apply to
the share class in which you are invested.
================================================================================
<Table>
====================================================================================================================================
AVERAGE ANNUAL TOTAL RETURNS The performance data quoted represent A redemption fee of 2% will be
As of 6/30/04, including sales past performance and cannot guarantee imposed on certain redemptions or
charges comparable future results; current exchanges out of the fund within 30 days
performance may be lower or higher. of purchase. Exceptions to the
CLASS A SHARES Please visit AIMinvestments.com for the redemption fee are listed in the fund's
Inception (8/31/00) 5.75% most recent month-end performance. prospectus.
1 Year 43.46 Performance figures reflect reinvested
distributions, changes in net asset Had the advisor not waived fees
CLASS B SHARES value and the effect of the maximum and/or reimbursed expenses, performance
Inception (8/31/00) 5.95% sales charge unless otherwise stated. would have been lower.
1 Year 45.71 Investment return and principal value
will fluctuate so that you may have a
CLASS C SHARES gain or loss when you sell shares.
Inception (8/31/00) 6.59%
1 Year 49.59 Class A share performance reflects
the maximum 5.50% sales charge, and
Class B and Class C share performance
reflects the applicable contingent
deferred sales charge (CDSC) for the
period involved. The CDSC on Class B
shares declines from 5% beginning at the
time of purchase to 0% at the beginning
of the seventh year. The CDSC on Class C
shares is 1% for the first year after
purchase. The performance of the fund's
share classes will differ due to [ARROW
different sales charge structures and BUTTON For More Information Visit
class expenses. IMAGE] AIMinvestments.com
====================================================================================================================================
</Table>
4
FINANCIALS
SCHEDULE OF INVESTMENTS
June 30, 2004
(Unaudited)
<Table>
<Caption>
MARKET
SHARES VALUE
- -----------------------------------------------------------------------
FOREIGN STOCKS & OTHER EQUITY
INTERESTS-95.16%
AUSTRALIA-2.65%
Computershare Ltd. (Data Processing &
Outsourced Services) 442,600 $ 983,891
- -----------------------------------------------------------------------
CSL Ltd. (Biotechnology) 71,900 1,120,836
- -----------------------------------------------------------------------
Ramsay Health Care Ltd. (Health Care
Facilities) 316,100 1,202,075
- -----------------------------------------------------------------------
Toll Holdings Ltd. (Trucking) 125,200 938,226
=======================================================================
4,245,028
=======================================================================
BERMUDA-1.58%
Central European Media Enterprises Ltd.-Class
A (Broadcasting & Cable TV)(a) 75,950 1,725,584
- -----------------------------------------------------------------------
Giordano International Ltd. (Apparel Retail) 1,272,000 803,185
=======================================================================
2,528,769
=======================================================================
CANADA-18.80%
AKITA Drilling Ltd.-Class A (Oil & Gas
Drilling) 53,020 1,033,180
- -----------------------------------------------------------------------
Badger Income Fund (Construction &
Engineering) 237,340 1,680,992
- -----------------------------------------------------------------------
BMTC Group, Inc.-Class A (Specialty Stores) 85,164 702,120
- -----------------------------------------------------------------------
Calian Technology Ltd. (Data Processing &
Outsourced Services) 156,900 1,499,326
- -----------------------------------------------------------------------
Cedara Software Corp. (Health Care
Services)(a) 204,150 1,575,975
- -----------------------------------------------------------------------
Ceramic Protection Corp. (Aerospace &
Defense)(a) 90,000 752,108
- -----------------------------------------------------------------------
COM DEV International Ltd. (Communications
Equipment)(a) 333,000 908,465
- -----------------------------------------------------------------------
Crew Energy Inc. (Oil & Gas Exploration &
Production)(a) 209,300 815,709
- -----------------------------------------------------------------------
CryptoLogic Inc. (Internet Software &
Services) 150,390 2,693,889
- -----------------------------------------------------------------------
DRAXIS Health Inc. (Pharmaceuticals)(a) 202,990 935,648
- -----------------------------------------------------------------------
Extendicare Inc.-Class A (Health Care
Facilities)(a) 114,940 1,292,187
- -----------------------------------------------------------------------
Great Canadian Gaming Corp. (Casinos &
Gaming)(a) 106,040 2,447,841
- -----------------------------------------------------------------------
IPSCO, Inc. (Steel) 50,080 1,129,029
- -----------------------------------------------------------------------
Lions Gate Entertainment Corp. (Movies &
Entertainment)(a) 164,480 1,148,070
- -----------------------------------------------------------------------
StarPoint Energy Ltd. (Oil & Gas Exploration
& Production)(a) 261,800 833,914
- -----------------------------------------------------------------------
Telesystem International Wireless Inc.
(Wireless Telecommunication Services)(a) 226,890 2,232,764
- -----------------------------------------------------------------------
Total Energy Services Ltd. (Oil & Gas
Equipment & Services)(a) 295,490 1,315,504
- -----------------------------------------------------------------------
Transat A.T. Inc. (Airlines)(a) 127,150 1,882,115
- -----------------------------------------------------------------------
Trican Well Service Ltd. (Oil & Gas Equipment
& Services)(a) 107,780 3,392,738
- -----------------------------------------------------------------------
TSX Group Inc. (Specialized Finance) 28,990 1,034,232
- -----------------------------------------------------------------------
</Table>
<Table>
MARKET
SHARES VALUE
- -----------------------------------------------------------------------
<Caption>
CANADA-(CONTINUED)
Wajax Ltd. (Industrial Machinery) 123,170 $ 789,285
=======================================================================
30,095,091
=======================================================================
CAYMAN ISLANDS-2.74%
ASM Pacific Technology Ltd. (Semiconductor
Equipment) 225,000 843,782
- -----------------------------------------------------------------------
Global Bio-chem Technology Group Co. Ltd.
(Biotechnology) 1,396,000 1,011,244
- -----------------------------------------------------------------------
Global Bio-chem Technology Group Co.
Ltd.-Wts., expiring 05/31/07
(Biotechnology)(b) 114,250 7,471
- -----------------------------------------------------------------------
Golden Meditech Co. Ltd. (Health Care
Equipment) 1,372,000 527,713
- -----------------------------------------------------------------------
Norstar Founders Group Ltd. (Tires &
Rubber)(a) 1,744,000 486,326
- -----------------------------------------------------------------------
Shanda Interactive Entertainment Ltd.-ADR
(Leisure Products)(a) 73,350 1,131,057
- -----------------------------------------------------------------------
Tencent Holdings Ltd. (Internet Software &
Services)(a) 673,500 371,303
=======================================================================
4,378,896
=======================================================================
CHINA-1.86%
PICC Property & Casualty Co. Ltd.-Class H
(Property & Casualty Insurance)(a) 2,426,500 933,305
- -----------------------------------------------------------------------
Tong Ren Tang Technologies Co. Ltd.-Class H
(Pharmaceuticals) 450,000 960,614
- -----------------------------------------------------------------------
Weiqiao Textile Co. Ltd.-Class H (Textiles)
(Acquired 09/19/03-06/02/03; Cost
$960,058)(c) 742,000 1,089,260
=======================================================================
2,983,179
=======================================================================
DENMARK-1.00%
Topdanmark A.S. (Multi-Line Insurance)(a) 27,043 1,601,779
=======================================================================
FINLAND-0.62%
Nokian Renkaat Oyj (Tires & Rubber) 10,145 990,612
=======================================================================
FRANCE-5.71%
Camaieu (Apparel Retail) 23,715 2,121,314
- -----------------------------------------------------------------------
Eiffage S.A. (Construction & Engineering)
(Acquired 03/26/04-04/27/04; Cost
$2,020,290)(c) 27,870 2,299,252
- -----------------------------------------------------------------------
Elior (Restaurants) 170,400 1,610,472
- -----------------------------------------------------------------------
Euler Hermes S.A. (Property & Casualty
Insurance) 38,020 2,058,623
- -----------------------------------------------------------------------
Trigano (Leisure Products) 19,675 1,055,721
=======================================================================
9,145,382
=======================================================================
GERMANY-5.96%
Bijou Brigitte Modische Accessoires A.G.
(Apparel, Accessories & Luxury Goods) 33,730 2,776,527
- -----------------------------------------------------------------------
Puma A.G. Rudolf Dassler Sport (Footwear)
(Acquired 01/30/02-02/13/04; Cost
$933,270)(c) 11,819 3,010,500
- -----------------------------------------------------------------------
Rheinmetall A.G.-Pfd. (Industrial
Conglomerates) 29,461 1,203,578
- -----------------------------------------------------------------------
</Table>
F-1
<Table>
<Caption>
MARKET
SHARES VALUE
- -----------------------------------------------------------------------
GERMANY-(CONTINUED)
Techem A.G. (Diversified Commercial
Services)(a) 98,880 $ 2,556,384
=======================================================================
9,546,989
=======================================================================
GREECE-1.75%
Germanos S.A. (Computer & Electronics Retail) 59,121 1,711,608
- -----------------------------------------------------------------------
STET Hellas Telecommunications S.A.-ADR
(Wireless Telecommunication Services) 64,830 1,089,144
=======================================================================
2,800,752
=======================================================================
HONG KONG-1.44%
Dah Sing Banking Group Ltd.(a) (Diversified
Banks) 19,040 31,246
- -----------------------------------------------------------------------
Dah Sing Financial Group (Diversified Banks) 95,200 561,458
- -----------------------------------------------------------------------
Techtronic Industries Co. Ltd. (Household
Appliances) (Acquired 04/24/02-05/03/04;
Cost $348,827)(c) 397,000 633,697
- -----------------------------------------------------------------------
Wing Hang Bank Ltd. (Diversified Banks) 182,000 1,080,375
=======================================================================
2,306,776
=======================================================================
INDIA-2.93%
Bharat Forge Ltd. (Auto Parts & Equipment) 49,800 662,754
- -----------------------------------------------------------------------
HDFC Bank Ltd. (Diversified Banks) 108,000 868,463
- -----------------------------------------------------------------------
Housing Development Finance Corp. Ltd.
(Thrifts & Mortgage Finance) 78,000 877,383
- -----------------------------------------------------------------------
Maruti Udyog Ltd. (Automobile
Manufacturers)(a) 86,100 753,878
- -----------------------------------------------------------------------
Ranbaxy Laboratories Ltd. (Pharmaceuticals) 37,100 733,890
- -----------------------------------------------------------------------
Wockhardt Ltd. (Pharmaceuticals) 141,600 785,383
=======================================================================
4,681,751
=======================================================================
IRELAND-3.16%
Anglo Irish Bank Corp. PLC (Diversified
Banks) 155,365 2,434,659
- -----------------------------------------------------------------------
Depfa Bank PLC (Diversified Banks) 60,710 883,988
- -----------------------------------------------------------------------
Grafton Group PLC (Trading Companies &
Distributors)(a)(d) 218,030 1,744,223
=======================================================================
5,062,870
=======================================================================
ISRAEL-0.45%
Taro Pharmaceutical Industries Ltd.
(Pharmaceuticals)(a) 16,660 724,710
=======================================================================
ITALY-0.74%
Merloni Elettrodomestici S.p.A. (Household
Appliances) 66,308 1,180,594
=======================================================================
JAPAN-7.53%
Daiwa House Industry Co., Ltd. (Homebuilding) 94,000 1,093,335
- -----------------------------------------------------------------------
JSR Corp. (Specialty Chemicals) 75,900 1,429,510
- -----------------------------------------------------------------------
Nippon Thompson Co., Ltd. (Industrial
Machinery) 133,000 1,067,959
- -----------------------------------------------------------------------
NOK Corp. (Auto Parts & Equipment) 46,000 1,711,608
- -----------------------------------------------------------------------
Omron Corp. (Electronic Equipment
Manufacturers) 41,600 976,508
- -----------------------------------------------------------------------
Sekisui Chemical Co., Ltd. (Homebuilding) 172,000 1,455,391
- -----------------------------------------------------------------------
SMC Corp. (Industrial Machinery) 8,000 867,288
- -----------------------------------------------------------------------
</Table>
<Table>
MARKET
SHARES VALUE
<Caption>
- -----------------------------------------------------------------------
JAPAN-(CONTINUED)
Stanley Electric Co., Ltd. (Auto Parts &
Equipment) 30,800 $ 516,139
- -----------------------------------------------------------------------
THK Co., Ltd. (Industrial Machinery) 86,000 1,631,586
- -----------------------------------------------------------------------
USS Co., Ltd. (Specialty Stores) 15,100 1,302,669
=======================================================================
12,051,993
=======================================================================
LUXEMBOURG-0.99%
SBS Broadcasting S.A. (Broadcasting & Cable
TV)(a) 51,670 1,586,786
=======================================================================
MALAYSIA-1.27%
Maxis Communications Berhad (Wireless
Telecommunication Services) 476,600 1,103,705
- -----------------------------------------------------------------------
Public Bank Berhad (Diversified Banks) 532,450 924,782
=======================================================================
2,028,487
=======================================================================
MEXICO-1.50%
Consorcio ARA, S.A. de C.V. (Homebuilding)(a) 348,100 1,004,572
- -----------------------------------------------------------------------
Corporacion GEO, S.A. de C.V.-Series B
(Homebuilding)(a) 606,500 799,902
- -----------------------------------------------------------------------
Grupo Financiero Banorte S.A. de C.V.-Class O
(Diversified Banks) 168,000 599,634
=======================================================================
2,404,108
=======================================================================
NETHERLANDS-4.35%
Aalberts Industries N.V. (Industrial
Conglomerates) 77,321 2,319,607
- -----------------------------------------------------------------------
Hunter Douglas N.V. (Home Furnishings) 53,700 2,619,486
- -----------------------------------------------------------------------
Nutreco Holding N.V. (Agricultural Products) 61,100 2,019,260
=======================================================================
6,958,353
=======================================================================
NORWAY-3.20%
Aktiv Kapital A.S.A. (Specialized Finance) 203,654 2,615,810
- -----------------------------------------------------------------------
Ekornes A.S.A. (Home Furnishings) 62,936 1,235,268
- -----------------------------------------------------------------------
TGS Nopec Geophysical Co. A.S.A. (Oil & Gas
Equipment & Services)(a) 78,180 1,263,679
=======================================================================
5,114,757
=======================================================================
PHILIPPINES-0.83%
Philippine Long Distance Telephone Co.
(Integrated Telecommunication Services)(a) 64,500 1,323,844
=======================================================================
SINGAPORE-1.46%
Keppel Corp. Ltd. (Industrial Conglomerates) 148,000 607,369
- -----------------------------------------------------------------------
Neptune Orient Lines Ltd. (Marine) 568,000 780,302
- -----------------------------------------------------------------------
SembCorp Logistics Ltd. (Marine Ports &
Services) 879,000 941,475
=======================================================================
2,329,146
=======================================================================
SOUTH KOREA-1.78%
Cheil Communications Inc. (Advertising) 8,600 1,169,511
- -----------------------------------------------------------------------
CJ Corp. (Packaged Foods & Meats) 10,010 541,901
- -----------------------------------------------------------------------
Hana Bank (Diversified Banks) 53,600 1,132,819
=======================================================================
2,844,231
=======================================================================
</Table>
F-2
<Table>
<Caption>
MARKET
SHARES VALUE
- -----------------------------------------------------------------------
SPAIN-1.30%
Corporacion Mapfre S.A. (Multi-Line
Insurance) 98,530 $ 1,209,984
- -----------------------------------------------------------------------
Gestevision Telecinco S.A. (Broadcasting &
Cable TV)(a) 58,000 867,869
=======================================================================
2,077,853
=======================================================================
SWEDEN-0.52%
Telelogic A.B. (Application Software)
(Acquired 02/04/04-04/27/04; Cost
$1,078,095)(a)(c) 484,070 837,447
=======================================================================
SWITZERLAND-2.83%
Leica Geosystems A.G. (Electronic Equipment
Manufacturers)(a) 4,000 832,233
- -----------------------------------------------------------------------
SAIA-Burgess Electronics A.G. (Electronic
Equipment Manufacturers) 4,450 2,136,598
- -----------------------------------------------------------------------
Saurer A.G. (Industrial Machinery)(a) 30,600 1,568,383
=======================================================================
4,537,214
=======================================================================
TAIWAN-3.20%
Catcher Technology Co., Ltd. (Computer
Storage & Peripherals) 241,000 767,061
- -----------------------------------------------------------------------
Ichia Technologies, Inc. (Computer Storage &
Peripherals)(a) 310,000 619,541
- -----------------------------------------------------------------------
Largan Precision Co., Ltd. (Photographic
Products) 49,200 470,514
- -----------------------------------------------------------------------
Merry Electronics Co., Ltd. (Consumer
Electronics) 406,000 925,596
- -----------------------------------------------------------------------
Novatek Microelectronics Corp., Ltd.
(Semiconductors) 222,100 729,922
- -----------------------------------------------------------------------
President Chain Store Corp. (Food Retail) 302,000 567,787
- -----------------------------------------------------------------------
Siliconware Precision Industries Co.
(Semiconductors)(a) 815,000 637,039
- -----------------------------------------------------------------------
Waffer Technology Co., Ltd. (Industrial
Machinery) 202,000 406,691
=======================================================================
5,124,151
=======================================================================
</Table>
<Table>
MARKET
SHARES VALUE
<Caption>
- -----------------------------------------------------------------------
THAILAND-1.53%
Kasikornbank PCL (Diversified Banks)(a) 923,400 $ 1,173,001
- -----------------------------------------------------------------------
Siam Commercial Bank PCL (Diversified Banks) 1,127,000 1,273,330
=======================================================================
2,446,331
=======================================================================
UNITED KINGDOM-11.48%
Alba PLC (Consumer Electronics) 110,750 1,627,101
- -----------------------------------------------------------------------
Balfour Beatty PLC (Construction &
Engineering) 170,000 821,186
- -----------------------------------------------------------------------
Cattles PLC (Consumer Finance) 177,520 1,023,846
- -----------------------------------------------------------------------
Enterprise Inns PLC (Restaurants) 174,080 1,821,147
- -----------------------------------------------------------------------
Homeserve PLC (Diversified Commercial
Services) 131,000 1,595,696
- -----------------------------------------------------------------------
Johnston Press PLC (Publishing) 145,990 1,504,705
- -----------------------------------------------------------------------
Kensington Group PLC (Thrifts & Mortgage
Finance) 170,820 1,373,070
- -----------------------------------------------------------------------
McBride PLC (Household Products) 784,910 2,099,256
- -----------------------------------------------------------------------
Savills PLC (Other Diversified Financial
Services) 248,850 2,067,971
- -----------------------------------------------------------------------
T&F Informa PLC (Publishing) 241,664 1,776,321
- -----------------------------------------------------------------------
Warner Chilcott PLC (Pharmaceuticals) 102,300 1,293,566
- -----------------------------------------------------------------------
WS Atkins PLC (Diversified Commercial
Services) 124,855 1,375,461
=======================================================================
18,379,326
=======================================================================
Total Foreign Stocks Other Equity
Interests (Cost $129,472,916) 152,317,205
=======================================================================
MONEY MARKET FUNDS-3.03%
Liquid Assets Portfolio-Institutional
Class(e) 2,425,140 2,425,140
- -----------------------------------------------------------------------
STIC Prime Portfolio-Institutional Class(e) 2,425,140 2,425,140
=======================================================================
Total Money Market Funds (Cost
$4,850,280) 4,850,280
=======================================================================
TOTAL INVESTMENTS-98.19% (Cost $134,323,196) 157,167,485
=======================================================================
OTHER ASSETS LESS LIABILITIES-1.81% 2,900,441
=======================================================================
NET ASSETS-100.00% $160,067,926
_______________________________________________________________________
=======================================================================
</Table>
Investment Abbreviations:
<Table>
ADR - American Depositary Receipt
Pfd. - Preferred
Wts. - Warrants
</Table>
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) Non-income producing security acquired as part of a unit with or in exchange
for other securities.
(c) Security not registered under the Securities Act of 1933, as amended (e.g.,
the security was purchased in a Rule 144A transaction or a Regulation D
transaction). The security may be resold only pursuant to an exemption from
registration under the 1933 Act, typically to qualified institutional
buyers. The Fund has no rights to demand registration of these securities.
The aggregate market value of these securities at June 30, 2004 was
$7,870,156, which represented 4.92% of the Fund's net assets. Unless
otherwise indicated, these securities are not considered to be illiquid.
(d) Each unit represents one ordinary share and one ordinary C share.
(e) 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
June 30, 2004
(Unaudited)
<Table>
ASSETS:
Investments, at market value (cost
$129,472,916) $152,317,205
- -----------------------------------------------------------
Investments in affiliated money market funds
(cost $4,850,280) 4,850,280
===========================================================
Total investments (cost $134,323,196) 157,167,485
===========================================================
Foreign currencies, at value (cost
$2,343,544) 2,342,936
- -----------------------------------------------------------
Receivables for:
Investments sold 549,544
- -----------------------------------------------------------
Fund shares sold 1,389,226
- -----------------------------------------------------------
Dividends 270,991
- -----------------------------------------------------------
Investment for deferred compensation and
retirement plans 17,923
- -----------------------------------------------------------
Other assets 58,227
===========================================================
Total assets 161,796,332
___________________________________________________________
===========================================================
LIABILITIES:
Payables for:
Investments purchased 1,274,138
- -----------------------------------------------------------
Fund shares reacquired 255,768
- -----------------------------------------------------------
Deferred compensation and retirement plans 18,473
- -----------------------------------------------------------
Accrued distribution fees 67,995
- -----------------------------------------------------------
Accrued transfer agent fees 26,840
- -----------------------------------------------------------
Accrued operating expenses 85,192
===========================================================
Total liabilities 1,728,406
===========================================================
Net assets applicable to shares outstanding $160,067,926
___________________________________________________________
===========================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $128,991,298
- -----------------------------------------------------------
Undistributed net investment income (loss) (236,889)
- -----------------------------------------------------------
Undistributed net realized gain from
investment securities and foreign
currencies 8,462,960
- -----------------------------------------------------------
Unrealized appreciation of investment
securities, foreign currencies and futures
contracts 22,850,557
===========================================================
$160,067,926
___________________________________________________________
===========================================================
NET ASSETS:
Class A $111,696,144
___________________________________________________________
===========================================================
Class B $ 25,300,390
___________________________________________________________
===========================================================
Class C $ 23,071,392
___________________________________________________________
===========================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER
SHARE, UNLIMITED NUMBER OF SHARES
AUTHORIZED:
Class A 8,578,403
___________________________________________________________
===========================================================
Class B 1,979,874
___________________________________________________________
===========================================================
Class C 1,806,086
___________________________________________________________
===========================================================
Class A:
Net asset value per share $ 13.02
- -----------------------------------------------------------
Offering price per share:
(Net asset value of $13.02 divided
by 94.50%) $ 13.78
___________________________________________________________
===========================================================
Class B:
Net asset value and offering price per
share $ 12.78
___________________________________________________________
===========================================================
Class C:
Net asset value and offering price per
share $ 12.77
___________________________________________________________
===========================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
F-4
STATEMENT OF OPERATIONS
For the six months ended June 30, 2004
(Unaudited)
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $198,508) $ 1,458,432
- -------------------------------------------------------------------------
Dividends from affiliated money market funds 33,635
- -------------------------------------------------------------------------
Interest 5,231
=========================================================================
Total investment income 1,497,298
=========================================================================
EXPENSES:
Advisory fees 789,875
- -------------------------------------------------------------------------
Administrative services fees 24,863
- -------------------------------------------------------------------------
Custodian fees 152,721
- -------------------------------------------------------------------------
Distribution fees:
Class A 221,864
- -------------------------------------------------------------------------
Class B 111,176
- -------------------------------------------------------------------------
Class C 86,375
- -------------------------------------------------------------------------
Transfer agent fees 175,046
- -------------------------------------------------------------------------
Trustees' fees 7,485
- -------------------------------------------------------------------------
Other 110,353
=========================================================================
Total expenses 1,679,758
=========================================================================
Less: Fees waived, expenses reimbursed and expense offset
arrangements (22,979)
=========================================================================
Net expenses 1,656,779
=========================================================================
Net investment income (loss) (159,481)
=========================================================================
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 $89,738) -- Note 1G 8,203,818
- -------------------------------------------------------------------------
Foreign currencies 221,748
- -------------------------------------------------------------------------
8,425,566
=========================================================================
Change in net unrealized appreciation (depreciation) of:
Investment securities (Net of tax on sale of foreign
investments of $19,865) -- Note 1G (1,648,706)
- -------------------------------------------------------------------------
Foreign currencies (568)
- -------------------------------------------------------------------------
Futures contracts (21)
=========================================================================
(1,649,295)
=========================================================================
Net gain from investment securities, foreign currencies and
futures contracts 6,776,271
=========================================================================
Net increase in net assets resulting from operations $ 6,616,790
_________________________________________________________________________
=========================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
F-5
STATEMENT OF CHANGES IN NET ASSETS
For the six months ended June 30, 2004 and the year ended December 31, 2003
(Unaudited)
<Table>
<Caption>
JUNE 30, DECEMBER 31,
2004 2003
- ------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (159,481) $ (284,447)
- ------------------------------------------------------------------------------------------
Net realized gain from investment securities, foreign
currencies and future contracts 8,425,566 5,752,968
- ------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities, foreign currencies and futures
contracts (1,649,295) 23,348,468
==========================================================================================
Net increase in net assets resulting from operations 6,616,790 28,816,989
==========================================================================================
Distributions to shareholders from net investment income:
Class A -- (120,788)
==========================================================================================
Share transactions-net:
Class A 19,647,717 56,079,420
- ------------------------------------------------------------------------------------------
Class B 7,607,123 8,070,154
- ------------------------------------------------------------------------------------------
Class C 13,176,205 3,704,141
==========================================================================================
Net increase in net assets resulting from share
transactions 40,431,045 67,853,715
==========================================================================================
Net increase in net assets 47,047,835 96,549,916
==========================================================================================
NET ASSETS:
Beginning of period 113,020,091 16,470,175
==========================================================================================
End of period (including undistributed net investment
income (loss) of $(236,889) and $(77,408) for 2004 and
2003, respectively) $160,067,926 $113,020,091
__________________________________________________________________________________________
==========================================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
F-6
NOTES TO FINANCIAL STATEMENTS
June 30, 2004
(Unaudited)
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.
Under the Trust's organizational documents, the Fund's officers, trustees,
employees and agents are indemnified against certain liabilities that may arise
out of performance of their duties to the Fund. Additionally, in the normal
course of business, the Fund enters into contracts that contain a variety of
indemnification clauses. The Fund's maximum exposure under these arrangements is
unknown as this would involve future claims that may be made against the Fund
that have not yet occurred. However, the Fund has not had prior claims or losses
pursuant to these contracts.
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 specific 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"). Futures
contracts are valued at the final settlement price set by an exchange on
which they are principally traded. Listed options are valued at the mean
between the last bid and the ask prices from the exchange on which they are
principally traded. Options not listed on an exchange are valued by an
independent source at the mean between the last bid and ask prices.
Investments in open-end registered investment companies and closed-end
registered investment companies that do not trade on an exchange are valued
at the end of day net asset value per share. Investments in closed-end
registered investment companies that trade on an exchange are valued at the
last sales price as of the close of the customary trading session on the
exchange where the security is principally traded.
Foreign securities (including foreign exchange contracts) are converted
into U.S. dollar amounts using the applicable exchange rates as of the
close of the NYSE. Generally, trading in foreign securities is
substantially completed each day at various times prior to the close of the
NYSE. The values of such securities used in computing the net asset value
of the Fund's shares are determined as of the close of the respective
markets. Events affecting the values of such foreign securities may occur
between the times at which the particular foreign market closes and the
close of the customary trading session of the NYSE which would not
ordinarily be reflected in the computation of the Fund's net asset value.
If 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.
F-7
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions
are accounted for on a trade date basis. Realized gains or losses on sales
are computed on the basis of specific identification of the securities
sold. Interest income is recorded on the accrual basis from settlement
date. Dividend income is recorded on the ex-dividend date.
Brokerage commissions and mark ups are considered transaction costs and
are recorded as an increase to the cost basis of securities purchased
and/or a reduction of proceeds on a sale of securities. Such transaction
costs are included in the determination of realized and unrealized gain
(loss) from investment securities reported in the Statement of Operations
and the Statement of Changes in Net Assets and the realized and unrealized
net gains (losses) on securities per share in the Financial Highlights.
Transaction costs are included in the calculation of the Fund's net asset
value and, accordingly, they reduce the Fund's total returns. These
transaction costs are not considered operating expenses and are not
reflected in net investment income reported in the Statement of Operations
and Statement of Changes in Net Assets, or the net investment income per
share and ratios of expenses and net investment income reported in the
Financial Highlights, nor are they limited by any expense limitation
arrangements between the Fund and the advisor.
The Fund 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 distributed to shareholders. Therefore, no provision for
federal income taxes is recorded in the financial statements.
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.
F. REDEMPTION FEES -- The Fund has 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, including exchanges of shares held less than 30 days. The
redemption fee is accounted for as an addition to shares of beneficial
interest by the Fund and is allocated among the share classes based on the
relative net assets of each class.
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 (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.
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.
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. The Fund's advisor has contractually agreed to waive
advisory fees and/or reimburse expenses of Class A, Class B and Class C shares
to the extent necessary to limit Total Annual Fund Operating Expenses (excluding
certain items discussed below) for the Fund's Class A shares to 2.00%. In
determining the advisor's obligation to waive advisory fees and/or reimburse
expenses, the following expenses are not taken into account, and could cause the
Total Annual Fund Operating Expenses to exceed the caps stated above: (i)
interest; (ii) taxes; (iii) dividend expense on short sales; (iv) extraordinary
items (these are expenses that are not
F-8
anticipated to arise from the Fund's day-to-day operations), or items designated
as such by the Fund's board of trustees; (v) expenses related to a merger or
reorganization, as approved by the Fund's board of trustees; and (vi) expenses
that the Fund has incurred but did not actually pay because of an expense offset
arrangement. Currently, the only expense offset arrangements from which the Fund
benefits are in the form of credits that the Fund receives from banks where the
Fund or its transfer agent has deposit accounts in which it holds uninvested
cash. Those credits are used to pay certain expenses incurred by the Fund. To
the extent that the annualized expense ratio does not exceed the expense
limitation, AIM will retain its ability to be reimbursed for such fee waivers or
reimbursements prior to the end of each fiscal year. 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 six
months ended June 30, 2004, AIM waived fees of $674.
For the period ended June 30, 2004, at the direction of the trustees of the
Trust, AMVESCAP PLC ("AMVESCAP") has assumed $21,352 of expenses incurred by the
Fund in connection with matters related to both pending regulatory complaints
against INVESCO Funds Group, Inc. ("IFG") alleging market timing and the ongoing
market timing investigations with respect to IFG and AIM, including legal,
audit, shareholder servicing, communication and trustee expenses.
The Fund, pursuant to a master administrative services agreement with AIM,
has agreed to pay AIM for certain administrative costs incurred in providing
accounting services to the Fund. For the six months ended June 30, 2004, AIM was
paid $24,863 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 six months ended June 30, 2004, AISI retained $100,270 for
such services.
The Trust has entered into master distribution agreements with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Class A, Class B and Class C shares of the Fund. The Trust has adopted plans
pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund's Class A,
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 six months
ended June 30, 2004, the Class A, Class B and Class C shares paid $221,864,
$111,176 and $86,375, 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 six months
ended June 30, 2004, AIM Distributors advised the Fund that it retained $80,068
in front-end sales commissions from the sale of Class A shares and $48,831,
$5,428 and $25,809 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. The Fund
and the money market funds below have the same investment advisor and therefore,
are considered to be affiliated. 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 June 30, 2004.
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
<Table>
<Caption>
PROCEEDS UNREALIZED REALIZED
MARKET VALUE PURCHASES FROM APPRECIATION MARKET VALUE DIVIDEND GAIN
FUND 12/31/03 AT COST SALES (DEPRECIATION) 06/30/04 INCOME (LOSS)
- ---------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-Institutional
Class $4,055,406 $31,529,871 $(33,160,137) $ -- $2,425,140 $17,222 $ --
- ---------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-Institutional
Class 4,055,406 31,529,871 (33,160,137) -- 2,425,140 16,413 --
=================================================================================================================================
$8,110,812 $63,059,742 $(66,320,274) $ -- $4,850,280 $33,635 $ --
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
NOTE 4--EXPENSE OFFSET ARRANGEMENT
The expense offset arrangement is comprised of transfer agency credits which
result from balances in Demand Deposit Accounts (DDA) used by the transfer agent
for clearing shareholder transactions. For the six months ended June 30, 2004,
the Fund received reductions in transfer agency fees of $953 under an expense
offset arrangement, which resulted in a reduction of the Fund's total expenses
of $953.
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. Those Trustees who defer compensation have
the option to select various AIM Funds 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.
Obligations under the deferred compensation and retirement plans represent
unsecured claims against the general assets of the Fund.
During the six months ended June 30, 2004, the Fund paid legal fees of
$1,248 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
Pursuant to an exemptive order from the SEC, 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 is 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 six months ended June 30, 2004, the Fund did not borrow or lend
under the interfund lending facility or borrow under the uncommitted unsecured
revolving credit facility.
Additionally, the Fund is permitted to temporarily carry a negative or
overdrawn balance in its account with SSB, 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--TAX INFORMATION
The amount and character of income and gains to be distributed are determined in
accordance with income tax regulations, which may differ from generally accepted
accounting principles. Reclassifications are made to the Fund's capital accounts
to reflect income and gains available for distribution (or available capital
loss carryforward) under income tax regulations. The tax character of
distributions paid during the year and the tax components of net assets will be
reported at the Fund's fiscal year-end.
Capital loss carryforward is calculated and reported as of a specific date.
Results of transactions and other activity after that date may affect the amount
of capital loss carryforward actually available for the Fund to utilize. The
ability to use capital loss carryforward may be limited under the Internal
Revenue Code and related regulations.
The Fund did not have a capital loss carryforward for tax purposes as of
December 31, 2003.
NOTE 8--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities
and money market funds) purchased and sold by the Fund during the six months
ended June 30, 2004 was $149,671,306 and $106,573,399, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- -------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $25,135,470
- -------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (2,366,260)
===============================================================================
Net unrealized appreciation of investment securities $22,769,210
_______________________________________________________________________________
===============================================================================
Cost of investments for tax purposes is $134,398,275.
</Table>
F-10
NOTE 9--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
- ----------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2004 DECEMBER 31, 2003
-------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------------------------------------------------------------
Sold:
Class A 7,949,095 $102,974,147 11,919,761 $109,893,228
- ----------------------------------------------------------------------------------------------------------------------
Class B 1,127,834 14,369,711 1,165,952 11,299,951
- ----------------------------------------------------------------------------------------------------------------------
Class C 1,596,434 20,284,523 2,225,582 18,994,606
======================================================================================================================
Issued as reinvestment of dividends:
Class A -- -- 7,488 87,303
======================================================================================================================
Automatic conversion of Class B shares to Class A shares:
Class A 53,194 697,526 33,321 340,599
- ----------------------------------------------------------------------------------------------------------------------
Class B (54,119) (697,526) (33,826) (340,599)
======================================================================================================================
Reacquired: *
Class A (6,649,963) (84,023,956) (6,138,550) (54,241,710)
- ----------------------------------------------------------------------------------------------------------------------
Class B (485,012) (6,065,062) (313,814) (2,889,198)
- ----------------------------------------------------------------------------------------------------------------------
Class C (565,091) (7,108,318) (1,867,698) (15,290,465)
======================================================================================================================
2,972,372 $ 40,431,045 6,998,216 $ 67,853,715
______________________________________________________________________________________________________________________
======================================================================================================================
</Table>
* Net of redemption fees of $15,830, $3,585, and $3,270 for Class A, Class B,
and Class C for 2004, respectively, and $121, $28 and $17 for Class A, Class B
and Class C for 2003, respectively, based on the relative net assets of each
class.
F-11
NOTE 10--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
CLASS A
--------------------------------------------------------------------------
AUGUST 31,
2000
SIX MONTHS (DATE OPERATIONS
ENDED YEAR ENDED DECEMBER 31, COMMENCED) TO
JUNE 30, ---------------------------------- DECEMBER 31,
2004 2003 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 12.08 $ 6.91 $ 7.10 $ 7.97 $ 10.00
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.00)(a) (0.04)(a) (0.06)(a) (0.08)(a) (0.03)(a)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.94 5.24 (0.13) (0.76) (2.00)
=================================================================================================================================
Total from investment operations 0.94 5.20 (0.19) (0.84) (2.03)
=================================================================================================================================
Less dividends from net investment income 0.00 (0.03) -- (0.03) --
=================================================================================================================================
Redemption fees added to shares of beneficial
interest 0.00 0.00 -- -- --
=================================================================================================================================
Net asset value, end of period $ 13.02 $ 12.08 $ 6.91 $ 7.10 $ 7.97
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) 7.78% 75.10% (2.68)% (10.48)% (20.30)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $111,696 $87,269 $9,703 $ 5,202 $ 5,625
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and expense reimbursements 1.84%(c) 2.00% 2.01% 2.00%(d) 2.11%(e)
- ---------------------------------------------------------------------------------------------------------------------------------
Without fee waivers and expense reimbursements 1.87%(c) 2.35% 3.03% 4.53%(d) 6.83%(e)
=================================================================================================================================
Ratio of net investment income (loss) to average net
assets (0.04)%(c) (0.46)% (0.85)% (1.12)% (1.09)%(e)
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(f) 70% 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 and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Total returns do not include sales charges and
are not annualized for periods less than one year.
(c) Ratios are annualized and based on average daily net assets of
$127,475,843.
(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-12
NOTE 10--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS B
--------------------------------------------------------------------------
AUGUST 31,
2000
SIX MONTHS (DATE OPERATIONS
ENDED YEAR ENDED DECEMBER 31, COMMENCED) TO
JUNE 30, ---------------------------------- DECEMBER 31,
2004 2003 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 11.89 $ 6.84 $ 7.07 $ 7.95 $ 10.00
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.04)(a) (0.10)(a) (0.11)(a) (0.13)(a) (0.05)(a)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.93 5.15 (0.12) (0.75) (2.00)
=================================================================================================================================
Total from investment operations 0.89 5.05 (0.23) (0.88) (2.05)
=================================================================================================================================
Redemption fees added to shares of beneficial
interest 0.00 0.00 -- -- --
=================================================================================================================================
Net asset value, end of period $ 12.78 $ 11.89 $ 6.84 $ 7.07 $ 7.95
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) 7.48% 73.83% (3.25)% (11.07)% (20.50)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $25,300 $16,543 $3,918 $ 2,016 $ 1,992
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and expense reimbursements 2.49%(c) 2.65% 2.66% 2.70%(d) 2.81%(e)
- ---------------------------------------------------------------------------------------------------------------------------------
Without fee waivers and expense reimbursements 2.52%(c) 3.00% 3.68% 5.23%(d) 7.53%(e)
=================================================================================================================================
Ratio of net investment income (loss) to average net
assets (0.69)%(c) (1.11)% (1.50)% (1.83)% (1.79)%(e)
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(f) 70% 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 and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Total returns do not include sales charges and
are not annualized for periods less than one year.
(c) Ratios are annualized and based on average daily net assets of
$22,357,451.
(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-13
NOTE 10--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS C
-------------------------------------------------------------------------
AUGUST 31,
2000
SIX MONTHS (DATE OPERATIONS
ENDED YEAR ENDED DECEMBER 31, COMMENCED) TO
JUNE 30, --------------------------------- DECEMBER 31,
2004 2003 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 11.89 $ 6.83 $ 7.07 $ 7.95 $ 10.00
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.04)(a) (0.10)(a) (0.11)(a) (0.13)(a) (0.05)(a)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.92 5.16 (0.13) (0.75) (2.00)
=================================================================================================================================
Total from investment operations 0.88 5.06 (0.24) (0.88) (2.05)
=================================================================================================================================
Redemption fees added to shares of beneficial interest 0.00 0.00 -- -- --
=================================================================================================================================
Net asset value, end of period $ 12.77 $11.89 $ 6.83 $ 7.07 $ 7.95
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) 7.40% 74.09% (3.39)% (11.07)% (20.50)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $23,071 $9,208 $2,849 $ 2,588 $ 2,649
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and expense reimbursements 2.49%(c) 2.65% 2.66% 2.70%(d) 2.81%(e)
- ---------------------------------------------------------------------------------------------------------------------------------
Without fee waivers and expense reimbursements 2.52%(c) 3.00% 3.68% 5.23%(d) 7.53%(e)
=================================================================================================================================
Ratio of net investment income (loss) to average net
assets (0.69)%(c) (1.11)% (1.50)% (1.83)% (1.79)%(e)
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(f) 70% 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 and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Total returns do not include sales charges and
are not annualized for periods less than one year.
(c) Ratios are annualized and based on average daily net assets of
$17,369,832.
(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.
NOTE 11--LEGAL PROCEEDINGS
The mutual fund industry as a whole is currently subject to regulatory inquiries
and litigation related to a wide range of issues. These issues include, among
others, market timing activity, late trading, fair value pricing, excessive or
improper advisory and/or distribution fees, mutual fund sales practices,
including revenue sharing and directed-brokerage arrangements, investments in
securities of other registered investment companies and issues related to
Section 529 college savings plans.
As described more fully below, INVESCO Funds Group, Inc. ("IFG"), the former
investment advisor to the INVESCO Funds, is the subject of three regulatory
actions concerning market timing activity in the INVESCO Funds. In addition, IFG
and A I M Advisors, Inc. ("AIM"), the Fund's investment advisor, are the subject
of a number of regulatory inquiries and civil lawsuits, as described more fully
below. Both IFG and AIM are indirect wholly owned subsidiaries of AMVESCAP PLC
("AMVESCAP"). Additional regulatory actions and/or civil lawsuits related to the
above or other issues may be filed against IFG, AIM and/or related entities and
individuals in the future. Additional regulatory inquiries related to the above
or other issues also may be received by IFG, AIM and/or related entities and
individuals in the future.
As a result of the regulatory actions and inquiries and civil lawsuits
discussed below, 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.
Regulatory Actions Pending Against 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 former capacity as the
chief executive officer of IFG. Mr. Cunningham also formerly held the positions
of Chief Operating Officer and Senior Vice President of A I M Management Group
Inc. ("AIM Management"), 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. There
can be no assurance that the
F-14
NOTE 11--LEGAL PROCEEDINGS (CONTINUED)
SEC, NYAG or State of Colorado will not file additional charges against IFG or
Mr. Cunningham or civil proceedings against other current or former officers or
employees of IFG.
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.
Response of AMVESCAP
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 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. AMVESCAP has retained outside counsel to represent its subsidiaries in
connection with the market timing regulatory inquiries and certain other
matters. As part of this representation, this outside counsel has been
conducting a review of IFG's and AIM's conduct with respect to market timing and
related matters. In addition, AMVESCAP has retained separate 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.
At the direction of the trustees of the AIM and INVESCO Funds, AMVESCAP has
agreed to pay all of the expenses incurred by the AIM and INVESCO Funds related
to the market timing investigations, including expenses incurred in connection
with the pending regulatory complaints against IFG alleging market timing and
the ongoing market timing investigations with respect to IFG and AIM.
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, including
but not limited to A I M Capital Management, Inc. ("AIM Capital"), AIM Funds
Management Inc., INVESCO Institutional (N.A.), Inc. ("IINA"), INVESCO Global
Asset Management (N.A.), Inc. and INVESCO Senior Secured Management, Inc., from
serving as an investment advisor to any investment company registered under the
Investment Company Act of 1940, including the Fund. The Fund has been informed
by AIM that, if AIM is so barred, 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.
Regulatory Inquiries Concerning IFG
IFG, certain related entities, certain of their current and former officers
and/or certain of the INVESCO Funds have received regulatory inquiries in the
form of subpoenas or other oral or written requests for information and/or
documents related to one or more of the following issues, some of which concern
one or more INVESCO Funds: market timing activity, late trading, fair value
pricing, excessive or improper advisory and/or distribution fees, mutual fund
sales practices, including revenue sharing and directed-brokerage arrangements,
and investments in securities of other registered investment companies. These
regulators include the Securities and Exchange Commission ("SEC"), the NASD,
Inc. ("NASD"), the Florida Department of Financial Services, the Commissioner of
Securities for the State of Georgia, the Attorney General of the State of West
Virginia, the West Virginia Securities Commission, the Colorado Securities
Division and the Bureau of Securities of the State of New Jersey. IFG and
certain of these other parties also have received more limited inquiries from
the United States Department of Labor ("DOL") and the United States Attorney's
Office for the Southern District of New York, some of which concern one or more
INVESCO Funds. IFG is providing full cooperation with respect to these
inquiries.
Regulatory Inquiries Concerning AIM
AIM, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds have received regulatory inquiries in the form
of subpoenas or other oral or written requests for information and/or documents
related to one or more of the following issues, some of which concern one or
more AIM Funds: market timing activity, late trading, fair value pricing,
excessive or improper advisory and/or distribution fees, mutual fund sales
practices, including revenue sharing and directed-brokerage arrangements,
investments in securities of other registered investment companies and issues
related to Section 529 college savings plans. These regulators include the SEC,
the NASD, the Department of Banking for the State of Connecticut, the NYAG, the
Commissioner of Securities for the State of Georgia, the Attorney General of the
State of West Virginia, the West Virginia Securities Commission and the Bureau
of Securities of the State of New Jersey. AIM and certain of these other parties
also have received more limited inquiries from the DOL, the Internal Revenue
Service, the United States Attorney's Office for the Southern District of New
York, the United States Attorney's Office for the Central District of
California, the United States Attorney's Office for the District of
Massachusetts, the Massachusetts Securities Division and the U.S. Postal
Inspection Service, some of which concern one or more AIM Funds. AIM is
providing full cooperation with respect to these inquiries.
F-15
NOTE 11--LEGAL PROCEEDINGS (CONTINUED)
Private Civil Actions Alleging Market Timing
Multiple civil 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, AIM
Management, AMVESCAP, certain related entities and/or certain of their current
and former officers) making allegations substantially similar to the allegations
in the three regulatory actions concerning market timing activity in the INVESCO
Funds that have been filed by the SEC, the NYAG and the State of Colorado
against these parties. These 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/or
(iv) breach of contract. These lawsuits were initiated 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; declaration that the advisory
agreement is unenforceable or void; refund of advisory fees; interest; and
attorneys' and experts' fees.
The Judicial Panel on Multidistrict Litigation (the "Panel") has ruled that
all actions pending in Federal court that allege market timing and/or late
trading be transferred to the United States District Court for the District of
Maryland for coordinated pre-trial proceedings. All such cases against IFG and
the other AMVESCAP defendants filed to date have been conditionally or finally
transferred to the District of Maryland in accordance with the Panel's
directive. In addition, the proceedings initiated in state court have been
removed by IFG to Federal court and transferred to the District of Maryland. The
plaintiff in one such action continues to seek remand to state court.
Private Civil Actions Alleging Improper Use of Fair Value Pricing
Multiple civil class action lawsuits have been filed against various parties
(including, depending on the lawsuit, certain INVESCO Funds, certain AIM Funds,
IFG and/or AIM) alleging that certain AIM and INVESCO Funds inadequately
employed fair value pricing. These lawsuits allege a variety of theories of
recovery, including but not limited to: (i) violations of various provisions of
the Federal securities laws; (ii) common law breach of duty; and (iii) common
law negligence and gross negligence. These lawsuits have been filed in both
Federal and state courts and seek such remedies as compensatory and punitive
damages; interest; and attorneys' fees and costs.
Private Civil Actions Alleging Excessive Advisory and Distribution Fees
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, IFG, AIM, IINA, A I M Distributors, Inc. ("AIM Distributors")
and/or INVESCO Distributors, Inc. ("INVESCO Distributors")) alleging that the
defendants charged excessive advisory and distribution fees and failed to pass
on to shareholders the perceived savings generated by economies of scale.
Certain of these lawsuits also allege that the defendants adopted unlawful
distribution plans. These lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the Federal
securities laws; (ii) breach of fiduciary duty; and/or (iii) breach of contract.
These lawsuits have been filed in both Federal and state courts and seek such
remedies as damages; injunctive relief; rescission of certain Funds' advisory
agreements and distribution plans; interest; prospective relief in the form of
reduced fees; and attorneys' and experts' fees.
Private Civil Actions Alleging Improper Distribution Fees Charged to Closed
Funds
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, IFG, AIM, AIM Distributors and/or certain of the trustees of the
AIM and INVESCO Funds) alleging that the defendants breached their fiduciary
duties by charging distribution fees while funds and/or specific share classes
were closed generally to new investors and/or while other share classes of the
same fund were not charged the same distribution fees. These lawsuits allege a
variety of theories of recovery, including but not limited to: (i) violation of
various provisions of the Federal securities laws; and (ii) breach of fiduciary
duty. These lawsuits have been filed in both Federal and state courts and seek
such remedies as damages; injunctive relief; and attorneys' and experts' fees.
Private Civil Actions Alleging Improper Mutual Fund Sales Practices and
Directed-Brokerage Arrangements
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, AIM Management, IFG, AIM, AIM Investment Services, Inc. ("AIS")
and/or certain of the trustees of the AIM and INVESCO Funds) alleging that the
defendants improperly used the assets of the AIM and INVESCO Funds to pay
brokers to aggressively push the AIM and INVESCO Funds over other mutual funds
and that the defendants concealed such payments from investors by disguising
them as brokerage commissions. These lawsuits allege a variety of theories of
recovery, including but not limited to: (i) violation of various provisions of
the Federal securities laws; (ii) breach of fiduciary duty; and (iii) aiding and
abetting a breach of fiduciary duty. These lawsuits have been filed in Federal
courts and seek such remedies as compensatory and punitive damages; rescission
of certain Funds' advisory agreements and distribution plans and recovery of all
fees paid; an accounting of all fund-related fees, commissions and soft dollar
payments; restitution of all unlawfully or discriminatorily obtained fees and
charges; and attorneys' and experts' fees.
At the present time, management of AIM and the Fund are unable to estimate the
impact, if any, that the outcome of the matters described above may have on AIM
or the Fund.
F-16
OTHER INFORMATION
TRUSTEES AND OFFICERS
<Table>
BOARD OF TRUSTEES OFFICERS OFFICE OF THE FUND
Bob R. Baker Robert H. Graham 11 Greenway Plaza
Chairman and President Suite 100
Frank S. Bayley Houston, TX 77046-1173
Mark H. Williamson
James T. Bunch Executive Vice President INVESTMENT ADVISOR
A I M Advisors, Inc.
Bruce L. Crockett Kevin M. Carome 11 Greenway Plaza
Senior Vice President, Secretary Suite 100
Albert R. Dowden and Chief Legal Officer Houston, TX 77046-1173
Edward K. Dunn Jr. Sidney M. Dilgren TRANSFER AGENT
Vice President and Treasurer AIM Investment Services, Inc.
Jack M. Fields P.O. Box 4739
Robert G. Alley Houston, TX 77210-4739
Carl Frischling Vice President
CUSTODIAN
Robert H. Graham Stuart W. Coco State Street Bank and Trust Company
Vice President 225 Franklin Street
Gerald J. Lewis Boston, MA 02110-2801
Melville B. Cox
Prema Mathai-Davis Vice President COUNSEL TO THE FUND
Ballard Spahr
Lewis F. Pennock Karen Dunn Kelley Andrews & Ingersoll, LLP
Vice President 1735 Market Street
Ruth H. Quigley Philadelphia, PA 19103-7599
Edgar M. Larsen
Louis S. Sklar Vice President COUNSEL TO THE TRUSTEES
Kramer, Levin, Naftalis & Frankel LLP
Larry Soll, Ph.D. 919 Third Avenue
New York, NY 10022-3852
Mark H. Williamson
DISTRIBUTOR
A I M Distributors, Inc.
11 Greenway Plaza
Suite 100
Houston, TX 77046-1173
</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(4) AIM High Yield Fund
AIM Blue Chip Fund AIM Global Aggressive Growth Fund AIM Income Fund
AIM Capital Development Fund AIM Global Equity Fund(5) AIM Intermediate Government Fund
AIM Charter Fund AIM Global Growth Fund AIM Limited Maturity Treasury Fund
AIM Constellation Fund AIM Global Value Fund AIM Money Market Fund
AIM Dent Demographic Trends Fund AIM International Emerging Growth Fund(6) AIM Short Term Bond Fund
AIM Diversified Dividend Fund 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(7)
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(1) 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 ALLOCATION SOLUTIONS
AIM Premier Equity Fund INVESCO Gold & Precious Metals Fund
AIM Select Equity Fund INVESCO Health Sciences Fund AIM Aggressive Allocation Fund
AIM Small Cap Equity Fund(2) INVESCO Leisure Fund AIM Conservative Allocation Fund
AIM Small Cap Growth Fund(3) INVESCO Multi-Sector Fund AIM Moderate Allocation Fund
AIM Trimark Endeavor Fund INVESCO Technology Fund
AIM Trimark Small Companies Fund INVESCO Utilities Fund
AIM Weingarten Fund
INVESCO Core Equity Fund =======================================================================================
INVESCO Dynamics Fund CONSIDER THE INVESTMENT OBJECTIVES, RISKS, AND CHARGES AND EXPENSES CAREFULLY. FOR
INVESCO Mid-Cap Growth Fund THIS AND OTHER IMPORTANT INFORMATION ABOUT AIM AND INVESCO FUNDS, OBTAIN A PROSPECTUS
INVESCO Small Company Growth Fund FROM YOUR FINANCIAL ADVISOR OR AIMINVESTMENTS.COM AND READ IT THOROUGHLY BEFORE
INVESCO S&P 500 Index Fund INVESTING.
INVESCO Total Return Fund* =======================================================================================
</Table>
* Domestic equity and income fund
(1) 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. (2) 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. (3) 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. (4) AIM European Small Company Fund will close to new investors when
net assets reach $500 million. (5) Effective March 31, 2004, AIM Global Trends
Fund was renamed AIM Global Equity Fund. (6) AIM International Emerging Growth
Fund will close to new investors when net assets reach $500 million. (7)
Effective November 24, 2003, INVESCO International Blue Chip Value Fund was
renamed INVESCO International Core Equity Fund.
If used after October 20, 2004, this report 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 $139 billion in assets. AIM is a subsidiary of
AMVESCAP PLC, one of the world's largest independent financial services
companies with $372 billion in assets under management. Data as of June 30,
2004.
AIMinvestments.com IEG-SAR-1 AIM Distributors, INC.
<Table>
YOUR GOALS. OUR SOLUTIONS.--Registered Trademark--
- -------------------------------------------------------------------------------------
Mutual Retirement Annuities College Separately Offshore Alternative
Cash [A I M INVESTMENTS LOGO APPEARS HERE]
Funds Products Savings Managed Products Investments Management --Registered Trademark--
Plans Accounts
- -------------------------------------------------------------------------------------
</Table>
AIM MID CAP BASIC VALUE FUND
Semiannual Report to Shareholders o June 30, 2004
[COVER IMAGE]
YOUR GOALS. OUR SOLUTIONS. [AIM INVESTMENTS LOGO APPEARS HERE]
- --Registered Trademark-- --Registered Trademark--
<Table>
===================================================================================================================================
AIM MID CAP BASIC VALUE FUND SEEKS LONG-TERM GROWTH OF CAPITAL.
o Unless otherwise stated, information presented in this report is as of 6/30/04 and is based on total net assets.
===================================================================================================================================
ABOUT SHARE CLASSES ABOUT INDEXES USED IN THIS REPORT securities), is compiled by Lehman
Brothers, a global investment bank.
o Effective 9/30/03, Class B shares are o The unmanaged Lipper Mid-Cap Value
not available as an investment for Fund Index represents an average of the OTHER INFORMATION
retirement plans maintained pursuant to performance of the 30 largest
Section 401 of the Internal Revenue mid-capitalization value funds tracked o Bloomberg, Inc. is a well-known
Code, including 401(k) plans, money by Lipper, Inc., an independent mutual independent financial research and
purchase pension plans and profit fund performance monitor. reporting firm.
sharing plans. Plans that have existing
accounts invested in Class B shares will o The unmanaged Standard & Poor's o The returns shown in the Management's
continue to be allowed to make Composite Index of 500 Stocks (the S&P Discussion of Fund Performance are based
additional purchases. 500--Registered Trademark-- Index) is an on net asset values calculated for
index of common stocks frequently used shareholder transactions. Generally
o Class R shares are available only to as a general measure of U.S. stock accepted accounting principles require
certain retirement plans. Please see the market performance. adjustments to be made to the net assets
prospectus for more information. of the fund at period end for financial
o The unmanaged Russell Midcap reporting purposes, and as such, the net
PRINCIPAL RISKS OF INVESTING IN THE FUND --Registered Trademark-- Value Index is asset values for shareholder
a subset of the Russell Midcap Index, transactions and the returns based on
o Investing in small and mid-size which represents the performance of the those net asset values may differ from
companies involves risks not associated stocks of domestic mid-capitalization the net asset values and returns
with investing in more established companies; the Value subset measures the reported in the Financial Highlights.
companies, including business risk, performance of Russell Midcap companies
significant stock price fluctuations and with lower price/book ratios and lower o Industry classifications used in this
illiquidity. forecasted growth values. report are generally according to the
Global Industry Classification Standard,
o International investing presents o The fund is not managed to track the which was developed by and is the
certain risks not associated with performance of any particular index, exclusive property and a service mark of
investing solely in the United States. including the indexes defined here, and Morgan Stanley Capital International
These include risks relating to consequently, the performance of the Inc. and Standard & Poor's.
fluctuations in the value of the U.S. fund may deviate significantly from the
dollar relative to the values of other performance of the indexes. A description of the policies and
currencies, the custody arrangements procedures that the Fund uses to
made for the fund's foreign holdings, o A direct investment cannot be made in determine how to vote proxies relating
differences in accounting, political an index. Unless otherwise indicated, to portfolio securities is available
risks and the lesser degree of public index results include reinvested without charge, upon request, by calling
information required to be provided by dividends, and they do not reflect sales 800-959-4246, or on the AIM Web site,
non-U.S. companies. The fund may invest charges. Performance of an index of AIMinvestments.com.
up to 25% of its assets in the funds reflects fund expenses;
securities of non-U.S. issuers. performance of a market index does not.
o The fund may participate in the o The unmanaged MSCI World Index is a
initial public offering (IPO) market in group of global securities tracked by
some market cycles. Because of the Morgan Stanley Capital International.
fund's small asset base, any investment
the fund may make in IPOs may o The unmanaged Lehman U.S. Aggregate
significantly affect the fund's total Bond Index, which represents the U.S.
return. As the fund's assets grow, the investment-grade fixed-rate bond market
impact of IPO investments will decline, (including government and corporate
which may reduce the effect of IPO securities, mortgage pass-through
investments on the fund's total return. securities and asset-backed
</Table>
=============================================================================
THIS REPORT MUST BE ACCOMPANIED OR PRECEDED BY A CURRENTLY EFFECTIVE FUND
PROSPECTUS, WHICH CONTAINS MORE COMPLETE INFORMATION, INCLUDING SALES CHARGES
AND EXPENSES. READ IT CAREFULLY BEFORE YOU INVEST.
=============================================================================
=====================================================
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
=====================================================
AIMinvestments.com
TO OUR SHAREHOLDERS
Dear Fellow Shareholder in The AIM Family of
Funds--Registered Trademark--:
[PHOTO OF The six months covered by this report could be characterized
ROBERT H. as a trendless market. Positive news about employment and a
GRAHAM] strengthening economy were offset by concerns about higher
interest rates, continued violence in Iraq and high oil
ROBERT H. GRAHAM prices. The result: muted performance in both U.S. equity
and fixed-income markets.
The same macroeconomic factors were at work overseas as
well, causing developed international markets to generally
perform in line with that of the United States. In fact, the
MSCI World Index tracked the performance of the S&P 500
Index with six-month returns of 3.52% and 3.44%,
respectively.
The anticipation of higher interest rates hampered bond performance, with
most areas of the fixed-income market turning in flat returns for the six-month
period, as evidenced by the 0.15% return of the Lehman U.S. Aggregate Bond
Index. Considered a good proxy for the U.S. bond market, this index includes
fixed-rate mortgage-backed securities, U.S. agency investments, U.S. Treasuries
of various maturities and U.S. corporate bonds.
In an unremarkable period like the one covered by this report, we encourage
shareholders to look past short-term market performance and remain focused on
their long-term investment goals. Whether markets rise, fall or go sideways, the
only certainty is their unpredictability, especially in the short run.
Historically, markets have risen over the long term, with the S&P 500 Index
returning 13.55% over the past 25 years and the Lehman U.S. Aggregate Bond Index
returning 9.20%.* While past performance cannot guarantee future results, we
believe that staying invested for the long term offers the best opportunity for
capital growth.
For information on how your fund performed and was managed during the six
months covered by this report, please read your fund managers' discussion on the
following pages. We hope you find it informative.
There continues to be increased regulatory focus on mutual funds and other
investment products. For the latest information about ongoing regulatory
matters, please visit our Web site, AIMinvestments.com. We continue to post
updates as information becomes available. We also encourage you to visit our Web
site for investor education and planning information as well as regular
performance updates on our funds.
As always, AIM is committed to building solutions for your investment goals,
and we thank you for your continued participation in AIM
Investments--Servicemark--. If you have any questions, please contact our Client
Service representatives at 800-959-4246.
Sincerely,
/s/ ROBERT H. GRAHAM
- ------------------------
Robert H. Graham
Chairman and President
July 20, 2004
*Average annual total returns, June 30, 1979, to June 30, 2004. Source: Lipper,
Inc.
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
<Table>
FINANCIALS, IT, AND HEALTH CARE commercial real estate markets
SECTORS BUOYED FUND PERFORMANCE stabilized or even strengthened, the Fed
reported.
Class A shares of AIM Mid Cap Basic stocks by a small margin and large-cap
Value Fund returned 8.78% at net asset stocks by a wide margin. Value stocks According to Bloomberg, more than 85%
value for the six-month reporting period generally outperformed growth stocks. of S&P 500 Index firms reporting
ended June 30, 2004, outperforming the first-quarter 2004 earnings met or
fund's benchmarks, the S&P 500 Index, As the reporting period closed, the exceeded expectations. In spite of
the Russell Midcap Value Index and the U.S. Federal Reserve (the Fed) voted to strong earnings in the materials and
Lipper Mid-Cap Value Fund Index, which hike the federal funds target rate by information technology sectors, these
returned 3.44%, 7.17% and 7.92%, 0.25%--its first rate increase in four two sectors were among the poorer
respectively. (Had the effects of the years and a move much anticipated by performing ones in the S&P 500 Index.
front-end sales charge been included, markets. The Fed's decision came amid
the return would have been lower.) signs that the economy was strengthening YOUR FUND
Results for other share classes are and inflation, while still relatively
found in the table below. The fund's tame, had risen in recent months. Financials, information technology and
outperformance was fueled in large part health care were the top contributing
by strong stock selection. Gross domestic product, the broadest sectors to fund performance during the
measure of economic activity, expanded reporting period. Despite concerns over
MARKET CONDITIONS at an annualized rate of 4.5% in the the impact of rising interest rates, the
first quarter of 2004 and 3.0% during fund's financial holdings experienced
Equity markets during the period were the second quarter. What had been a nearly double-digit returns. While many
characterized by a consolidating market "jobless recovery" produced more than of these holdings had suffered in the
environment with returns more muted than 1.2 million new jobs from January falling rate environment, we identified
those experienced during 2003. Very through June, according to the U.S. them as attractive values. With the
strong macroeconomic news on the Department of Labor. recent shift in sentiment toward higher
industrial and employment fronts was interest rates, the broader market has
offset by concerns over higher interest In its mid-June Beige Book report, begun to acknowledge this potential as
rates, continued violence in Iraq and the Fed said that economic activity in well.
consistently high oil prices. For the April and May continued to expand
reporting period, small-, mid- and nationwide, with manufacturing The information technology and health
large-cap stocks all posted single-digit increasing in most districts and retail care sectors in particular benefited
gains. Small-cap stocks were the sales remaining even or rising in most from good stock selection. Additionally,
best-performing segment, outpacing areas. Residential real estate markets the fund was overweight in both sectors
mid-cap remained strong, and in a few areas, and significantly outperformed its
respective Russell Midcap Value
comparisons.
</Table>
<Table>
====================================================================================================================================
TOP 10 EQUITY HOLDINGS* TOP 10 INDUSTRIES* FUND VS. INDEXES
1. Computer Associates 1. Data Processing & Total returns 12/31/03-6/30/04,
International, Inc. 3.9% Outsourced Services 8.4% excluding applicable sales charges. If
sales charges were included, returns
2. Aon Corp. 3.3 2. Thrifts & Mortgage Finance 5.8 would be lower.
3. Anthem, Inc. 3.1 3. Managed Health Care 5.3 CLASS A SHARES 8.78%
4. ACE Ltd. (Cayman Islands) 3.1 4. Advertising 5.2 CLASS B SHARES 8.44
5. R.H. Donnelley Corp. 3.1 5. Oil & Gas Drilling 4.6 CLASS C SHARES 8.45
6. DST Systems, Inc. 2.9 6. Apparel Retail 4.2 CLASS R SHARES 8.81
7. Radian Group Inc. 2.5 7. Systems Software 4.0 S&P 500 Index (Broad Market Index) 3.44
8. Cadbury Schweppes- 8. Multi-Line Insurance 3.8 Russell Midcap Value Index
PLC-ADR (United Kingdom) 2.5 (Style-specific Index) 7.17
9. Regional Banks 3.8
9. Acxiom Corp. 2.5 Lipper Mid-Cap Value Fund Index
10. Restaurants 3.7 (Peer Group Index) 7.92
10. Jackson Hewitt Tax Service, Inc. 2.4
Source: Lipper, Inc.
*Excludes money market fund holdings.
The fund's holdings are subject to change, and there is no TOTAL NUMBER OF HOLDINGS* 48
assurance that the fund will continue to hold any
particular security. TOTAL NET ASSETS $172.2 MILLION
====================================================================================================================================
</Table>
2
<Table>
Among specific holdings that most the past several years appears to have R. CANON COLEMAN II
benefited fund performance were Waters been corrected by the significant Mr. Coleman, Chartered
Corp., a life sciences equipment outperformance of small- and mid-cap [COLEMAN Financial Analyst,
supplier, and Aon Corp., an insurance stocks in recent periods. As a result of PHOTO] joined AMVESCAP in
brokerage and consulting company. these changing opportunities, our 1999 in its corporate
Waters' stock price has been driven by disciplined process has precipitated a associate rotation
strong underlying fundamentals. The gradual move into more economically program, working with fund managers
company has experienced a broad-based defensive sectors such as health care as throughout AMVESCAP before joining AIM
recovery for both replacements and we are increasingly able to find in 2000. He previously worked as a CPA.
equipment upgrades in its core attractive valuation opportunities in Mr. Coleman earned a B.S. and an M.S. in
instrumentation business. Aon, which has these areas. While the changes have led accounting from the University of
faced operational challenges throughout to a modest reduction in the degree the Florida. He also has an M.B.A. from The
the organization, has begun to show portfolio was geared to a recovery Wharton School at the University of
progress in improving profit margins, scenario, we believe they also further Pennsylvania.
leading investors to take a more diversified the fund and increased its
optimistic view of the company's future value content. MATTHEW W. SEINSHEIMER
performance. Mr. Seinsheimer,
IN CLOSING [SEINSHEIMER Chartered Financial
While all sectors posted positive PHOTO] Analyst, began his
returns during the period, industrials The absence of a long-term investment investment career in
detracted from the fund. Industrial horizon is clearly a major obstacle many 1992 as a fixed-income
holding SPX Corp. was one of the biggest face in building significant wealth. trader. He later served as a portfolio
detractors, posting a loss. SPX Corp., Results during this period were manager on both fixed income and equity
which manufactures a wide variety of favorable, but normal market volatility portfolios. Mr. Seinsheimer joined AIM
industrial and automotive systems and predominates in the short-run and limits as a senior analyst in 1998 and assumed
components, reported disappointing our ability to measure success. But over his current responsibilities in 2000. He
financial results that proved to be a longer time periods, we have the received a B.B.A. from Southern
surprise given the strength shown by so potential to turn market overreaction Methodist University and an M.B.A. from
many of its competitors. Consumer and volatility into capital The University of Texas at Austin.
discretionary holding Interpublic Group, appreciation. Our strategy is to invest
an advertising conglomerate, was also a in quality companies when they are MICHAEL J. SIMON
negative in the period. The stock significantly undervalued by the market. Mr. Simon, Chartered
weakened on continued soft global We believe a long-term investment [SIMON Financial Analyst,
advertising spending and also suffered horizon and attractive value content are PHOTO] joined AIM in 2001.
from persistent challenges incurred in critical to creating wealth. At the Prior to joining
its restructuring efforts. We believe close of the period the discount between AIM, He worked as a
the issues faced by both companies are market value and our estimate of vice president, equity analyst and
transitory in nature and had only a portfolio intrinsic value remained portfolio manager. Mr. Simon, who began
modest impact on our estimate of attractive by historical standards. We his investment career in 1989, received
intrinsic value. As a result, we will continue to work hard on your a B.B.A. in finance from Texas Christian
continued to hold both SPX Corp. and behalf to protect and grow this University and an M.B.A. from the
Interpublic Group at the close of the portfolio value. In the meantime, thank University of Chicago. He has served as
reporting period. you for your investment and for sharing Occasional Faculty in the Finance and
our long-term horizon. Decision Sciences Department of Texas
At this point in the economic Christian University's M.J. Neeley
recovery, the extremes created in the See important fund and index School of Business.
recent bear market have largely been disclosures inside front cover.
erased. As markets have rallied, the BRET W. STANLEY
abundance of compelling valuation Mr. Stanley, Chartered
opportunities in economically sensitive [STANLEY Financial Analyst,
stocks relative to more defensive stocks PHOTO] is lead portfolio
has significantly decreased. At the manager of AIM Mid
close of the reporting period, we saw Cap Basic Value Fund
almost equally attractive valuation and the head of AIM's Value Investment
opportunities in both areas. Based on Management Unit. Prior to joining AIM in
our valuation estimates, the relative 1998, He served as a vice president and
valuation advantage smaller companies portfolio manager and managed growth and
enjoyed during income, equity income and value
portfolios. He began his investment
career in 1988. Mr. Stanley received a
B.B.A. in finance from The University of
Texas at Austin and an M.S. in finance
from the University of Houston.
Assisted by the Basic Value Team
[RIGHT ARROW GRAPHIC]
FOR A PRESENTATION OF YOUR FUND'S
LONG-TERM PERFORMANCE RECORD, PLEASE
TURN THE PAGE.
</Table>
3
LONG-TERM PERFORMANCE
YOUR FUND'S LONG-TERM PERFORMANCE
================================================================================
Below you will find a presentation of your fund's long-term performance record
for periods ended 6/30/04, the close of the six-month period covered by this
report.
Please read the important disclosure accompanying these tables, which explains
how fund performance is calculated and the sales charges, if any, that apply to
the share class in which you are invested.
================================================================================
<Table>
====================================================================================================================================
AVERAGE ANNUAL TOTAL RETURNS Class R shares' inception date is Class A share performance reflects
4/30/04. Returns since that date are the maximum 5.50% sales charge, and
As of 6/30/04, including applicable historical returns. All other returns Class B and Class C share performance
sales charges are blended returns of historical Class reflects the applicable contingent
R share performance and restated Class A deferred sales charge (CDSC) for the
CLASS A SHARES share performance (for periods prior to period involved. The CDSC on Class B
Inception (12/31/2001) 6.12% the inception date of Class R shares) at shares declines from 5% beginning at the
1 Year 22.70 net asset value, adjusted to reflect the time of purchase to 0% at the beginning
higher Rule 12b-1 fees applicable to of the seventh year. The CDSC on Class C
CLASS B SHARES Class R shares. Class A shares' shares is 1% for the first year after
Inception (12/31/2001) 6.78% inception date is 12/31/01. purchase. Class R shares do not have a
1 Year 24.06 front-end sales charge; returns shown
The performance data quoted are at net asset value and do not
CLASS C SHARES represents past performance and cannot reflect a 0.75% CDSC that may be imposed
Inception (12/31/2001) 7.83% guarantee comparable future results; on a total redemption of retirement plan
1 Year 27.95 current performance may be lower or assets within the first year. The
higher. Please visit AIMinvestments.com performance of the fund's share classes
CLASS R SHARES for the most recent month-end will differ due to different sales
Inception 8.43% performance. Performance figures reflect charge structures and class expenses.
1 Year 29.79 reinvested distributions, changes in net
asset value and the effect of the
maximum sales charge unless otherwise
stated. Investment return and principal
value will vary so that you may have a
gain or loss when you sell shares.
[ARROW
BUTTON For More Information Visit
IMAGE] AIMinvestments.com
====================================================================================================================================
</Table>
4
SUPPLEMENT TO SEMIANNUAL REPORT DATED 6/30/04
AIM MID CAP BASIC VALUE FUND
<Table>
INSTITUTIONAL CLASS SHARES AVERAGE ANNUAL TOTAL RETURNS Please note that past performance is not
For periods ended 6/30/04 indicative of future results. More
The following information has been recent returns may be more or less than
prepared to provide Institutional Class Inception 8.61% those shown. All returns assume
shareholders with a performance overview 1 Year 30.05 reinvestment of distributions at net
specific to their holdings. 6 Months* 8.95 asset value. Investment return and
Institutional Class shares are offered principal value will fluctuate so your
exclusively to institutional investors, *Cumulative total return that has not shares, when redeemed, may be worth more
including defined contribution plans been annualized. or less than their original cost. See
that meet certain criteria. full report for information on
Institutional Class shares' inception comparative benchmarks. Please consult
date is 4/30/04. Returns since that date your fund prospectus for more
are historical returns. All other information. For the most current
returns are blended returns of month-end performance, please call
historical Institutional Class share 800-451-4246 or visit
performance and restated Class A share AIMinvestments.com.
performance (for periods prior to the
inception date of Institutional Class
shares) at net asset value and reflect
the higher Rule 12b-1 fees applicable to
Class A shares. Class A shares'
inception date is 12/31/01.
Institutional Class shares would have
had different returns due to differences
in the expense structure of the
Institutional Class.
Institutional Class shares have no sales
charge; therefore, performance is at
NAV. Performance of Institutional Class
shares will differ from performance of
other share classes due to differing
sales charges and class expenses.
</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.
--Registered Trademark--
AIMinvestments.com MCBV-INS-2 8/04 [AIM INVESTMENTS LOGO APPEARS HERE]
--Registered Trademark--
A I M Distributors, Inc.
FINANCIALS
SCHEDULE OF INVESTMENTS
June 30, 2004
(Unaudited)
<Table>
<Caption>
MARKET
SHARES VALUE
- -----------------------------------------------------------------------
COMMON STOCKS & OTHER EQUITY INTERESTS-95.48%
ADVERTISING-5.19%
Interpublic Group of Cos., Inc. (The)(a) 265,970 $ 3,651,768
- -----------------------------------------------------------------------
R.H. Donnelley Corp.(a) 121,000 5,292,540
=======================================================================
8,944,308
=======================================================================
APPAREL RETAIL-4.21%
Gap, Inc. (The) 149,600 3,627,800
- -----------------------------------------------------------------------
TJX Cos., Inc. (The) 150,200 3,625,828
=======================================================================
7,253,628
=======================================================================
APPLICATION SOFTWARE-3.30%
MAPICS, Inc.(a) 183,500 1,937,760
- -----------------------------------------------------------------------
Synopsys, Inc.(a) 131,500 3,738,545
=======================================================================
5,676,305
=======================================================================
ASSET MANAGEMENT & CUSTODY BANKS-2.75%
Janus Capital Group Inc. 143,640 2,368,624
- -----------------------------------------------------------------------
Waddell & Reed Financial, Inc.-Class A 106,690 2,358,916
=======================================================================
4,727,540
=======================================================================
BUILDING PRODUCTS-1.57%
American Standard Cos. Inc.(a) 67,150 2,706,816
=======================================================================
CONSUMER FINANCE-1.63%
MoneyGram International, Inc.(a) 136,300 2,807,780
=======================================================================
DATA PROCESSING & OUTSOURCED SERVICES-8.41%
BISYS Group, Inc. (The)(a) 197,100 2,771,226
- -----------------------------------------------------------------------
Ceridian Corp.(a) 155,080 3,489,300
- -----------------------------------------------------------------------
Certegy Inc. 84,550 3,280,540
- -----------------------------------------------------------------------
DST Systems, Inc.(a) 102,570 4,932,591
=======================================================================
14,473,657
=======================================================================
DIVERSIFIED COMMERCIAL SERVICES-2.43%
Jackson Hewitt Tax Service Inc.(a) 239,000 4,182,500
=======================================================================
FOOD RETAIL-2.11%
Kroger Co. (The)(a) 199,900 3,638,180
=======================================================================
HEALTH CARE DISTRIBUTORS-1.88%
McKesson Corp. 94,300 3,237,319
=======================================================================
HEALTH CARE EQUIPMENT-2.41%
Waters Corp.(a) 86,700 4,142,526
=======================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- -----------------------------------------------------------------------
HEALTH CARE FACILITIES-1.57%
Universal Health Services, Inc.-Class B 58,950 2,705,215
=======================================================================
HEALTH CARE SERVICES-1.42%
IMS Health Inc. 104,640 $ 2,452,762
=======================================================================
HOTELS, RESORTS & CRUISE LINES-2.97%
Orient-Express Hotels Ltd.-Class A (Bermuda) 150,500 2,549,470
- -----------------------------------------------------------------------
Starwood Hotels & Resorts Worldwide, Inc. 57,280 2,569,008
=======================================================================
5,118,478
=======================================================================
INDUSTRIAL MACHINERY-1.62%
SPX Corp. 60,240 2,797,546
=======================================================================
INSURANCE BROKERS-3.34%
Aon Corp. 201,800 5,745,246
=======================================================================
IT CONSULTING & OTHER SERVICES-2.48%
Acxiom Corp. 171,950 4,269,518
=======================================================================
LEISURE FACILITIES-2.08%
Speedway Motorsports, Inc. 106,900 3,574,736
=======================================================================
LEISURE PRODUCTS-1.91%
Brunswick Corp. 80,770 3,295,416
=======================================================================
LIFE & HEALTH INSURANCE-3.62%
Nationwide Financial Services, Inc.-Class A 91,790 3,452,222
- -----------------------------------------------------------------------
Protective Life Corp. 72,000 2,784,240
=======================================================================
6,236,462
=======================================================================
MANAGED HEALTH CARE-5.29%
Aetna Inc. 44,190 3,756,150
- -----------------------------------------------------------------------
Anthem, Inc.(a) 59,780 5,353,897
=======================================================================
9,110,047
=======================================================================
MULTI-LINE INSURANCE-3.80%
American Financial Group, Inc. 94,330 2,883,668
- -----------------------------------------------------------------------
Assurant, Inc. 39,400 1,039,372
- -----------------------------------------------------------------------
Genworth Financial Inc.-Class A(a)(b) 114,500 2,627,775
=======================================================================
6,550,815
=======================================================================
MULTI-SECTOR HOLDINGS-2.06%
Leucadia National Corp. 71,200 3,538,640
=======================================================================
OIL & GAS DRILLING-4.56%
Nabors Industries, Ltd. (Bermuda)(a) 57,490 2,599,698
- -----------------------------------------------------------------------
Pride International, Inc.(a) 150,710 2,578,648
- -----------------------------------------------------------------------
Todco-Class A(a) 172,900 2,674,763
=======================================================================
7,853,109
=======================================================================
</Table>
F-1
<Table>
<Caption>
MARKET
SHARES VALUE
- -----------------------------------------------------------------------
PACKAGED FOODS & MEATS-2.52%
Cadbury Schweppes PLC-ADR (United Kingdom)(b) 123,900 $ 4,346,412
=======================================================================
PROPERTY & CASUALTY INSURANCE-3.09%
ACE Ltd. (Cayman Islands) 125,920 5,323,898
=======================================================================
REGIONAL BANKS-3.80%
Cullen/Frost Bankers, Inc. 66,800 2,989,300
- -----------------------------------------------------------------------
Zions Bancorp 57,770 3,549,966
=======================================================================
6,539,266
=======================================================================
RESTAURANTS-3.68%
CEC Entertainment Inc.(a) 104,950 3,097,075
- -----------------------------------------------------------------------
Outback Steakhouse, Inc. 78,130 3,231,457
=======================================================================
6,328,532
=======================================================================
SYSTEMS SOFTWARE-3.95%
Computer Associates International, Inc. 242,400 6,801,744
=======================================================================
THRIFTS & MORTGAGE FINANCE-5.83%
Federal Agricultural Mortgage Corp.-Class
C(a) 97,500 2,333,175
- -----------------------------------------------------------------------
MGIC Investment Corp. 44,100 3,345,426
- -----------------------------------------------------------------------
Radian Group Inc. 90,880 4,353,152
=======================================================================
10,031,753
=======================================================================
Total Common Stocks & Other Equity
Interests (Cost $138,285,553) 164,410,154
=======================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- -----------------------------------------------------------------------
MONEY MARKET FUNDS-3.34%
Liquid Assets Portfolio-Institutional
Class(c) 2,877,900 $ 2,877,900
- -----------------------------------------------------------------------
STIC Prime Portfolio-Institutional Class(c) 2,877,900 2,877,900
=======================================================================
Total Money Market Funds (Cost
$5,755,800) 5,755,800
=======================================================================
TOTAL INVESTMENTS-98.82% (excluding
investments purchased with cash collateral
from securities loaned) (Cost $144,041,353) 170,165,954
=======================================================================
INVESTMENTS PURCHASED WITH CASH COLLATERAL
FROM SECURITIES LOANED
MONEY MARKET FUNDS-2.16%
Liquid Assets Portfolio-Institutional
Class(c)(d) 3,716,400 3,716,400
=======================================================================
Total Money Market Funds (purchased with
cash collateral from securities loaned)
(Cost $3,716,400) 3,716,400
=======================================================================
TOTAL INVESTMENTS-100.98% (Cost $147,757,753) 173,882,354
=======================================================================
OTHER ASSETS LESS LIABILITIES-(0.98%) (1,679,560)
=======================================================================
NET ASSETS-100.00% $172,202,794
_______________________________________________________________________
=======================================================================
</Table>
Investment Abbreviations:
<Table>
ADR - American Depositary Receipt
</Table>
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) All or a portion of this security has been pledged as collateral for
security lending transactions at June 30, 2004.
(c) The money market fund and the Fund are affiliated by having the same
investment advisor. See Note 3.
(d) 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 7.
See accompanying notes which are an integral part of the financial statements.
F-2
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2004
(Unaudited)
<Table>
ASSETS:
Investments, at market value (cost
$138,285,553)* $164,410,154
- -----------------------------------------------------------
Investments in affiliated money market funds
(cost $9,472,200) 9,472,200
===========================================================
Total investments (cost $147,757,753) 173,882,354
===========================================================
Receivables for:
Investments sold 1,442,696
- -----------------------------------------------------------
Fund shares sold 1,236,293
- -----------------------------------------------------------
Dividends 90,794
- -----------------------------------------------------------
Investment for deferred compensation and
retirement plans 9,169
- -----------------------------------------------------------
Other assets 49,932
===========================================================
Total assets 176,711,238
___________________________________________________________
===========================================================
LIABILITIES:
Payables for:
Investments purchased 361,086
- -----------------------------------------------------------
Fund shares reacquired 261,551
- -----------------------------------------------------------
Deferred compensation and retirement plans 10,017
- -----------------------------------------------------------
Collateral upon return of securities loaned 3,716,400
- -----------------------------------------------------------
Accrued distribution fees 85,181
- -----------------------------------------------------------
Accrued transfer agent fees 48,759
- -----------------------------------------------------------
Accrued operating expenses 25,450
===========================================================
Total liabilities 4,508,444
===========================================================
Net assets applicable to shares outstanding $172,202,794
___________________________________________________________
===========================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $155,448,108
- -----------------------------------------------------------
Undistributed net investment income (loss) (837,048)
- -----------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities (8,532,867)
- -----------------------------------------------------------
Unrealized appreciation of investment
securities 26,124,601
===========================================================
$172,202,794
___________________________________________________________
===========================================================
NET ASSETS:
Class A $ 94,384,672
___________________________________________________________
===========================================================
Class B $ 55,677,538
___________________________________________________________
===========================================================
Class C $ 20,797,351
___________________________________________________________
===========================================================
Class R $ 10,331
___________________________________________________________
===========================================================
Institutional Class $ 1,332,902
___________________________________________________________
===========================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER
SHARE, UNLIMITED NUMBER OF SHARES
AUTHORIZED:
Class A 7,689,966
___________________________________________________________
===========================================================
Class B 4,609,697
___________________________________________________________
===========================================================
Class C 1,722,807
___________________________________________________________
===========================================================
Class R 841
___________________________________________________________
===========================================================
Institutional Class 108,486
___________________________________________________________
===========================================================
Class A:
Net asset value per share $ 12.27
- -----------------------------------------------------------
Offering price per share:
(Net asset value of $12.27 divided by
94.50%) $ 12.98
___________________________________________________________
===========================================================
Class B:
Net asset value and offering price per
share $ 12.08
___________________________________________________________
===========================================================
Class C:
Net asset value and offering price per
share $ 12.07
___________________________________________________________
===========================================================
Class R:
Net asset value and offering price per
share $ 12.28
___________________________________________________________
===========================================================
Institutional Class:
Net asset value and offering price per
share $ 12.29
___________________________________________________________
===========================================================
</Table>
* At June 30, 2004, securities with an aggregate market value of $3,563,204 were
on loan to brokers.
See accompanying notes which are an integral part of the financial statements.
F-3
STATEMENT OF OPERATIONS
For the six months ended June 30, 2004
(Unaudited)
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $4,735) $ 428,086
- -------------------------------------------------------------------------
Dividends from affiliated money market funds* 39,018
=========================================================================
Total investment income 467,104
=========================================================================
EXPENSES:
Advisory fees 534,724
- -------------------------------------------------------------------------
Administrative services fees 24,864
- -------------------------------------------------------------------------
Custodian fees 12,411
- -------------------------------------------------------------------------
Distribution fees:
Class A 125,893
- -------------------------------------------------------------------------
Class B 227,201
- -------------------------------------------------------------------------
Class C 80,511
- -------------------------------------------------------------------------
Class R 8
- -------------------------------------------------------------------------
Transfer agent fees -- Class A, B, C & R 209,914
- -------------------------------------------------------------------------
Transfer agent fees -- Institutional Class 99
- -------------------------------------------------------------------------
Trustees' fees 7,162
- -------------------------------------------------------------------------
Other 96,293
=========================================================================
Total expenses 1,319,080
=========================================================================
Less: Fees waived, expenses reimbursed and expense offset
arrangements (22,258)
=========================================================================
Net expenses 1,296,822
=========================================================================
Net investment income (loss) (829,718)
=========================================================================
REALIZED AND UNREALIZED GAIN FROM INVESTMENT SECURITIES:
Net realized gain from investment securities 2,843,749
=========================================================================
Change in net unrealized appreciation of investment
securities 8,982,262
=========================================================================
Net gain from investment securities 11,826,011
=========================================================================
Net increase in net assets resulting from operations $10,996,293
_________________________________________________________________________
=========================================================================
</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 six months ended June 30, 2004 and the year ended December 31, 2003
(Unaudited)
<Table>
<Caption>
JUNE 30, DECEMBER 31,
2004 2003
- ------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (829,718) $ (967,184)
- ------------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities 2,843,749 (4,054,747)
- ------------------------------------------------------------------------------------------
Change in net unrealized appreciation of investment
securities 8,982,262 27,636,943
==========================================================================================
Net increase in net assets resulting from operations 10,996,293 22,615,012
==========================================================================================
Share transactions-net:
Class A 32,928,392 4,929,815
- ------------------------------------------------------------------------------------------
Class B 13,864,429 8,575,378
- ------------------------------------------------------------------------------------------
Class C 6,152,454 2,445,889
- ------------------------------------------------------------------------------------------
Class R 10,000 --
- ------------------------------------------------------------------------------------------
Institutional Class 1,292,053 --
==========================================================================================
Net increase in net assets resulting from share
transactions 54,247,328 15,951,082
==========================================================================================
Net increase in net assets 65,243,621 38,566,094
==========================================================================================
NET ASSETS:
Beginning of period 106,959,173 68,393,079
==========================================================================================
End of period (including undistributed net investment
income (loss) of $(837,048) and $(7,330) for 2004 and
2003, respectively) $172,202,794 $106,959,173
__________________________________________________________________________________________
==========================================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
F-5
NOTES TO FINANCIAL STATEMENTS
June 30, 2004
(Unaudited)
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.
Under the Trust's organizational documents, the Fund's officers, trustees,
employees and agents are indemnified against certain liabilities that may arise
out of performance of their duties to the Fund. Additionally, in the normal
course of business, the Fund enters into contracts that contain a variety of
indemnification clauses. The Fund's maximum exposure under these arrangements is
unknown as this would involve future claims that may be made against the Fund
that have not yet occurred. However, the Fund has not had prior claims or losses
pursuant to these contracts.
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 specific 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"). Futures
contracts are valued at the final settlement price set by an exchange on
which they are principally traded. Listed options are valued at the mean
between the last bid and the ask prices from the exchange on which they are
principally traded. Options not listed on an exchange are valued by an
independent source at the mean between the last bid and ask prices.
Investments in open-end registered investment companies and closed-end
registered investment companies that do not trade on an exchange are valued
at the end of day net asset value per share. Investments in closed-end
registered investment companies that trade on an exchange are valued at the
last sales price as of the close of the customary trading session on the
exchange where the security is principally traded.
Foreign securities (including foreign exchange contracts) are converted
into U.S. dollar amounts using the applicable exchange rates as of the
close of the NYSE. Generally, trading in foreign securities is
substantially completed each day at various times prior to the close of the
NYSE. The values of such securities used in computing the net asset value
of the Fund's shares are determined as of the close of the respective
markets. Events affecting the values of such foreign securities may occur
between the times at which the particular foreign market closes and the
close of the customary trading session of the NYSE which would not
ordinarily be reflected in the computation of the Fund's net asset value.
If 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.
F-6
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions
are accounted for on a trade date basis. Realized gains or losses on sales
are computed on the basis of specific identification of the securities
sold. Interest income is recorded on the accrual basis from settlement
date. Dividend income is recorded on the ex-dividend date.
Brokerage commissions and mark ups are considered transaction costs and
are recorded as an increase to the cost basis of securities purchased
and/or a reduction of proceeds on a sale of securities. Such transaction
costs are included in the determination of realized and unrealized gain
(loss) from investment securities reported in the Statement of Operations
and the Statement of Changes in Net Assets and the realized and unrealized
net gains (losses) on securities per share in the Financial Highlights.
Transaction costs are included in the calculation of the Fund's net asset
value and, accordingly, they reduce the Fund's total returns. These
transaction costs are not considered operating expenses and are not
reflected in net investment income reported in the Statement of Operations
and Statement of Changes in Net Assets, or the net investment income per
share and ratios of expenses and net investment income reported in the
Financial Highlights, nor are they limited by any expense limitation
arrangements between the Fund and the advisor.
The Fund 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 distributed to shareholders. Therefore, no provision for
federal income taxes is recorded in the financial statements.
E. 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 $1
billion of the Fund's average daily net assets, plus 0.75% of the next $4
billion of the Fund's average daily net assets, plus 0.70% of the Fund's average
daily net assets in excess of $5 billion. The Fund's advisor has voluntarily
agreed to waive advisory fees and/or reimburse expenses of Class A, Class B,
Class C, Class R and Institutional Class shares to the extent necessary to limit
Total Annual Fund Operating Expenses (excluding certain items discussed below)
for the Fund's Class A shares to 1.80%. In determining the advisor's obligation
to waive advisory fees and/or reimburse expenses, the following expenses are not
taken into account, and could cause the Total Annual Fund Operating Expenses to
exceed the 1.80% cap: (i) interest; (ii) taxes; (iii) dividend expense on short
sales; (iv) extraordinary items (these are expenses that are not anticipated to
arise from the Fund's day-to-day operations), or items designated as such by the
Fund's board of trustees; (v) expenses related to a merger or reorganization, as
approved by the Fund's board of trustees; and (vi) expenses that the Fund has
incurred but did not actually pay because of an expense offset arrangement.
Currently, the only expense offset arrangements from which the Fund benefits are
in the form of credits that the Fund receives from banks where the Fund or its
transfer agent has deposit accounts in which it holds uninvested cash. Those
credits are used to pay certain expenses incurred by the Fund. Voluntary fee
waivers or reimbursements may be modified or discontinued at any time upon
consultation with the Board of Trustees without further notice to investors. To
the extent that the annualized expense ratio does not exceed the expense
limitation, AIM will retain its ability to be reimbursed for such fee waivers or
reimbursements prior to the end of each fiscal year. 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 six months ended June 30, 2004, AIM
waived fees of $652.
For the period ended June 30, 2004, at the direction of the trustees of the
Trust, AMVESCAP PLC ("AMVESCAP") has assumed $20,844 of expenses incurred by the
Fund in connection with matters related to both pending regulatory complaints
against INVESCO Funds Group, Inc. ("IFG") alleging market timing and the ongoing
market timing investigations with respect to IFG and AIM, including legal,
audit, shareholder servicing, communication and trustee expenses.
The Fund, pursuant to a master administrative services agreement with AIM,
has agreed to pay AIM for certain administrative costs incurred in providing
accounting services to the Fund. For the six months ended June 30, 2004, AIM was
paid $24,864 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 six
months ended June 30, 2004, AISI retained $130,013 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, Class R and 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 0.35% 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
F-7
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 six months ended June 30,
2004, the Class A, Class B, Class C and Class R shares paid $125,893, $227,201,
$80,511 and $8, 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 six months
ended June 30, 2004, AIM Distributors advised the Fund that it retained $59,347
in front-end sales commissions from the sale of Class A shares and $1,289,
$1,850, $1,394 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"), to invest daily available cash balances and cash
collateral from securities lending transactions in affiliated money market
funds. The Fund and the money market funds below have the same investment
advisor and therefore, are considered to be affiliated. 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 tables
below show the transactions in and earnings from investments in affiliated money
market funds for the period ended June 30, 2004.
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 12/31/03 AT COST FROM SALES (DEPRECIATION) 06/30/04 INCOME GAIN (LOSS)
- ---------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $3,469,832 $26,204,633 $(26,796,565) $ -- $2,877,900 $19,492 $ --
- ---------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-
Institutional
Class 3,469,832 26,204,633 (26,796,565) -- 2,877,900 18,554 --
===========================================================================================================================
Subtotal $6,939,664 $52,409,266 $(53,593,130) $ -- $5,755,800 $38,046 $ --
===========================================================================================================================
</Table>
INVESTMENTS OF CASH COLLATERAL FROM SECURITIES LENDING TRANSACTIONS:
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 12/31/03 AT COST FROM SALES (DEPRECIATION) 06/30/04 INCOME* GAIN (LOSS)
- ---------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $1,742,200 $10,443,500 $ (8,469,300) $ -- $3,716,400 $ 972 $ --
===========================================================================================================================
Total $8,681,864 $62,852,766 $(62,062,430) $ -- $9,472,200 $39,018 $ --
___________________________________________________________________________________________________________________________
===========================================================================================================================
</Table>
* Dividend income is net of fees paid to security lending counterparties of
$10,092.
NOTE 4--EXPENSE OFFSET ARRANGEMENTS
The expense offset arrangements are comprised of (i) transfer agency credits
which result from balances in Demand Deposit Accounts (DDA) used by the transfer
agent for clearing shareholder transactions and (ii) custodian credits which
result from periodic overnight cash balance at the custodian. For the six months
ended June 30, 2004, the Fund received credits in transfer agency fees of $719
and credits in custodian fees of $43 under expense offset arrangements, which
resulted in a reduction of the Fund's total expense of $762.
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 Funds 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.
Obligations under the deferred compensation and retirement plans represent
unsecured claims against the general assets of the Fund.
During the six months ended June 30, 2004, the Fund paid legal fees of
$1,223 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.
F-8
NOTE 6--BORROWINGS
Pursuant to an exemptive order from the SEC, 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 is 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 six months ended June 30, 2004, the Fund did not borrow or lend
under the interfund lending facility or borrow under the uncommitted unsecured
revolving credit facility.
Additionally, the Fund is permitted to temporarily carry a negative or
overdrawn balance in its account with SSB, 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 having a market value up to 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 June 30, 2004, securities with an aggregate value of $3,563,204 were on
loan to brokers. The loans were secured by cash collateral of $3,716,400,
received by the Fund and subsequently invested in affiliated money market funds.
For the six months ended June 30, 2004, the Fund received dividends on cash
collateral net of fees paid to counterparties of $972 for securities lending
transactions.
NOTE 8--TAX INFORMATION
The amount and character of income and gains to be distributed are determined in
accordance with income tax regulations, which may differ from generally accepted
accounting principles. Reclassifications are made to the Fund's capital accounts
to reflect income and gains available for distribution (or available capital
loss carryforward) under income tax regulations. The tax character of
distributions paid during the year and the tax components of net assets will be
reported at the Fund's fiscal year-end.
Capital loss carryforward is calculated and reported as of a specific date.
Results of transactions and other activity after that date may affect the amount
of capital loss carryforward actually available for the Fund to utilize. The
ability to use capital loss carryforward may be limited under the Internal
Revenue Code and related regulations.
The Fund has a capital loss carryforward for tax purposes as of December 31,
2003 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>
* Capital loss carryforward as of the date listed above is reduced for
limitations, if any, to the extent required by the Internal Revenue Code.
F-9
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 six months ended
June 30, 2004 was $64,632,895 and $14,919,790, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF
INVESTMENT SECURITIES ON A TAX BASIS
- ---------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $26,834,144
- ---------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (1,930,672)
===========================================================================
Net unrealized appreciation of investment securities $24,903,472
___________________________________________________________________________
===========================================================================
Cost of investments for tax purposes is $148,978,882.
</Table>
NOTE 10--SHARE INFORMATION
The Fund currently offers five different classes of shares: Class A shares,
Class B shares, Class C shares, Class R shares and 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 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
- --------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2004 DECEMBER 31, 2003
------------------------ --------------------------
SHARES AMOUNT SHARES AMOUNT
- --------------------------------------------------------------------------------------------------------------------
Sold:
Class A 3,413,196 $40,412,018 3,832,986 $ 37,737,367
- --------------------------------------------------------------------------------------------------------------------
Class B 1,740,744 20,402,638 1,803,614 17,257,750
- --------------------------------------------------------------------------------------------------------------------
Class C 908,822 10,709,144 886,121 8,452,954
- --------------------------------------------------------------------------------------------------------------------
Class R* 841 10,000 -- --
- --------------------------------------------------------------------------------------------------------------------
Institutional Class* 109,254 1,301,424 -- --
====================================================================================================================
Automatic conversion of Class B shares to Class A shares:
Class A 142,139 1,705,665 156,161 1,515,851
- --------------------------------------------------------------------------------------------------------------------
Class B (144,259) (1,705,665) (157,780) (1,515,851)
====================================================================================================================
Reacquired:
Class A (773,829) (9,189,291) (3,833,211) (34,323,403)
- --------------------------------------------------------------------------------------------------------------------
Class B (413,264) (4,832,544) (811,030) (7,166,521)
- --------------------------------------------------------------------------------------------------------------------
Class C (391,800) (4,556,690) (665,740) (6,007,065)
- --------------------------------------------------------------------------------------------------------------------
Institutional Class* (768) (9,371) -- --
====================================================================================================================
4,591,076 $54,247,328 1,211,121 $ 15,951,082
____________________________________________________________________________________________________________________
====================================================================================================================
</Table>
* Class R shares and Institutional Class shares commenced sales on April 30,
2004.
F-10
NOTE 11--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
CLASS A
-------------------------------------------------------------
SIX MONTHS YEAR ENDED
ENDED DECEMBER 31, DECEMBER 31, 2001
JUNE 30, --------------------- (DATE OPERATIONS
2004 2003 2002 COMMENCED)
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 11.28 $ 8.23 $ 9.99 $ 10.00
- ---------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.06)(a) (0.08) (0.06)(a) (0.00)
- ---------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 1.05 3.13 (1.70) (0.01)
===========================================================================================================================
Total from investment operations 0.99 3.05 (1.76) (0.01)
===========================================================================================================================
Less distributions from net investment income -- -- (0.00) --
===========================================================================================================================
Net asset value, end of period $ 12.27 $ 11.28 $ 8.23 $ 9.99
___________________________________________________________________________________________________________________________
===========================================================================================================================
Total return(b) 8.78% 37.06% (17.62)% (0.10)%
___________________________________________________________________________________________________________________________
===========================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $94,385 $55,372 $39,130 $ 400
___________________________________________________________________________________________________________________________
===========================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and expense reimbursements 1.64%(c) 1.80% 1.80% 1.80%(d)
- ---------------------------------------------------------------------------------------------------------------------------
Without fee waivers and expense reimbursements 1.67%(c) 1.92% 1.93% 199.49%(d)
===========================================================================================================================
Ratio of net investment income (loss) to average net assets (0.94)%(c) (1.00)% (0.70)% (0.31)%(d)
___________________________________________________________________________________________________________________________
===========================================================================================================================
Portfolio turnover rate(e) 12% 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 and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. 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
$72,334,057.
(d) Annualized.
(e) Not annualized for periods less than one year.
F-11
NOTE 11--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS B
------------------------------------------------------------
SIX MONTHS YEAR ENDED
ENDED DECEMBER 31, DECEMBER 31, 2001
JUNE 30, ------------------ (DATE OPERATIONS
2004 2003 2002 COMMENCED)
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 11.14 $ 8.18 $ 9.99 $ 10.00
- --------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.09)(a) (0.13) (0.12)(a) (0.00)
- --------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 1.03 3.09 (1.69) (0.01)
==========================================================================================================================
Total from investment operations 0.94 2.96 (1.81) (0.01)
==========================================================================================================================
Less dividends from net investment income -- -- (0.00) --
==========================================================================================================================
Net asset value, end of period $ 12.08 $ 11.14 $ 8.18 $ 9.99
__________________________________________________________________________________________________________________________
==========================================================================================================================
Total return(b) 8.44% 36.19% (18.12)% (0.10)%
__________________________________________________________________________________________________________________________
==========================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 55,678 $38,165 $21,204 $ 300
__________________________________________________________________________________________________________________________
==========================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and expense reimbursements 2.29%(c) 2.45% 2.45% 2.45%(d)
- --------------------------------------------------------------------------------------------------------------------------
Without fee waivers and expense reimbursements 2.32%(c) 2.57% 2.58% 200.14%(d)
==========================================================================================================================
Ratio of net investment income (loss) to average net assets (1.59)%(c) (1.65)% (1.35)% (0.96)%(d)
__________________________________________________________________________________________________________________________
==========================================================================================================================
Portfolio turnover rate(e) 12% 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 and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. 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
$45,689,850.
(d) Annualized.
(e) Not annualized for periods less than one year.
F-12
NOTE 11--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS C
------------------------------------------------------------
SIX MONTHS YEAR ENDED
ENDED DECEMBER 31, DECEMBER 31, 2001
JUNE 30, ------------------ (DATE OPERATIONS
2004 2003 2002 COMMENCED)
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 11.13 $ 8.18 $ 9.99 $ 10.00
- --------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.09)(a) (0.12) (0.12)(a) (0.00)
- --------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 1.03 3.07 (1.69) (0.01)
==========================================================================================================================
Total from investment operations 0.94 2.95 (1.81) (0.01)
==========================================================================================================================
Less dividends from net investment income -- -- (0.00) --
==========================================================================================================================
Net asset value, end of period $ 12.07 $ 11.13 $ 8.18 $ 9.99
__________________________________________________________________________________________________________________________
==========================================================================================================================
Total return(b) 8.45% 36.06% (18.12)% (0.10)%
__________________________________________________________________________________________________________________________
==========================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $20,797 $13,422 $ 8,059 $ 300
__________________________________________________________________________________________________________________________
==========================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and expense reimbursements 2.29%(c) 2.45% 2.45% 2.45%(d)
- --------------------------------------------------------------------------------------------------------------------------
Without fee waivers and expense reimbursements 2.32%(c) 2.57% 2.58% 200.14%(d)
==========================================================================================================================
Ratio of net investment income (loss) to average net assets (1.59)%(c) (1.65)% (1.35)% (0.96)%(d)
- --------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(e) 12% 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 and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. 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
$16,190,629.
(d) Annualized.
(e) Not annualized for periods less than one year.
<Table>
<Caption>
CLASS R
--------------
APRIL 30, 2004
(DATE SALES
COMMENCED) TO
JUNE 30,
2004
- ------------------------------------------------------------------------------
Net asset value, beginning of period $11.88
- ------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.02)(a)
- ------------------------------------------------------------------------------
Net gains on securities (both realized and unrealized) 0.42
==============================================================================
Total from investment operations 0.40
==============================================================================
Net asset value, end of period $12.28
______________________________________________________________________________
==============================================================================
Total return(b) 3.37%
______________________________________________________________________________
==============================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 10
______________________________________________________________________________
==============================================================================
Ratio of expenses to average net assets 1.75%(c)
==============================================================================
Ratio of net investment income (loss) to average net assets (1.05)%(c)
______________________________________________________________________________
==============================================================================
Portfolio turnover rate(d) 12%
______________________________________________________________________________
==============================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Not annualized for period shown.
(c) Ratios are annualized and based on average daily net assets of $10,045.
(d) Not annualized for period shown.
F-13
NOTE 11--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
INSTITUTIONAL CLASS
-------------------
APRIL 30, 2004
(DATE SALES
COMMENCED) TO
JUNE 30,
2004
- -----------------------------------------------------------------------------------
Net asset value, beginning of period $ 11.88
- -----------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.01)(a)
- -----------------------------------------------------------------------------------
Net gains on securities (both realized and unrealized) 0.42
===================================================================================
Total from investment operations 0.41
===================================================================================
Net asset value, end of period $ 12.29
___________________________________________________________________________________
===================================================================================
Total return(b) 3.45%
___________________________________________________________________________________
===================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 1,333
___________________________________________________________________________________
===================================================================================
Ratio of expenses to average net assets 1.07%(c)
===================================================================================
Ratio of net investment income (loss) to average net assets (0.37)%(c)
___________________________________________________________________________________
===================================================================================
Portfolio turnover rate(d) 12%
___________________________________________________________________________________
===================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Not annualized for periods shown.
(c) Ratios are annualized and based on average daily net assets of $580,027.
(d) Not annualized for periods less than one year.
NOTE 12--LEGAL PROCEEDINGS
The mutual fund industry as a whole is currently subject to regulatory inquiries
and litigation related to a wide range of issues. These issues include, among
others, market timing activity, late trading, fair value pricing, excessive or
improper advisory and/or distribution fees, mutual fund sales practices,
including revenue sharing and directed-brokerage arrangements, investments in
securities of other registered investment companies and issues related to
Section 529 college savings plans.
As described more fully below, INVESCO Funds Group, Inc. ("IFG"), the former
investment advisor to the INVESCO Funds, is the subject of three regulatory
actions concerning market timing activity in the INVESCO Funds. In addition, IFG
and A I M Advisors, Inc. ("AIM"), the Fund's investment advisor, are the subject
of a number of regulatory inquiries and civil lawsuits, as described more fully
below. Both IFG and AIM are indirect wholly owned subsidiaries of AMVESCAP PLC
("AMVESCAP"). Additional regulatory actions and/or civil lawsuits related to the
above or other issues may be filed against IFG, AIM and/or related entities and
individuals in the future. Additional regulatory inquiries related to the above
or other issues also may be received by IFG, AIM and/or related entities and
individuals in the future.
As a result of the regulatory actions and inquiries and civil lawsuits
discussed below, 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.
Regulatory Actions Pending Against 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 former capacity as the
chief executive officer of IFG. Mr. Cunningham also formerly held the positions
of Chief Operating Officer and Senior Vice President of A I M Management Group
Inc. ("AIM Management"), 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. There
can be no assurance that the SEC, NYAG or State of Colorado will not file
additional charges against IFG or Mr. Cunningham or civil proceedings against
other current or former officers or employees of IFG.
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
F-14
NOTE 12--LEGAL PROCEEDINGS (CONTINUED)
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.
Response of AMVESCAP
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 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. AMVESCAP has retained outside counsel to represent its subsidiaries in
connection with the market timing regulatory inquiries and certain other
matters. As part of this representation, this outside counsel has been
conducting a review of IFG's and AIM's conduct with respect to market timing and
related matters. In addition, AMVESCAP has retained separate 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.
At the direction of the trustees of the AIM and INVESCO Funds, AMVESCAP has
agreed to pay all of the expenses incurred by the AIM and INVESCO Funds related
to the market timing investigations, including expenses incurred in connection
with the pending regulatory complaints against IFG alleging market timing and
the ongoing market timing investigations with respect to IFG and AIM.
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, including
but not limited to A I M Capital Management, Inc. ("AIM Capital"), AIM Funds
Management Inc., INVESCO Institutional (N.A.), Inc. ("IINA"), INVESCO Global
Asset Management (N.A.), Inc. and INVESCO Senior Secured Management, Inc., from
serving as an investment advisor to any investment company registered under the
Investment Company Act of 1940, including the Fund. The Fund has been informed
by AIM that, if AIM is so barred, 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.
Regulatory Inquiries Concerning IFG
IFG, certain related entities, certain of their current and former officers
and/or certain of the INVESCO Funds have received regulatory inquiries in the
form of subpoenas or other oral or written requests for information and/or
documents related to one or more of the following issues, some of which concern
one or more INVESCO Funds: market timing activity, late trading, fair value
pricing, excessive or improper advisory and/or distribution fees, mutual fund
sales practices, including revenue sharing and directed-brokerage arrangements,
and investments in securities of other registered investment companies. These
regulators include the Securities and Exchange Commission ("SEC"), the NASD,
Inc. ("NASD"), the Florida Department of Financial Services, the Commissioner of
Securities for the State of Georgia, the Attorney General of the State of West
Virginia, the West Virginia Securities Commission, the Colorado Securities
Division and the Bureau of Securities of the State of New Jersey. IFG and
certain of these other parties also have received more limited inquiries from
the United States Department of Labor ("DOL") and the United States Attorney's
Office for the Southern District of New York, some of which concern one or more
INVESCO Funds. IFG is providing full cooperation with respect to these
inquiries.
Regulatory Inquiries Concerning AIM
AIM, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds have received regulatory inquiries in the form
of subpoenas or other oral or written requests for information and/or documents
related to one or more of the following issues, some of which concern one or
more AIM Funds: market timing activity, late trading, fair value pricing,
excessive or improper advisory and/or distribution fees, mutual fund sales
practices, including revenue sharing and directed-brokerage arrangements,
investments in securities of other registered investment companies and issues
related to Section 529 college savings plans. These regulators include the SEC,
the NASD, the Department of Banking for the State of Connecticut, the NYAG, the
Commissioner of Securities for the State of Georgia, the Attorney General of the
State of West Virginia, the West Virginia Securities Commission and the Bureau
of Securities of the State of New Jersey. AIM and certain of these other parties
also have received more limited inquiries from the DOL, the Internal Revenue
Service, the United States Attorney's Office for the Southern District of New
York, the United States Attorney's Office for the Central District of
California, the United States Attorney's Office for the District of
Massachusetts, the Massachusetts Securities Division and the U.S. Postal
Inspection Service, some of which concern one or more AIM Funds. AIM is
providing full cooperation with respect to these inquiries.
Private Civil Actions Alleging Market Timing
Multiple civil 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, AIM
Management, AMVESCAP, certain related entities and/or certain of their current
and former officers) making allegations substantially similar to the allegations
in the three regulatory actions concerning market timing activity in the INVESCO
Funds that have been filed by the SEC, the NYAG and the State of Colorado
against these parties. These 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/or
(iv) breach of contract. These lawsuits were initiated 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; declaration that the advisory
agreement is unenforceable or void; refund of advisory fees; interest; and
attorneys' and experts' fees.
F-15
NOTE 12--LEGAL PROCEEDINGS (CONTINUED)
The Judicial Panel on Multidistrict Litigation (the "Panel") has ruled that
all actions pending in Federal court that allege market timing and/or late
trading be transferred to the United States District Court for the District of
Maryland for coordinated pre-trial proceedings. All such cases against IFG and
the other AMVESCAP defendants filed to date have been conditionally or finally
transferred to the District of Maryland in accordance with the Panel's
directive. In addition, the proceedings initiated in state court have been
removed by IFG to Federal court and transferred to the District of Maryland. The
plaintiff in one such action continues to seek remand to state court.
Private Civil Actions Alleging Improper Use of Fair Value Pricing
Multiple civil class action lawsuits have been filed against various parties
(including, depending on the lawsuit, certain INVESCO Funds, certain AIM Funds,
IFG and/or AIM) alleging that certain AIM and INVESCO Funds inadequately
employed fair value pricing. These lawsuits allege a variety of theories of
recovery, including but not limited to: (i) violations of various provisions of
the Federal securities laws; (ii) common law breach of duty; and (iii) common
law negligence and gross negligence. These lawsuits have been filed in both
Federal and state courts and seek such remedies as compensatory and punitive
damages; interest; and attorneys' fees and costs.
Private Civil Actions Alleging Excessive Advisory and Distribution Fees
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, IFG, AIM, IINA, A I M Distributors, Inc. ("AIM Distributors")
and/or INVESCO Distributors, Inc. ("INVESCO Distributors")) alleging that the
defendants charged excessive advisory and distribution fees and failed to pass
on to shareholders the perceived savings generated by economies of scale.
Certain of these lawsuits also allege that the defendants adopted unlawful
distribution plans. These lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the Federal
securities laws; (ii) breach of fiduciary duty; and/or (iii) breach of contract.
These lawsuits have been filed in both Federal and state courts and seek such
remedies as damages; injunctive relief; rescission of certain Funds' advisory
agreements and distribution plans; interest; prospective relief in the form of
reduced fees; and attorneys' and experts' fees.
Private Civil Actions Alleging Improper Distribution Fees Charged to Closed
Funds
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, IFG, AIM, AIM Distributors and/or certain of the trustees of the
AIM and INVESCO Funds) alleging that the defendants breached their fiduciary
duties by charging distribution fees while funds and/or specific share classes
were closed generally to new investors and/or while other share classes of the
same fund were not charged the same distribution fees. These lawsuits allege a
variety of theories of recovery, including but not limited to: (i) violation of
various provisions of the Federal securities laws; and (ii) breach of fiduciary
duty. These lawsuits have been filed in both Federal and state courts and seek
such remedies as damages; injunctive relief; and attorneys' and experts' fees.
Private Civil Actions Alleging Improper Mutual Fund Sales Practices and
Directed-Brokerage Arrangements
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, AIM Management, IFG, AIM, AIM Investment Services, Inc. ("AIS")
and/or certain of the trustees of the AIM and INVESCO Funds) alleging that the
defendants improperly used the assets of the AIM and INVESCO Funds to pay
brokers to aggressively push the AIM and INVESCO Funds over other mutual funds
and that the defendants concealed such payments from investors by disguising
them as brokerage commissions. These lawsuits allege a variety of theories of
recovery, including but not limited to: (i) violation of various provisions of
the Federal securities laws; (ii) breach of fiduciary duty; and (iii) aiding and
abetting a breach of fiduciary duty. These lawsuits have been filed in Federal
courts and seek such remedies as compensatory and punitive damages; rescission
of certain Funds' advisory agreements and distribution plans and recovery of all
fees paid; an accounting of all fund-related fees, commissions and soft dollar
payments; restitution of all unlawfully or discriminatorily obtained fees and
charges; and attorneys' and experts' fees.
At the present time, management of AIM and the Fund are unable to estimate the
impact, if any, that the outcome of the matters described above may have on AIM
or the Fund.
F-16
OTHER INFORMATION
TRUSTEES AND OFFICERS
<Table>
BOARD OF TRUSTEES OFFICERS OFFICE OF THE FUND
Bob R. Baker Robert H. Graham 11 Greenway Plaza
Chairman and President Suite 100
Frank S. Bayley Houston, TX 77046-1173
Mark H. Williamson
James T. Bunch Executive Vice President INVESTMENT ADVISOR
A I M Advisors, Inc.
Bruce L. Crockett Kevin M. Carome 11 Greenway Plaza
Senior Vice President, Secretary Suite 100
Albert R. Dowden and Chief Legal Officer Houston, TX 77046-1173
Edward K. Dunn Jr. Sidney M. Dilgren TRANSFER AGENT
Vice President and Treasurer AIM Investment Services, Inc.
Jack M. Fields P.O. Box 4739
Robert G. Alley Houston, TX 77210-4739
Carl Frischling Vice President
CUSTODIAN
Robert H. Graham Stuart W. Coco State Street Bank and Trust Company
Vice President 225 Franklin Street
Gerald J. Lewis Boston, MA 02110-2801
Melville B. Cox
Prema Mathai-Davis Vice President COUNSEL TO THE FUND
Ballard Spahr
Lewis F. Pennock Karen Dunn Kelley Andrews & Ingersoll, LLP
Vice President 1735 Market Street
Ruth H. Quigley Philadelphia, PA 19103-7599
Edgar M. Larsen
Louis S. Sklar Vice President COUNSEL TO THE TRUSTEES
Kramer, Levin, Naftalis & Frankel LLP
Larry Soll, Ph.D. 919 Third Avenue
New York, NY 10022-3852
Mark H. Williamson
DISTRIBUTOR
A I M Distributors, Inc.
11 Greenway Plaza
Suite 100
Houston, TX 77046-1173
</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(4) AIM High Yield Fund
AIM Blue Chip Fund AIM Global Aggressive Growth Fund AIM Income Fund
AIM Capital Development Fund AIM Global Equity Fund(5) AIM Intermediate Government Fund
AIM Charter Fund AIM Global Growth Fund AIM Limited Maturity Treasury Fund
AIM Constellation Fund AIM Global Value Fund AIM Money Market Fund
AIM Dent Demographic Trends Fund AIM International Emerging Growth Fund(6) AIM Short Term Bond Fund
AIM Diversified Dividend Fund 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(7)
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(1) 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 ALLOCATION SOLUTIONS
AIM Premier Equity Fund INVESCO Gold & Precious Metals Fund
AIM Select Equity Fund INVESCO Health Sciences Fund AIM Aggressive Allocation Fund
AIM Small Cap Equity Fund(2) INVESCO Leisure Fund AIM Conservative Allocation Fund
AIM Small Cap Growth Fund(3) INVESCO Multi-Sector Fund AIM Moderate Allocation Fund
AIM Trimark Endeavor Fund INVESCO Technology Fund
AIM 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*
=============================================================================
CONSIDER THE INVESTMENT OBJECTIVES, RISKS, AND CHARGES AND EXPENSES CAREFULLY.
FOR THIS AND OTHER IMPORTANT INFORMATION ABOUT AIM AND INVESCO FUNDS, OBTAIN A
PROSPECTUS FROM YOUR FINANCIAL ADVISOR OR AIMINVESTMENTS.COM AND READ IT
THOROUGHLY BEFORE INVESTING.
=============================================================================
</Table>
* Domestic equity and income fund
(1) 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. (2) 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. (3) 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. (4) AIM European Small Company Fund will close to new investors when
net assets reach $500 million. (5) Effective March 31, 2004, AIM Global Trends
Fund was renamed AIM Global Equity Fund. (6) AIM International Emerging Growth
Fund will close to new investors when net assets reach $500 million. (7)
Effective November 24, 2003, INVESCO International Blue Chip Value Fund was
renamed INVESCO International Core Equity Fund.
If used after October 20, 2004, this report 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 $139 billion in assets. AIM is a subsidiary of
AMVESCAP PLC, one of the world's largest independent financial services
companies with $372 billion in assets under management. Data as of June 30,
2004.
AIMinvestments.com MCBV-SAR-1 A I M Distributors, Inc.
<Table>
YOUR GOALS. OUR SOLUTIONS.--Registered Trademark--
- -------------------------------------------------------------------------------------
Mutual Retirement Annuities College Separately Offshore Alternative Cash [AIM INVESTMENTS LOGO APPEARS HERE]
Funds Products Savings Managed Products Investments Management --Registered Trademark--
Plans Accounts
- -------------------------------------------------------------------------------------
</Table>
AIM PREMIER EQUITY FUND
Semiannual Report to Shareholders o June 30, 2004
[COVER IMAGE]
YOUR GOALS. OUR SOLUTIONS. [AIM INVESTMENTS LOGO APPEARS HERE]
- --Registered Trademark-- --Registered Trademark--
<Table>
=================================================================================================================================
AIM PREMIER EQUITY FUND SEEKS LONG-TERM GROWTH OF CAPITAL. INCOME IS A SECONDARY OBJECTIVE.
o Unless otherwise stated, information presented is as of 6/30/04 and is based on total net assets.
=================================================================================================================================
ABOUT SHARE CLASSES ABOUT INDEXES USED IN THIS REPORT are generally according to the Global
Industry Classification Standard, which
o Effective 9/30/03, Class B shares are o The unmanaged Standard & Poor's was developed by and is the exclusive
not available as an investment for Composite Index of 500 Stocks (the S&P property and a service mark of Morgan
retirement plans maintained pursuant to 500--Registered Trademark-- Index) is Stanley Capital International Inc. and
Section 401 of the Internal Revenue an index of common stocks frequently Standard & Poor's.
Code, including 401(k) plans, money used as a general measure of U.S. stock
purchase pension plans and profit market performance. The returns shown in the Management's
sharing plans. Plans that have existing Discussion of Fund Performance are based
accounts invested in Class B shares will o The unmanaged Lipper Large-Cap Core on net asset values calculated for
continue to be allowed to make Fund Index represents an average of the shareholder transactions. Generally
additional purchases. performance of the 30 largest accepted accounting principles require
large-capitalization core equity funds adjustments to be made to the net assets
o Class R shares are available only to tracked by Lipper, Inc., an independent of the fund at period end for financial
certain retirement plans. Please see the mutual fund performance monitor. reporting purposes, and as such, the net
prospectus for more information. asset values for shareholder
o The unmanaged MSCI World Index is a transactions and the returns based on
PRINCIPAL RISKS OF INVESTING IN THE FUND group of global securities tracked by those net asset values may differ from
Morgan Stanley Capital International. the net asset values and returns
o International investing presents reported in the Financial Highlights.
certain risks not associated with o The unmanaged Lehman U.S. Aggregate
investing solely in the United States. Bond Index, which represents the U.S. Bloomberg, Inc. is a well-known
These include risks relating to investment-grade fixed-rate bond market independent financial research and
fluctuations in the value of the U.S. (including government and corporate reporting firm.
dollar relative to the values of other securities, mortgage pass-through
currencies, the custody arrangements securities and asset-backed securities), The Conference Board is a not-for-profit
made for the fund's foreign holdings, is compiled by Lehman Brothers, a global organization that conducts research and
differences in accounting, political investment bank. publishes information and analysis to
risks and the lesser degree of public help businesses strengthen their
information required to be provided by o The fund is not managed to track the performance.
non-U.S. companies. The fund may invest performance of any particular index,
up to 25% of its assets in the including the indexes defined here, and A description of the policies and
securities of non-U.S. issuers. consequently, the performance of the procedures that the fund uses to
fund may deviate significantly from the determine how to vote proxies relating
performance of the indexes. to portfolio securities is available
without charge, upon request, by calling
o A direct investment cannot be made in 800-959-4246, or on the AIM Web site,
an index. Unless otherwise indicated, AIMinvestments.com.
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.
OTHER INFORMATION
Industry classifications used in this
report
</Table>
================================================================================
THIS REPORT MUST BE ACCOMPANIED OR PRECEDED BY A CURRENTLY EFFECTIVE FUND
PROSPECTUS, WHICH CONTAINS MORE COMPLETE INFORMATION, INCLUDING SALES CHARGES
AND EXPENSES. READ IT CAREFULLY BEFORE YOU INVEST.
================================================================================
=====================================================
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
=====================================================
AIMinvestments.com
TO OUR SHAREHOLDERS
DEAR FELLOW SHAREHOLDER IN THE AIM FAMILY OF
FUNDS--Registered Trademark-- :
[PHOTO OF The six months covered by this report could be characterized
ROBERT H. as a trendless market. Positive news about employment and a
GRAHAM] strengthening economy were offset by concerns about higher
interest rates, continued violence in Iraq and high oil
ROBERT H. GRAHAM prices. The result: muted performance in both U.S. equity
and fixed-income markets.
The same macroeconomic factors were at work overseas as
well, causing developed international markets to generally
perform in line with that of the United States. In fact, the
MSCI World Index tracked the performance of the S&P 500
Index with six-month returns of 3.52% and 3.44%,
respectively.
The anticipation of higher interest rates hampered bond performance, with
most areas of the fixed- income market turning in flat returns for the six-month
period, as evidenced by the 0.15% return of the Lehman U.S. Aggregate Bond
Index. Considered a good proxy for the U.S. bond market, this index includes
fixed-rate mortgage-backed securities, U.S. agency investments, U.S. Treasuries
of various maturities and U.S. corporate bonds.
In an unremarkable period like the one covered by this report, we encourage
shareholders to look past short-term market performance and remain focused on
their long-term investment goals. Whether markets rise, fall or go sideways, the
only certainty is their unpredictability, especially in the short run.
Historically, markets have risen over the long term, with the S&P 500 Index
returning 13.55% over the past 25 years and the Lehman U.S. Aggregate Bond Index
returning 9.20%.* While past performance cannot guarantee future results, we
believe that staying invested for the long term offers the best opportunity for
capital growth.
For information on how your fund performed and was managed during the six
months covered by this report, please read your fund managers' discussion on the
following pages. We hope you find it informative.
There continues to be increased regulatory focus on mutual funds and other
investment products. For the latest information about ongoing regulatory
matters, please visit our Web site, AIMinvestments.com. We continue to post
updates as information becomes available. We also encourage you to visit our Web
site for investor education and planning information as well as regular
performance updates on our funds.
As always, AIM is committed to building solutions for your investment
goals, and we thank you for your continued participation in AIM
Investments--Servicemark--. If you have any questions, please contact our
Client Service representatives at 800-959-4246.
Sincerely,
/s/ ROBERT H. GRAHAM
- ------------------------
Robert H. Graham
Chairman and President
July 20, 2004
*Average annual total returns, June 30, 1979, to June 30, 2004.
Source: Lipper, Inc.
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
<Table>
MULTI-TEAM APPROACH TO FUND MANAGEMENT which resulted in a restructured
OFFERS POTENTIAL BENEFITS TO portfolio. While we continue to manage
SHAREHOLDERS the fund with the same investment
objective--long-term capital growth and,
AIM Premier Equity Fund Class A shares 2004 and 3.0% during the second quarter. secondarily, income--the fund is now
posted a total return of 1.07% at net What had been a "jobless recovery" managed by three teams applying distinct
asset value for the six months ended produced 1.2 million new jobs from value, core and growth investment
June 30, 2004. (Had the effects of January through June, according to the disciplines. This multi-team approach is
front-end sales charges been included, U.S. Department of Labor. An improved intended to provide investors with a
the return would have been lower.) job market likely contributed to rising large-cap core fund that is able to take
Performance for other share classes and consumer confidence, which reached a advantage of investment opportunities
benchmark indexes can be found on page two-year high in June, according to the across the value and growth continuum.
3. Conference Board.
As part of the multi-team approach,
The fund's performance lagged that of Corporate profits showed strength. each investment team manages their
its benchmarks, the S&P 500 Index, which According to Bloomberg, more than 85% of respective discipline independently. We
returned 3.44%, and the Lipper Large-Cap S&P 500 Index firms reporting believe this allows managers who are
Core Fund Index, which returned 2.24% first-quarter 2004 earnings met or highly skilled at capitalizing on
for the period. The fund underperformed exceeded expectations. Telecommunication investment opportunities with value,
primarily because of exposure to market services and utilities were the only two core or growth characteristics to focus
areas vulnerable to higher interest sectors in which earnings declined from on their areas of expertise and produce
rates and oil prices, including year-ago levels. relatively complementary returns for the
diversified financials and companies fund. Due to the distinct and
dependent on consumer discretionary The S&P 500 Index advanced only complementary investment disciplines
spending. slightly during the reporting period, applied by the three management teams,
growing by single digits in January, the number of holdings in your fund has
MARKET CONDITIONS February, May and June, but declining by increased from 96 to 143 during the
single digits in March and April. For reporting period. We believe this
As the reporting period closed, the U.S. the reporting period, the improved diversification is one of the
Federal Reserve (the Fed) voted to hike strongest-performing sectors were potential benefits of the multi-team
the federal funds target rate by 25 energy, industrials and consumer approach. Increasing the number of
basis points (0.25%)--its first rate staples. Despite strong earnings in the holdings also provides shareholders with
increase in four years and a move much materials and information technology expanded investment opportunities, as
anticipated by markets. The Fed's sectors, they were the weakest well as potential for lower volatility
decision came amid signs that the performers of the S&P 500 Index sectors. relative to market benchmarks such as
economy was strengthening and inflation, the S&P 500 Index.
while still relatively tame, had risen YOUR FUND
in recent months. Fund performance for the reporting
On April 20, 2004, AIM Premier Equity period generally reflected the mixed
Gross domestic product (GDP), the Fund underwent a change in portfolio performance of equities across broad
broadest measure of economic activity, management, market sectors. Industrials, energy and
expanded at an annualized rate of 4.5% consumer staples were the strongest
in the first quarter of contributors to fund returns. GDP
growth, increased factory orders and an
</Table>
<Table>
====================================================================================================================================
TOP 10 EQUITY HOLDINGS* TOP 10 INDUSTRIES*
1. Tyco International Ltd. (Bermuda) 3.4% 1. Pharmaceuticals 9.4%
2. Pfizer Inc. 2.4 2. Industrial Conglomerates 5.6
3. Computer Associates International, Inc. 1.9 3. Systems Software 4.8
4. First Data Corp. 1.9 4. Packaged Foods & Meats 4.7
5. Cendant Corp. 1.9 5. Integrated Oil & Gas 3.9
6. Waste Management, Inc. 1.8 6. Communications Equipment 3.0
7. Citigroup Inc. 1.5 7. Other Diversified Financial Services 2.8
8. Microsoft Corp. 1.5 8. Industrial Machinery 2.5
9. General Mills, Inc. 1.4 9. Health Care Equipment 2.5
10. Johnson & Johnson 1.4 10. Data Processing & Outsourced Services 2.4
*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. Past performance cannot guarantee
comparable future results.
====================================================================================================================================
</Table>
2
<Table>
improving job market helped industrials the information technology sector. LANNY H. SACHNOWITZ
outperform, while rising oil prices VERITAS, which makes storage management Mr. Sachnowitz is
benefited the fund's energy stocks. software, and semiconductor manufacturer [SACHNOWITZ portfolio manager of
Intel numbered among the fund's worst PHOTO] AIM Premier Equity
Tyco International, the diversified performers. Fund. He joined AIM in
manufacturing and service conglomerate, 1987 as a money market
was the top contributor to fund Pharmaceutical company Wyeth also trader and research analyst. Mr.
performance for the reporting period. detracted from fund performance amid Sachnowitz received a B.S. in finance
Under Tyco International's new concerns about the outcome of the from the University of Southern
management, the company's balance sheet presidential election, potential California and an M.B.A. from the
improved through elimination of debt and legislation concerning re-importation of University of Houston.
increasing cash flow. In our opinion, prescription drugs, patent expirations
Tyco International remained undervalued and ongoing issues with diet drug RONALD S. SLOAN
and was a top holding at the close of litigation. In our opinion, however, the Mr. Sloan, Chartered
the period. company's relative value based on strong [SLOAN Financial Analyst, is
cash flow offered appreciation potential PHOTO] lead portfolio manager
despite these concerns, and we continued of AIM Premier Equity
to own this stock at the end of the Fund. He has been in
reporting period. the investment industry since 1971 and
We believe this joined AIM in 1998. Mr. Sloan holds a
improved diversification IN CLOSING B.S. in business administration and an
is one of the potential M.B.A. from the University of Missouri.
benefits of the At the close of the period, the changes
multi-team approach. required to adopt our new investment BRET W. STANLEY
approach had been completed. The fund, Mr. Stanley, Chartered
however, remains positioned as a [STANLEY Financial Analyst, is
large-cap core investment and continues PHOTO] portfolio manager of
to have exposure to most broad market AIM Premier Equity
Other top-performing stocks included sectors. We believe the inclusion of a Fund. He began his
Yahoo!, the Internet portal, which wider variety of investment investment career in 1988 and joined AIM
posted stronger-than-expected opportunities has produced a moderately in 1998. Mr. Stanley received a B.B.A.
first-quarter earnings, and retail chain more defensive portfolio due to the in finance from The University of Texas
Target, which reached agreement in June increased number of holdings. We at Austin and an M.S. in finance from
to sell its Marshall Field's stores and appreciate your continued investment in the University of Houston.
nine Mervyn's stores. the fund.
Assisted by the Mid/Large Cap Core Team,
Sectors that detracted from fund See important fund and index the Large Cap Growth Team and the Basic
performance during the reporting period disclosures inside front cover. Value Team
included information technology,
financials and consumer discretionary.
Earnings disappointments among
semiconductor and software companies
caused the underperformance of
</Table>
<Table>
================================================================================================
PORTFOLIO COMPOSITION BY SECTOR FUND VS. INDEXES
[PIE CHART]
CASH & OTHER 22.1% TOTAL RETURNS 12/31/03-6/30/04,
EXCLUDING SALES CHARGES. IF SALES
HEALTH CARE 18.4% CHARGES WERE INCLUDED, RETURNS WOULD BE
LOWER.
INDUSTRIALS 17.1%
CLASS A SHARES 1.07%
INFORMATION TECHNOLOGY 17.0%
CLASS B SHARES 0.69
CONSUMER DISCRETIONARY 12.7%
CLASS C SHARES 0.68
FINANCIALS 12.7%
CLASS R SHARES 0.96
S&P 500 INDEX
(BROAD MARKET AND STYLE-SPECIFIC INDEX) 3.44
LIPPER LARGE-CAP CORE INDEX
(PEER GROUP INDEX) 2.24
SOURCE: LIPPER, INC.
TOTAL NUMBER OF HOLDINGS* 143
TOTAL NET ASSETS $8 BILLION
=============================================================================================== [RIGHT ARROW GRAPHIC]
FOR A PRESENTATION OF YOUR FUND'S
LONG-TERM PERFORMANCE RECORD,
PLEASE TURN THE PAGE.
</Table>
3
LONG-TERM PERFORMANCE
YOUR FUND'S LONG-TERM PERFORMANCE
===============================================================================
Below you will find a presentation of your fund's long-term performance record
for the period ended 6/30/04, the close of the six-month period covered by this
report.
Please read the important disclosure accompanying these tables, which explains
how fund performance is calculated and the sales changes, if any, that apply to
the share class in which you are invested.
===============================================================================
<Table>
AVERAGE ANNUAL TOTAL RETURNS Class R shares' inception date is Class A share performance reflects
As of 6/30/04, including applicable 6/3/02. Returns since that date are the maximum 5.50% sales charge, and
sales charges historical returns. All other returns Class B and Class C share performance
are blended returns of historical Class reflects the applicable contingent
CLASS A SHARES R share performance and restated Class A deferred sales charge (CDSC) for the
Inception (5/1/84) 12.29% share performance (for periods prior to period involved. The CDSC on Class B
10 Years 7.91 the inception date of Class R shares) at shares declines from 5% beginning at the
5 Years -7.10 net asset value, adjusted to reflect the time of purchase to 0% at the beginning
1 Year 8.22 higher Rule 12b-1 fees applicable to of the seventh year. The CDSC on Class C
Class R shares. Class A shares' shares is 1% for the first year after
CLASS B SHARES inception date is 5/1/84. purchase. Class R shares do not have a
Inception (10/18/93) 6.95% front-end sales charge; returns shown
10 Years 7.82 The performance data quoted represent are at net asset value and do not
5 Years -7.08 past performance and cannot guarantee reflect a 0.75% CDSC that may be imposed
1 Year 8.53 comparable future results; current on a total redemption of retirement plan
performance may be lower or higher. assets within the first year.
CLASS C SHARES Please visit AIMinvestments.com for the
Inception (8/4/97) 0.82% most recent month-end performance. The performance of the fund's share
5 Years -6.75 Performance figures reflect reinvested classes will differ due to different
1 Year 12.66 distributions, changes in net asset sales charge structures and class
value and the effect of the maximum expenses.
CLASS R SHARES* sales charge unless otherwise stated.
10 Years 8.25% Investment return and principal value [ARROW
5 -6.28 will fluctuate so that you may have a BUTTON For More Information Visit
1 Year 14.16 gain or loss when you sell shares. IMAGE] AIMinvestments.com
====================================================================================================================================
</Table>
4
SUPPLEMENT TO SEMIANNUAL REPORT DATED 6/30/04
AIM PREMIER EQUITY FUND
<Table>
INSTITUTIONAL CLASS SHARES AVERAGE ANNUAL TOTAL RETURNS Please note that past performance is not
For periods ended 6/30/04 indicative of future results. More
The following information has been recent returns may be more or less than
prepared to provide Institutional Class Inception (3/15/02) -4.42% those shown. All returns assume
shareholders with a performance overview 1 Year 15.23 reinvestment of distributions at net
specific to their holdings. 6 Months* 1.48 asset value. Investment return and
Institutional Class shares are offered principal value will fluctuate so your
exclusively to institutional investors, *Cumulative total return that has not shares, when redeemed, may be worth more
including defined contribution plans been annualized. or less than their original cost. See
that meet certain criteria. full report for information on
Institutional Class shares have no sales comparative benchmarks. Please consult
charge; therefore, performance is at your fund prospectus for more
NAV. Performance of Institutional Class information. For the most current
shares will differ from performance of month-end performance, please call
other share classes due to differing 800-451-4246 or visit
sales charges and class expenses. AIMinvestments.com.
</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.
--Registered Trademark--
AIMinvestments.com PEQ-INS-2 8/04 [AIM INVESTMENTS LOGO APPEARS HERE]
--Registered Trademark--
A I M Distributors, Inc.
FINANCIALS
SCHEDULE OF INVESTMENTS
June 30, 2004
(Unaudited)
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
COMMON STOCKS & OTHER EQUITY INTERESTS-98.78%
ADVERTISING-0.69%
Omnicom Group Inc. 728,100 $ 55,255,509
==========================================================================
AEROSPACE & DEFENSE-1.11%
Honeywell International Inc. 1,130,200 41,399,226
- --------------------------------------------------------------------------
Northrop Grumman Corp. 872,000 46,826,400
==========================================================================
88,225,626
==========================================================================
ALUMINUM-0.35%
Alcoa Inc. 850,700 28,098,621
==========================================================================
APPAREL RETAIL-1.90%
Gap, Inc. (The) 3,840,000 93,120,000
- --------------------------------------------------------------------------
Limited Brands 3,116,300 58,274,810
==========================================================================
151,394,810
==========================================================================
APPLICATION SOFTWARE-0.83%
Amdocs Ltd. (United Kingdom)(a) 1,250,000 29,287,500
- --------------------------------------------------------------------------
SAP A.G.-ADR (Germany) 879,500 36,771,895
==========================================================================
66,059,395
==========================================================================
ASSET MANAGEMENT & CUSTODY BANKS-0.54%
Bank of New York Co., Inc. (The) 1,466,900 43,244,212
==========================================================================
BIOTECHNOLOGY-0.87%
Amgen Inc.(a) 711,600 38,832,012
- --------------------------------------------------------------------------
Genentech, Inc.(a) 550,000 30,910,000
==========================================================================
69,742,012
==========================================================================
BREWERS-0.67%
Heineken N.V. (Netherlands) 1,634,886 53,851,011
==========================================================================
BROADCASTING & CABLE TV-0.44%
Clear Channel Communications, Inc. 959,900 35,468,305
==========================================================================
BUILDING PRODUCTS-1.76%
American Standard Cos. Inc.(a) 1,203,750 48,523,163
- --------------------------------------------------------------------------
Masco Corp. 2,951,700 92,034,006
==========================================================================
140,557,169
==========================================================================
CASINOS & GAMING-0.29%
International Game Technology 600,000 23,160,000
==========================================================================
COMMUNICATIONS EQUIPMENT-2.97%
Avaya Inc.(a) 1,500,000 23,685,000
- --------------------------------------------------------------------------
Cisco Systems, Inc.(a) 3,750,000 88,875,000
- --------------------------------------------------------------------------
Motorola, Inc. 2,300,000 41,975,000
- --------------------------------------------------------------------------
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT-(CONTINUED)
Nokia Oyj-ADR (Finland) 3,447,300 $ 50,123,742
- --------------------------------------------------------------------------
QUALCOMM Inc. 450,000 32,841,000
==========================================================================
237,499,742
==========================================================================
COMPUTER & ELECTRONICS RETAIL-0.25%
Best Buy Co., Inc. 400,000 20,296,000
==========================================================================
COMPUTER HARDWARE-1.32%
Dell Inc.(a) 1,350,000 48,357,000
- --------------------------------------------------------------------------
International Business Machines Corp. 644,500 56,812,675
==========================================================================
105,169,675
==========================================================================
CONSUMER ELECTRONICS-0.76%
Sony Corp.-ADR (Japan) 1,590,000 60,499,500
==========================================================================
CONSUMER FINANCE-0.26%
MBNA Corp. 800,000 20,632,000
==========================================================================
DATA PROCESSING & OUTSOURCED SERVICES-2.41%
Automatic Data Processing, Inc. 985,000 41,251,800
- --------------------------------------------------------------------------
First Data Corp. 3,400,000 151,368,000
==========================================================================
192,619,800
==========================================================================
DEPARTMENT STORES-0.99%
J.C. Penney Co., Inc. 650,000 24,544,000
- --------------------------------------------------------------------------
Kohl's Corp.(a) 1,285,100 54,334,028
==========================================================================
78,878,028
==========================================================================
DIVERSIFIED BANKS-1.30%
Bank of America Corp. 862,700 73,001,674
- --------------------------------------------------------------------------
Wachovia Corp. 685,800 30,518,100
==========================================================================
103,519,774
==========================================================================
DIVERSIFIED CHEMICALS-0.83%
Dow Chemical Co. (The) 1,618,600 65,877,020
==========================================================================
DIVERSIFIED COMMERCIAL SERVICES-2.36%
Apollo Group, Inc.-Class A(a) 450,000 39,730,500
- --------------------------------------------------------------------------
Cendant Corp. 6,076,200 148,745,376
==========================================================================
188,475,876
==========================================================================
ELECTRIC UTILITIES-0.86%
FPL Group, Inc.(a) 622,700 39,821,665
- --------------------------------------------------------------------------
TXU Corp. 715,700 28,993,007
==========================================================================
68,814,672
==========================================================================
</Table>
F-1
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
ELECTRICAL COMPONENTS & EQUIPMENT-0.83%
Emerson Electric Co. 688,700 $ 43,766,885
- --------------------------------------------------------------------------
Rockwell Automation, Inc. 600,000 22,506,000
==========================================================================
66,272,885
==========================================================================
ENVIRONMENTAL SERVICES-1.81%
Waste Management, Inc. 4,710,100 144,364,565
==========================================================================
FOOD RETAIL-2.19%
Kroger Co. (The)(a) 4,320,000 78,624,000
- --------------------------------------------------------------------------
Safeway Inc.(a) 3,806,000 96,444,040
==========================================================================
175,068,040
==========================================================================
FOOTWEAR-0.57%
NIKE, Inc.-Class B 600,000 45,450,000
==========================================================================
GENERAL MERCHANDISE STORES-1.09%
Target Corp. 2,047,900 86,974,313
==========================================================================
HEALTH CARE DISTRIBUTORS-1.49%
Cardinal Health, Inc. 1,000,000 70,050,000
- --------------------------------------------------------------------------
McKesson Corp. 1,420,000 48,748,600
==========================================================================
118,798,600
==========================================================================
HEALTH CARE EQUIPMENT-2.53%
Baxter International Inc. 1,120,000 38,651,200
- --------------------------------------------------------------------------
Becton, Dickinson & Co. 800,000 41,440,000
- --------------------------------------------------------------------------
Hospira, Inc.(a) 100,000 2,760,000
- --------------------------------------------------------------------------
St. Jude Medical, Inc.(a) 550,000 41,607,500
- --------------------------------------------------------------------------
Waters Corp.(a) 600,000 28,668,000
- --------------------------------------------------------------------------
Zimmer Holdings, Inc.(a) 550,000 48,510,000
==========================================================================
201,636,700
==========================================================================
HEALTH CARE FACILITIES-1.22%
HCA Inc. 2,344,200 97,495,278
==========================================================================
HEALTH CARE SERVICES-0.80%
Caremark Rx, Inc.(a) 650,000 21,411,000
- --------------------------------------------------------------------------
IMS Health Inc. 900,000 21,096,000
- --------------------------------------------------------------------------
Quest Diagnostics Inc. 250,000 21,237,500
==========================================================================
63,744,500
==========================================================================
HEALTH CARE SUPPLIES-0.39%
Alcon, Inc. (Switzerland) 400,000 31,460,000
==========================================================================
HOTELS, RESORTS & CRUISE LINES-0.75%
Starwood Hotels & Resorts Worldwide, Inc. 1,339,100 60,058,635
==========================================================================
HOUSEHOLD PRODUCTS-1.07%
Kimberly-Clark Corp. 635,000 41,833,800
- --------------------------------------------------------------------------
Procter & Gamble Co. (The) 800,000 43,552,000
==========================================================================
85,385,800
==========================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
HOUSEWARES & SPECIALTIES-1.01%
Fortune Brands, Inc. 300,000 $ 22,629,000
- --------------------------------------------------------------------------
Newell Rubbermaid Inc. 2,485,500 58,409,250
==========================================================================
81,038,250
==========================================================================
HYPERMARKETS & SUPER CENTERS-0.66%
Costco Wholesale Corp. 475,000 19,508,250
- --------------------------------------------------------------------------
Wal-Mart Stores, Inc. 633,000 33,397,080
==========================================================================
52,905,330
==========================================================================
INDUSTRIAL CONGLOMERATES-5.64%
3M Co. 850,000 76,508,500
- --------------------------------------------------------------------------
General Electric Co. 3,157,200 102,293,280
- --------------------------------------------------------------------------
Tyco International Ltd. (Bermuda) 8,189,500 271,400,030
==========================================================================
450,201,810
==========================================================================
INDUSTRIAL MACHINERY-2.53%
Danaher Corp. 900,000 46,665,000
- --------------------------------------------------------------------------
Dover Corp. 1,968,300 82,865,430
- --------------------------------------------------------------------------
Illinois Tool Works Inc. 754,000 72,301,060
==========================================================================
201,831,490
==========================================================================
INTEGRATED OIL & GAS-3.93%
Amerada Hess Corp. 545,220 43,175,972
- --------------------------------------------------------------------------
BP PLC-ADR (United Kingdom) 1,439,900 77,135,443
- --------------------------------------------------------------------------
ChevronTexaco Corp. 450,000 42,349,500
- --------------------------------------------------------------------------
ConocoPhillips 547,300 41,753,517
- --------------------------------------------------------------------------
Exxon Mobil Corp. 1,414,600 62,822,386
- --------------------------------------------------------------------------
Murphy Oil Corp. 627,000 46,209,900
==========================================================================
313,446,718
==========================================================================
INTEGRATED TELECOMMUNICATION SERVICES-0.56%
ALLTEL Corp. 885,000 44,798,700
==========================================================================
INTERNET RETAIL-0.81%
eBay Inc.(a) 275,000 25,286,250
- --------------------------------------------------------------------------
InterActiveCorp(a) 1,315,000 39,634,100
==========================================================================
64,920,350
==========================================================================
INTERNET SOFTWARE & SERVICES-0.73%
Yahoo! Inc.(a) 1,600,000 58,128,000
==========================================================================
INVESTMENT BANKING & BROKERAGE-2.02%
Goldman Sachs Group, Inc. (The) 400,000 37,664,000
- --------------------------------------------------------------------------
Merrill Lynch & Co., Inc. 729,700 39,389,206
- --------------------------------------------------------------------------
Morgan Stanley 1,594,500 84,141,765
==========================================================================
161,194,971
==========================================================================
</Table>
F-2
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
IT CONSULTING & OTHER SERVICES-0.93%
Accenture Ltd.-Class A (Bermuda)(a) 2,700,900 $ 74,220,732
==========================================================================
LIFE & HEALTH INSURANCE-0.52%
Prudential Financial, Inc. 897,400 41,702,178
==========================================================================
MANAGED HEALTH CARE-1.71%
Aetna Inc. 250,000 21,250,000
- --------------------------------------------------------------------------
Anthem, Inc.(a)(b) 592,800 53,091,168
- --------------------------------------------------------------------------
UnitedHealth Group Inc. 1,000,000 62,250,000
==========================================================================
136,591,168
==========================================================================
MOVIES & ENTERTAINMENT-0.69%
Walt Disney Co. (The) 2,160,000 55,058,400
==========================================================================
MULTI-LINE INSURANCE-0.94%
American International Group, Inc. 575,000 40,986,000
- --------------------------------------------------------------------------
Hartford Financial Services Group, Inc. (The) 500,000 34,370,000
==========================================================================
75,356,000
==========================================================================
OFFICE ELECTRONICS-0.69%
Xerox Corp.(a) 3,785,800 54,894,100
==========================================================================
OIL & GAS DRILLING-0.55%
Transocean Inc. (Cayman Islands)(a) 1,510,000 43,699,400
==========================================================================
OIL & GAS EQUIPMENT & SERVICES-1.92%
Baker Hughes Inc. 1,150,000 43,297,500
- --------------------------------------------------------------------------
Halliburton Co. 2,190,000 66,269,400
- --------------------------------------------------------------------------
Schlumberger Ltd. (Netherlands) 688,000 43,694,880
==========================================================================
153,261,780
==========================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES-2.83%
Citigroup Inc. 2,616,400 121,662,600
- --------------------------------------------------------------------------
J.P. Morgan Chase & Co. 1,624,000 62,962,480
- --------------------------------------------------------------------------
Principal Financial Group, Inc. 1,198,000 41,666,440
==========================================================================
226,291,520
==========================================================================
PACKAGED FOODS & MEATS-4.71%
Campbell Soup Co. 2,800,000 75,264,000
- --------------------------------------------------------------------------
General Mills, Inc. 2,400,000 114,072,000
- --------------------------------------------------------------------------
Kellogg Co. 920,000 38,502,000
- --------------------------------------------------------------------------
Kraft Foods Inc.-Class A 3,030,000 95,990,400
- --------------------------------------------------------------------------
Sara Lee Corp. 2,266,000 52,095,340
==========================================================================
375,923,740
==========================================================================
PAPER PRODUCTS-0.69%
Georgia-Pacific Corp. 1,500,000 55,470,000
==========================================================================
PERSONAL PRODUCTS-1.21%
Avon Products, Inc. 550,000 25,377,000
- --------------------------------------------------------------------------
Estee Lauder Cos. Inc. (The)-Class A 500,000 24,390,000
- --------------------------------------------------------------------------
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
PERSONAL PRODUCTS-(CONTINUED)
Gillette Co. (The) 1,100,000 $ 46,640,000
==========================================================================
96,407,000
==========================================================================
PHARMACEUTICALS-9.36%
Abbott Laboratories 1,000,000 40,760,000
- --------------------------------------------------------------------------
Aventis S.A. (France) 710,000 53,725,682
- --------------------------------------------------------------------------
Bristol-Myers Squibb Co. 2,000,000 49,000,000
- --------------------------------------------------------------------------
GlaxoSmithKline PLC-ADR (United Kingdom) 1,800,000 74,628,000
- --------------------------------------------------------------------------
Johnson & Johnson 1,962,300 109,300,110
- --------------------------------------------------------------------------
Merck & Co. Inc. 1,513,200 71,877,000
- --------------------------------------------------------------------------
Pfizer Inc. 5,555,300 190,435,684
- --------------------------------------------------------------------------
Sanofi-Synthelabo S.A. (France)(a)(b) 203,000 12,897,798
- --------------------------------------------------------------------------
Teva Pharmaceutical Industries Ltd.-ADR
(Israel) 533,100 35,872,299
- --------------------------------------------------------------------------
Wyeth 3,018,700 109,156,192
==========================================================================
747,652,765
==========================================================================
PROPERTY & CASUALTY INSURANCE-1.67%
ACE Ltd. (Cayman Islands) 2,167,700 91,650,356
- --------------------------------------------------------------------------
St. Paul Travelers Cos., Inc. (The) 1,034,100 41,922,414
==========================================================================
133,572,770
==========================================================================
PUBLISHING-1.27%
Gannett Co., Inc. 560,000 47,516,000
- --------------------------------------------------------------------------
New York Times Co. (The)-Class A 1,200,000 53,652,000
==========================================================================
101,168,000
==========================================================================
RAILROADS-1.05%
Norfolk Southern Corp. 1,663,000 44,102,760
- --------------------------------------------------------------------------
Union Pacific Corp. 664,100 39,480,745
==========================================================================
83,583,505
==========================================================================
REGIONAL BANKS-0.77%
BB&T Corp. 876,500 32,404,205
- --------------------------------------------------------------------------
SunTrust Banks, Inc. 441,300 28,680,087
==========================================================================
61,084,292
==========================================================================
RESTAURANTS-0.93%
McDonald's Corp. 1,425,000 37,050,000
- --------------------------------------------------------------------------
Yum! Brands, Inc.(a) 1,000,000 37,220,000
==========================================================================
74,270,000
==========================================================================
SEMICONDUCTOR EQUIPMENT-0.55%
Applied Materials, Inc.(a) 2,250,000 44,145,000
==========================================================================
SEMICONDUCTORS-1.86%
Analog Devices, Inc. 1,150,000 54,142,000
- --------------------------------------------------------------------------
Intel Corp. 1,881,800 51,937,680
- --------------------------------------------------------------------------
Linear Technology Corp. 575,000 22,695,250
- --------------------------------------------------------------------------
Taiwan Semiconductor Manufacturing Co.
Ltd.-ADR (Taiwan) 273,761 2,274,953
- --------------------------------------------------------------------------
</Table>
F-3
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
SEMICONDUCTORS-(CONTINUED)
Xilinx, Inc. 518,500 $ 17,271,235
==========================================================================
148,321,118
==========================================================================
SOFT DRINKS-0.67%
PepsiCo, Inc. 1,000,000 53,880,000
==========================================================================
SPECIALTY STORES-0.26%
Staples, Inc. 700,000 20,517,000
==========================================================================
SYSTEMS SOFTWARE-4.76%
Computer Associates International, Inc. 5,433,100 152,452,786
- --------------------------------------------------------------------------
Microsoft Corp. 4,075,900 116,407,704
- --------------------------------------------------------------------------
Oracle Corp.(a) 2,250,000 26,842,500
- --------------------------------------------------------------------------
Symantec Corp.(a) 1,000,000 43,780,000
- --------------------------------------------------------------------------
VERITAS Software Corp.(a) 1,450,000 40,165,000
==========================================================================
379,647,990
==========================================================================
THRIFTS & MORTGAGE FINANCE-1.85%
Fannie Mae 1,001,500 71,467,040
- --------------------------------------------------------------------------
Washington Mutual, Inc. 1,970,000 76,120,800
==========================================================================
147,587,840
==========================================================================
Total Common Stocks & Other Equity
Interests (Cost $7,104,023,348) 7,886,819,990
==========================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
MONEY MARKET FUNDS-1.39%
Liquid Assets Portfolio-Institutional
Class(c) 55,331,394 $ 55,331,394
- --------------------------------------------------------------------------
STIC Prime Portfolio-Institutional Class(c) 55,331,394 55,331,394
==========================================================================
Total Money Market Funds (Cost
$110,662,788) 110,662,788
==========================================================================
TOTAL INVESTMENTS-100.17% (excluding
investments purchased with cash collateral
from securities loaned) (Cost
$7,214,686,136) 7,997,482,778
==========================================================================
INVESTMENTS PURCHASED WITH CASH COLLATERAL
FROM SECURITIES LOANED
MONEY MARKET FUNDS-0.52%
Liquid Assets Portfolio-Institutional
Class(c)(d) 41,551,800 41,551,800
==========================================================================
Total Money Market Funds (purchased with
cash collateral from securities loaned)
(Cost $41,551,800) 41,551,800
==========================================================================
TOTAL INVESTMENTS-100.69% (Cost
$7,256,237,936) 8,039,034,578
==========================================================================
OTHER ASSETS LESS LIABILITIES-(0.69%) (55,099,350)
==========================================================================
NET ASSETS-100.00% $7,983,935,228
__________________________________________________________________________
==========================================================================
</Table>
Investment Abbreviations:
<Table>
ADR - American Depositary Receipt
</Table>
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) All or a portion of this security has been pledged as collateral for
security lending transactions at June 30, 2004.
(c) The money market fund and the Fund are affiliated by having the same
investment advisor. See Note 3.
(d) 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 7.
See accompanying notes which are an integral part of the financial statements.
F-4
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2004
(Unaudited)
<Table>
ASSETS:
Investments, at market value (cost
$7,104,023,348)* $ 7,886,819,990
- ------------------------------------------------------------
Investments in affiliated money market
funds (cost $152,214,588) 152,214,588
============================================================
Total investments (cost $7,256,237,936) 8,039,034,578
============================================================
Foreign currencies, at value (cost $422) 418
- ------------------------------------------------------------
Receivables for:
Investments sold 39,154,081
- ------------------------------------------------------------
Fund shares sold 1,375,599
- ------------------------------------------------------------
Dividends 8,150,590
- ------------------------------------------------------------
Investment for deferred compensation and
retirement plans 567,451
- ------------------------------------------------------------
Other assets 111,353
============================================================
Total assets 8,088,394,070
____________________________________________________________
============================================================
LIABILITIES:
Payables for:
Investments purchased 27,630,459
- ------------------------------------------------------------
Fund shares reacquired 26,585,088
- ------------------------------------------------------------
Deferred compensation and retirement
plans 1,181,629
- ------------------------------------------------------------
Collateral upon return of securities
loaned 41,551,800
- ------------------------------------------------------------
Accrued distribution fees 3,459,360
- ------------------------------------------------------------
Accrued trustees' fees 220
- ------------------------------------------------------------
Accrued transfer agent fees 3,578,072
- ------------------------------------------------------------
Accrued operating expenses 472,214
============================================================
Total liabilities 104,458,842
============================================================
Net assets applicable to shares outstanding $ 7,983,935,228
____________________________________________________________
============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $11,454,930,781
- ------------------------------------------------------------
Undistributed net investment income (loss) (7,912,378)
- ------------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities, foreign currencies
and futures contracts (4,245,887,031)
- ------------------------------------------------------------
Unrealized appreciation of investment
securities, foreign currencies and
futures contracts 782,803,856
============================================================
$ 7,983,935,228
____________________________________________________________
============================================================
NET ASSETS:
Class A $ 4,774,806,532
____________________________________________________________
============================================================
Class B $ 2,843,292,490
____________________________________________________________
============================================================
Class C $ 364,624,639
____________________________________________________________
============================================================
Class R $ 690,136
____________________________________________________________
============================================================
Institutional Class $ 521,431
____________________________________________________________
============================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER
SHARE, UNLIMITED NUMBER OF SHARES
AUTHORIZED:
Class A 503,716,246
____________________________________________________________
============================================================
Class B 322,580,930
____________________________________________________________
============================================================
Class C 41,341,484
____________________________________________________________
============================================================
Class R 73,168
____________________________________________________________
============================================================
Institutional Class 54,337
____________________________________________________________
============================================================
Class A:
Net asset value per share $ 9.48
- ------------------------------------------------------------
Offering price per share:
(Net asset value of $9.48 divided by
94.50%) $ 10.03
____________________________________________________________
============================================================
Class B:
Net asset value and offering price per
share $ 8.81
____________________________________________________________
============================================================
Class C:
Net asset value and offering price per
share $ 8.82
____________________________________________________________
============================================================
Class R:
Net asset value and offering price per
share $ 9.43
____________________________________________________________
============================================================
Institutional Class:
Net asset value and offering price per
share $ 9.60
____________________________________________________________
============================================================
</Table>
* At June 30, 2004, securities with an aggregate market value of $40,864,467
were on loan to brokers.
See accompanying notes which are an integral part of the financial statements.
F-5
STATEMENT OF OPERATIONS
For the six months ended June 30, 2004
(Unaudited)
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $674,760) $ 57,655,380
- ---------------------------------------------------------------------------
Dividends from affiliated money market funds* 1,382,624
- ---------------------------------------------------------------------------
Interest 92,989
===========================================================================
Total investment income 59,130,993
===========================================================================
EXPENSES:
Advisory fees 26,790,636
- ---------------------------------------------------------------------------
Administrative services fees 371,630
- ---------------------------------------------------------------------------
Custodian fees 292,094
- ---------------------------------------------------------------------------
Distribution fees:
Class A 6,144,696
- ---------------------------------------------------------------------------
Class B 16,082,387
- ---------------------------------------------------------------------------
Class C 1,987,825
- ---------------------------------------------------------------------------
Class R 1,724
- ---------------------------------------------------------------------------
Transfer agent fees -- Class A,B,C & R 13,171,740
- ---------------------------------------------------------------------------
Transfer agent fees -- Institutional Class 66
- ---------------------------------------------------------------------------
Trustees' fees 82,238
- ---------------------------------------------------------------------------
Other 1,979,056
===========================================================================
Total expenses 66,904,092
===========================================================================
Less: Fees waived, expenses reimbursed and expense offset
arrangements (850,724)
===========================================================================
Net expenses 66,053,368
===========================================================================
Net investment income (loss) (6,922,375)
===========================================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES, FOREIGN CURRENCIES AND FUTURES CONTRACTS:
Net realized gain (loss) from:
Investment securities 464,605,768
- ---------------------------------------------------------------------------
Foreign currencies (361,175)
- ---------------------------------------------------------------------------
Futures contracts 15,858,268
===========================================================================
480,102,861
===========================================================================
Change in net unrealized appreciation (depreciation) of:
Investment securities (386,262,151)
- ---------------------------------------------------------------------------
Foreign currencies (10,400)
- ---------------------------------------------------------------------------
Futures contracts (11,022,800)
===========================================================================
(397,295,351)
===========================================================================
Net gain from investment securities, foreign currencies and
futures contracts 82,807,510
===========================================================================
Net increase in net assets resulting from operations $ 75,885,135
___________________________________________________________________________
===========================================================================
</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 six months ended June 30, 2004 and the year ended December 31, 2003
(Unaudited)
<Table>
<Caption>
JUNE 30, DECEMBER 31,
2004 2003
- ------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (6,922,375) $ (25,735,883)
- ------------------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities,
foreign currencies, foreign currency contracts, futures
contracts and option contracts 480,102,861 (519,632,972)
- ------------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities, foreign currencies, foreign
currency contracts and futures contracts (397,295,351) 2,505,788,002
================================================================================================
Net increase in net assets resulting from operations 75,885,135 1,960,419,147
================================================================================================
Share transactions-net:
Class A (391,896,543) (586,536,341)
- ------------------------------------------------------------------------------------------------
Class B (796,015,743) (1,467,119,888)
- ------------------------------------------------------------------------------------------------
Class C (71,370,075) (101,720,007)
- ------------------------------------------------------------------------------------------------
Class R 35,238 318,566
- ------------------------------------------------------------------------------------------------
Institutional Class (1,652,510) (625,385)
================================================================================================
Net increase (decrease) in net assets resulting from
share transactions (1,260,899,633) (2,155,683,055)
================================================================================================
Net increase (decrease) in net assets (1,185,014,498) (195,263,908)
================================================================================================
NET ASSETS:
Beginning of period 9,168,949,726 9,364,213,634
================================================================================================
End of period (including undistributed net investment income
(loss) of $(7,912,378) and $(990,003) for 2004 and 2003,
respectively) $ 7,983,935,228 $ 9,168,949,726
________________________________________________________________________________________________
================================================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
F-7
NOTES TO FINANCIAL STATEMENTS
June 30, 2004
(Unaudited)
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.
Under the Trust's organizational documents, the Fund's officers, trustees,
employees and agents are indemnified against certain liabilities that may arise
out of performance of their duties to the Fund. Additionally, in the normal
course of business, the Fund enters into contracts that contain a variety of
indemnification clauses. The Fund's maximum exposure under these arrangements is
unknown as this would involve future claims that may be made against the Fund
that have not yet occurred. However, the Fund has not had prior claims or losses
pursuant to these contracts.
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 specific 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"). Futures
contracts are valued at the final settlement price set by an exchange on
which they are principally traded. Listed options are valued at the mean
between the last bid and the ask prices from the exchange on which they are
principally traded. Options not listed on an exchange are valued by an
independent source at the mean between the last bid and ask prices.
Investments in open-end registered investment companies and closed-end
registered investment companies that do not trade on an exchange are valued
at the end of day net asset value per share. Investments in closed-end
registered investment companies that trade on an exchange are valued at the
last sales price as of the close of the customary trading session on the
exchange where the security is principally traded.
Foreign securities (including foreign exchange contracts) are converted
into U.S. dollar amounts using the applicable exchange rates as of the
close of the NYSE. Generally, trading in foreign securities is
substantially completed each day at various times prior to the close of the
NYSE. The values of such securities used in computing the net asset value
of the Fund's shares are determined as of the close of the respective
markets. Events affecting the values of such foreign securities may occur
between the times at which the particular foreign market closes and the
close of the customary trading session of the NYSE which would not
ordinarily be reflected in the computation of the Fund's net asset value.
If 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.
F-8
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions
are accounted for on a trade date basis. Realized gains or losses on sales
are computed on the basis of specific identification of the securities
sold. Interest income is recorded on the accrual basis from settlement
date. Dividend income is recorded on the ex-dividend date.
Brokerage commissions and mark ups are considered transaction costs and
are recorded as an increase to the cost basis of securities purchased
and/or a reduction of proceeds on a sale of securities. Such transaction
costs are included in the determination of realized and unrealized gain
(loss) from investment securities reported in the Statement of Operations
and the Statement of Changes in Net Assets and the realized and unrealized
net gains (losses) on securities per share in the Financial Highlights.
Transaction costs are included in the calculation of the Fund's net asset
value and, accordingly, they reduce the Fund's total returns. These
transaction costs are not considered operating expenses and are not
reflected in net investment income reported in the Statement of Operations
and Statement of Changes in Net Assets, or the net investment income per
share and ratios of expenses and net investment income reported in the
Financial Highlights, nor are they limited by any expense limitation
arrangements between the Fund and the advisor.
The Fund 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 distributed to shareholders. Therefore, no provision for
federal income taxes is recorded in the financial statements.
E. 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.
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. 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.
F-9
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 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). Voluntary fee waivers or reimbursements may be
modified or discontinued at any time upon consultation with the Board of
Trustees without further notice to investors. For the six months ended June 30,
2004, AIM waived fees of $483,712.
For the period ended June 30, 2004, at the direction of the trustees of the
Trust, AMVESCAP PLC ("AMVESCAP") has assumed $316,212 of expenses incurred by
the Fund in connection with matters related to both pending regulatory
complaints against INVESCO Funds Group, Inc. ("IFG") alleging market timing and
the ongoing market timing investigations with respect to IFG and AIM, including
legal, audit, shareholder servicing, communication and trustee expenses.
The Fund, pursuant to a master administrative services agreement with AIM,
has agreed to pay AIM for certain administrative costs incurred in providing
accounting services to the Fund. For the six months ended June 30, 2004, AIM was
paid $371,630 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 six
months ended June 30, 2004, AISI retained $7,704,912 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, Class R and 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 six months ended June 30, 2004, the Class A,
Class B, Class C and Class R shares paid $6,144,696, $16,082,387, $1,987,825 and
$1,724, 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 six months
ended June 30, 2004, AIM Distributors advised the Fund that it retained $242,585
in front-end sales commissions from the sale of Class A shares and $2,378,
$55,990, $11,975 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"), to invest daily available cash balances and cash
collateral from securities lending transactions in affiliated money market
funds. The Fund and the money market funds below have the same investment
advisor and therefore, are considered to be affiliated. 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 tables
below show the transactions in and earnings from investments in affiliated money
market funds for the period ended June 30, 2004.
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 12/31/03 AT COST FROM SALES (DEPRECIATION) 06/30/04 INCOME GAIN (LOSS)
- -----------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-Institutional
Class $149,855,268 $ 775,006,347 $ (869,530,221) $ -- $ 55,331,394 $ 576,383 $ --
- -----------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-Institutional
Class 149,855,268 775,006,347 (869,530,221) -- 55,331,394 549,502 --
=============================================================================================================================
Subtotal $299,710,536 $1,550,012,694 $(1,739,060,442) $ -- $110,662,788 $1,125,885 $ --
_____________________________________________________________________________________________________________________________
=============================================================================================================================
</Table>
F-10
NOTE 3-- INVESTMENTS IN AFFILIATES (CONTINUED)
INVESTMENTS OF CASH COLLATERAL FROM SECURITIES LENDING TRANSACTIONS:
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 12/31/03 AT COST FROM SALES (DEPRECIATION) 06/30/04 INCOME* GAIN (LOSS)
- -----------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-Institutional
Class $119,778,490 $ 428,424,595 $ (506,651,285) $ -- $ 41,551,800 $ 256,739 $ --
=============================================================================================================================
Total $419,489,026 $1,978,437,289 $(2,245,711,727) $ -- $152,214,588 $1,382,624 $ --
_____________________________________________________________________________________________________________________________
=============================================================================================================================
</Table>
* Dividend income is net of fees paid to security lending counterparties of
$223,385.
NOTE 4--EXPENSE OFFSET ARRANGEMENTS
The expense offset arrangements are comprised of (i) transfer agency credits
which result from balances in Demand Deposit Accounts (DDA) used by the transfer
agent for clearing shareholder transactions and (ii) custodian credits which
result from periodic overnight cash balances at the custodian. For the six
months ended June 30, 2004, the Fund received credits in transfer agency fees of
$49,219 and credits in custodian fees of $1,581 under expense offset
arrangements, which resulted in a reduction of the Fund's total expenses of
$50,800.
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. Those Trustees who defer compensation have
the option to select various AIM Funds 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.
Obligations under the deferred compensation and retirement plans represent
unsecured claims against the general assets of the Fund.
During the six months ended June 30, 2004, the Fund paid legal fees of
$9,238 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
Pursuant to an exemptive order from the SEC, 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 is 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 six months ended June 30, 2004, the Fund did not borrow or lend
under the interfund lending facility or borrow under the uncommitted unsecured
revolving credit facility.
Additionally, the Fund is permitted to temporarily carry a negative or
overdrawn balance in its account with SSB, 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.
F-11
NOTE 7--PORTFOLIO SECURITIES LOANED
The Fund may lend portfolio securities having a market value up to 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 June 30, 2004, securities with an aggregate value of $40,864,467 were on
loan to brokers. The loans were secured by cash collateral of $41,551,800
received by the Fund and subsequently invested in affiliated money market funds.
For the six months ended June 30, 2004, the Fund received dividends on cash
collateral net of fees paid to counterparties of $256,739 for securities lending
transactions.
NOTE 8--TAX INFORMATION
The amount and character of income and gains to be distributed are determined in
accordance with income tax regulations, which may differ from generally accepted
accounting principles. Reclassifications are made to the Fund's capital accounts
to reflect income and gains available for distribution (or available capital
loss carryforward) under income tax regulations. The tax character of
distributions paid during the year and the tax components of net assets will be
reported at the Fund's fiscal year-end.
Capital loss carryforward is calculated and reported as of a specific date.
Results of transactions and other activity after that date may affect the amount
of capital loss carryforward actually available for the Fund to utilize. The
ability to use capital loss carryforward may be limited under the Internal
Revenue Code and related regulations.
The Fund has a capital loss carryforward for tax purposes as of December 31,
2003 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>
* Capital loss carryforward as of the date listed above is reduced for
limitations, if any, to the extent required by the Internal Revenue Code.
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 six months
ended June 30, 2004 was $5,363,978,615 and $6,447,64,506, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- -------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $ 955,357,805
- -------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (178,225,104)
===============================================================================
Net unrealized appreciation of investment securities $ 777,132,701
_______________________________________________________________________________
===============================================================================
Cost of investments for tax purposes is $7,261,901,877.
</Table>
F-12
NOTE 10--SHARE INFORMATION
The Fund currently offers five different classes of shares: Class A shares,
Class B shares, Class C shares, Class R shares and 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 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
- --------------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2004 DECEMBER 31, 2003
------------------------------- -------------------------------
SHARES AMOUNT SHARES AMOUNT
- --------------------------------------------------------------------------------------------------------------------------------
Sold:
Class A 11,802,907 $ 111,201,774 39,598,262 $ 320,765,623
- --------------------------------------------------------------------------------------------------------------------------------
Class B 4,730,773 41,607,087 13,786,253 105,078,641
- --------------------------------------------------------------------------------------------------------------------------------
Class C 1,129,326 9,941,413 3,249,627 24,835,033
- --------------------------------------------------------------------------------------------------------------------------------
Class R 18,135 169,363 89,985 704,135
- --------------------------------------------------------------------------------------------------------------------------------
Institutional Class -- 240 -- --
================================================================================================================================
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 41,684,586 394,165,392 77,425,211 643,745,569
- --------------------------------------------------------------------------------------------------------------------------------
Class B (44,745,716) (394,165,392) (82,660,881) (643,745,569)
================================================================================================================================
Reacquired:
Class A (95,284,090) (897,263,709) (192,041,009) (1,575,516,546)
- --------------------------------------------------------------------------------------------------------------------------------
Class B (50,526,404) (443,457,438) (126,732,034) (959,964,213)
- --------------------------------------------------------------------------------------------------------------------------------
Class C (9,259,304) (81,311,488) (18,159,353) (138,549,417)
- --------------------------------------------------------------------------------------------------------------------------------
Class R (14,705) (134,125) (47,869) (385,569)
- --------------------------------------------------------------------------------------------------------------------------------
Institutional Class (170,232) (1,652,750) (74,164) (625,385)
================================================================================================================================
(140,634,724) $(1,260,899,633) (277,482,843) $(2,155,683,055)
________________________________________________________________________________________________________________________________
================================================================================================================================
</Table>
* 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-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
----------------------------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, -----------------------------------------------------------------------------
2004 2003 2002 2001 2000(a) 1999(a)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of
period $ 9.38 $ 7.51 $ 10.87 $ 12.51 $ 16.28 $ 13.40
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income (loss) 0.01 0.01(b) (0.01)(b) (0.00) (0.04)(b) (0.01)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on
securities (both realized and
unrealized) 0.09 1.86 (3.35) (1.63) (2.42) 3.97
=================================================================================================================================
Total from investment
operations 0.10 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 $ 9.48 $ 9.38 $ 7.51 $ 10.87 $ 12.51 $ 16.28
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(c) 1.07% 24.90% (30.91)% (12.99)% (14.95)% 29.95%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s
omitted) $4,774,807 $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 and/or
reimbursements 1.23%(d) 1.26% 1.17% 1.08% 1.00% 1.00%
- ---------------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or
reimbursements 1.25%(d) 1.27% 1.19% 1.12% 1.04% 1.02%
=================================================================================================================================
Ratio of net investment income
(loss) to average net assets 0.16%(d) 0.07% (0.08)% (0.03)% (0.11)% (0.09)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(e) 65% 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 as such, the net asset
value for financial reporting purposes and the returns based on those
net asset values may differ from the net asset value and returns for
shareholder transactions. Does not include sales charges and is not
annualized for periods less than one year.
(d) Ratios are annualized and based on average daily net assets of
4,942,766,466.
(e) Not annualized for periods less than one year.
F-14
NOTE 11-- FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS B
--------------------------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, --------------------------------------------------------------------------
2004 2003 2002 2001 2000(a) 1999(a)
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of
period $ 8.75 $ 7.07 $ 10.30 $ 11.94 $ 15.73 $ 13.08
- ----------------------------------------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income (loss) (0.03) (0.05)(b) (0.07)(b) (0.09) (0.31)(b) (0.13)(b)
- ----------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on
securities (both realized
and unrealized) 0.09 1.73 (3.16) (1.54) (2.17) 3.86
============================================================================================================================
Total from investment
operations 0.06 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 $ 8.81 $ 8.75 $ 7.07 $ 10.30 $ 11.94 $ 15.73
____________________________________________________________________________________________________________________________
============================================================================================================================
Total return(c) 0.69% 23.76% (31.36)% (13.61)% (15.65)% 28.94%
____________________________________________________________________________________________________________________________
============================================================================================================================
Ratios/supplemental data:
Net assets, end of period
(000s omitted) $2,843,292 $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 and/or
reimbursements 1.98%(d) 2.01% 1.92% 1.84% 1.77% 1.79%
- ----------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or
reimbursements 2.00%(d) 2.02% 1.94% 1.88% 1.81% 1.81%
============================================================================================================================
Ratio of net investment income
(loss) to average net assets (0.59)%(d) (0.68)% (0.84)% (0.79)% (0.89)% (0.88)%
____________________________________________________________________________________________________________________________
============================================================================================================================
Portfolio turnover rate(e) 65% 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 as such, the net asset
value for financial reporting purposes and the returns based on those
net asset values may differ from the net asset value and returns for
shareholder transactions. Does not include sales charges and is not
annualized for periods less than one year.
(d) Ratios are annualized and based on average daily net assets of
$3,234,150,383.
(e) Not annualized for periods less than one year.
F-15
NOTE 11-- FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS C
-------------------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, -------------------------------------------------------------------
2004 2003 2002 2001 2000(a) 1999(a)
- ---------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of
period $ 8.76 $ 7.07 $ 10.31 $ 11.95 $ 15.74 $ 13.09
- ---------------------------------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income (loss) (0.03) (0.05)(b) (0.07)(b) (0.09) (0.31)(b) (0.13)(b)
- ---------------------------------------------------------------------------------------------------------------------
Net gains (losses) on
securities (both realized
and unrealized) 0.09 1.74 (3.17) (1.54) (2.17) 3.86
=====================================================================================================================
Total from investment
operations 0.06 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 $ 8.82 $ 8.76 $ 7.07 $ 10.31 $ 11.95 $ 15.74
_____________________________________________________________________________________________________________________
=====================================================================================================================
Total return(c) 0.68% 23.90% (31.43)% (13.60)% (15.62)% 28.92%
_____________________________________________________________________________________________________________________
=====================================================================================================================
Ratios/supplemental data:
Net assets, end of period
(000s omitted) $364,625 $433,332 $444,901 $943,211 $1,262,192 $860,859
_____________________________________________________________________________________________________________________
=====================================================================================================================
Ratio of expenses to average
net assets:
With fee waivers and/or
reimbursements 1.98%(d) 2.01% 1.92% 1.84% 1.77% 1.79%
- ---------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or
reimbursements 2.00%(d) 2.02% 1.94% 1.88% 1.81% 1.81%
=====================================================================================================================
Ratio of net investment income
(loss) to average net assets (0.59)%(d) (0.68)% (0.84)% (0.79)% (0.88)% (0.88)%
_____________________________________________________________________________________________________________________
=====================================================================================================================
Portfolio turnover rate(e) 65% 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 as such, the net asset
value for financial reporting purposes and the returns based on those
net asset values may differ from the net asset value and returns for
shareholder transactions. Does not include sales charges and is not
annualized for periods less than one year.
(d) Ratios are annualized and based on average daily net assets of
$399,749,337.
(e) Not annualized for periods less than one year.
F-16
NOTE 11-- FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS R
-------------------------------------------------
JUNE 3, 2002
SIX MONTHS (DATE SALES
ENDED YEAR ENDED COMMENCED) TO
JUNE 30, DECEMBER 31, DECEMBER 31,
2004 2003 2002
- ---------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 9.34 $ 7.50 $ 9.16
- ---------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.00) (0.01)(a) (0.02)(a)
- ---------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.09 1.85 (1.64)
===============================================================================================================
Total from investment operations 0.09 1.84 (1.66)
===============================================================================================================
Net asset value, end of period $ 9.43 $ 9.34 $ 7.50
_______________________________________________________________________________________________________________
===============================================================================================================
Total return(b) 0.96% 24.53% (18.12)%
_______________________________________________________________________________________________________________
===============================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 690 $ 651 $ 207
_______________________________________________________________________________________________________________
===============================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or reimbursements 1.48%(c) 1.51% 1.48%(d)
- ---------------------------------------------------------------------------------------------------------------
Without fee waivers and/or reimbursements 1.50%(c) 1.52% 1.50%(d)
===============================================================================================================
Ratio of net investment income (loss) to average net assets (0.09)%(c) (0.18)% (0.40)%(d)
_______________________________________________________________________________________________________________
===============================================================================================================
Portfolio turnover rate(e) 65% 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 as such, the net asset
value for financial reporting purposes and the returns based on those
net asset values may differ from the net asset value and returns for
shareholder transactions and is not annualized for periods less than one
year.
(c) Ratios are annualized and based on average daily net assets of $693,599.
(d) Annualized.
(e) Not annualized for periods less than one year.
<Table>
<Caption>
INSTITUTIONAL CLASS
--------------------------------------------------
MARCH 15, 2002
SIX MONTHS (DATE SALES
ENDED YEAR ENDED COMMENCED) TO
JUNE 30, DECEMBER 31, DECEMBER 31,
2004 2003 2002
- ----------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $9.47 $ 7.55 $ 10.66
- ----------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.05 0.05(a) 0.03(a)
- ----------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.08 1.87 (3.14)
================================================================================================================
Total from investment operations 0.13 1.92 (3.11)
================================================================================================================
Net asset value, end of period $9.60 $ 9.47 $ 7.55
________________________________________________________________________________________________________________
================================================================================================================
Total return(b) 1.37% 25.43% (29.17)%
________________________________________________________________________________________________________________
================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 521 $2,127 $ 2,255
________________________________________________________________________________________________________________
================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or reimbursements 0.69%(c) 0.71% 0.66%(d)
- ----------------------------------------------------------------------------------------------------------------
Without fee waivers and/or reimbursements 0.71%(c) 0.72% 0.68%(d)
================================================================================================================
Ratio of net investment income to average net assets 0.70%(c) 0.62% 0.42%(d)
________________________________________________________________________________________________________________
================================================================================================================
Portfolio turnover rate(e) 65% 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 as such, the net asset
value for financial reporting purposes and the returns based on those
net asset values may differ from the net asset value and returns for
shareholder transactions and is not annualized for periods less than one
year.
(c) Ratios are annualized and based on average daily net assets of $748,232.
(d) Annualized.
(e) Not annualized for periods less than one year.
F-17
NOTE 12--LEGAL PROCEEDINGS
The mutual fund industry as a whole is currently subject to regulatory inquiries
and litigation related to a wide range of issues. These issues include, among
others, market timing activity, late trading, fair value pricing, excessive or
improper advisory and/or distribution fees, mutual fund sales practices,
including revenue sharing and directed-brokerage arrangements, investments in
securities of other registered investment companies and issues related to
Section 529 college savings plans.
As described more fully below, INVESCO Funds Group, Inc. ("IFG"), the former
investment advisor to the INVESCO Funds, is the subject of three regulatory
actions concerning market timing activity in the INVESCO Funds. In addition, IFG
and A I M Advisors, Inc. ("AIM"), the Fund's investment advisor, are the subject
of a number of regulatory inquiries and civil lawsuits, as described more fully
below. Both IFG and AIM are indirect wholly owned subsidiaries of AMVESCAP PLC
("AMVESCAP"). Additional regulatory actions and/or civil lawsuits related to the
above or other issues may be filed against IFG, AIM and/or related entities and
individuals in the future. Additional regulatory inquiries related to the above
or other issues also may be received by IFG, AIM and/or related entities and
individuals in the future.
As a result of the regulatory actions and inquiries and civil lawsuits
discussed below, 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.
Regulatory Actions Pending Against 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 former capacity as the
chief executive officer of IFG. Mr. Cunningham also formerly held the positions
of Chief Operating Officer and Senior Vice President of A I M Management Group
Inc. ("AIM Management"), 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. There
can be no assurance that the SEC, NYAG or State of Colorado will not file
additional charges against IFG or Mr. Cunningham or civil proceedings against
other current or former officers or employees of IFG.
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.
Response of AMVESCAP
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 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. AMVESCAP has retained outside counsel to represent its subsidiaries in
connection with the market timing regulatory inquiries and certain other
matters. As part of this representation, this outside counsel has been
conducting a review of IFG's and AIM's conduct with respect to market timing and
related matters. In addition, AMVESCAP has retained separate 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.
At the direction of the trustees of the AIM and INVESCO Funds, AMVESCAP has
agreed to pay all of the expenses incurred by the AIM and INVESCO Funds related
to the market timing investigations, including expenses incurred in connection
with the pending regulatory complaints against IFG alleging market timing and
the ongoing market timing investigations with respect to IFG and AIM.
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, including
but not limited to A I M Capital Management, Inc. ("AIM Capital"), AIM Funds
Management Inc., INVESCO Institutional (N.A.), Inc. ("IINA"), INVESCO Global
Asset Management (N.A.), Inc. and INVESCO Senior Secured Management, Inc., from
serving as an investment advisor to any investment company registered under the
Investment Company Act of 1940, including the Fund. The Fund has been informed
by AIM that, if AIM is so barred, 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.
Regulatory Inquiries Concerning IFG
IFG, certain related entities, certain of their current and former officers
and/or certain of the INVESCO Funds have received regulatory inquiries in the
form of subpoenas or other oral or written requests for information and/or
documents related to one or more of the following issues, some of which concern
one or more INVESCO Funds: market timing activity, late trading, fair value
pricing, excessive or improper advisory and/or distribution fees,
F-18
NOTE 12--LEGAL PROCEEDINGS (CONTINUED)
mutual fund sales practices, including revenue sharing and directed-brokerage
arrangements, and investments in securities of other registered investment
companies. These regulators include the Securities and Exchange Commission
("SEC"), the NASD, Inc. ("NASD"), the Florida Department of Financial Services,
the Commissioner of Securities for the State of Georgia, the Attorney General of
the State of West Virginia, the West Virginia Securities Commission, the
Colorado Securities Division and the Bureau of Securities of the State of New
Jersey. IFG and certain of these other parties also have received more limited
inquiries from the United States Department of Labor ("DOL") and the United
States Attorney's Office for the Southern District of New York, some of which
concern one or more INVESCO Funds. IFG is providing full cooperation with
respect to these inquiries.
Regulatory Inquiries Concerning AIM
AIM, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds have received regulatory inquiries in the form
of subpoenas or other oral or written requests for information and/or documents
related to one or more of the following issues, some of which concern one or
more AIM Funds: market timing activity, late trading, fair value pricing,
excessive or improper advisory and/or distribution fees, mutual fund sales
practices, including revenue sharing and directed-brokerage arrangements,
investments in securities of other registered investment companies and issues
related to Section 529 college savings plans. These regulators include the SEC,
the NASD, the Department of Banking for the State of Connecticut, the NYAG, the
Commissioner of Securities for the State of Georgia, the Attorney General of the
State of West Virginia, the West Virginia Securities Commission and the Bureau
of Securities of the State of New Jersey. AIM and certain of these other parties
also have received more limited inquiries from the DOL, the Internal Revenue
Service, the United States Attorney's Office for the Southern District of New
York, the United States Attorney's Office for the Central District of
California, the United States Attorney's Office for the District of
Massachusetts, the Massachusetts Securities Division and the U.S. Postal
Inspection Service, some of which concern one or more AIM Funds. AIM is
providing full cooperation with respect to these inquiries.
Private Civil Actions Alleging Market Timing
Multiple civil 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, AIM
Management, AMVESCAP, certain related entities and/or certain of their current
and former officers) making allegations substantially similar to the allegations
in the three regulatory actions concerning market timing activity in the INVESCO
Funds that have been filed by the SEC, the NYAG and the State of Colorado
against these parties. These 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/or
(iv) breach of contract. These lawsuits were initiated 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; declaration that the advisory
agreement is unenforceable or void; refund of advisory fees; interest; and
attorneys' and experts' fees.
The Judicial Panel on Multidistrict Litigation (the "Panel") has ruled that
all actions pending in Federal court that allege market timing and/or late
trading be transferred to the United States District Court for the District of
Maryland for coordinated pre-trial proceedings. All such cases against IFG and
the other AMVESCAP defendants filed to date have been conditionally or finally
transferred to the District of Maryland in accordance with the Panel's
directive. In addition, the proceedings initiated in state court have been
removed by IFG to Federal court and transferred to the District of Maryland. The
plaintiff in one such action continues to seek remand to state court.
Private Civil Actions Alleging Improper Use of Fair Value Pricing
Multiple civil class action lawsuits have been filed against various parties
(including, depending on the lawsuit, certain INVESCO Funds, certain AIM Funds,
IFG and/or AIM) alleging that certain AIM and INVESCO Funds inadequately
employed fair value pricing. These lawsuits allege a variety of theories of
recovery, including but not limited to: (i) violations of various provisions of
the Federal securities laws; (ii) common law breach of duty; and (iii) common
law negligence and gross negligence. These lawsuits have been filed in both
Federal and state courts and seek such remedies as compensatory and punitive
damages; interest; and attorneys' fees and costs.
Private Civil Actions Alleging Excessive Advisory and Distribution Fees
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, IFG, AIM, IINA, A I M Distributors, Inc. ("AIM Distributors")
and/or INVESCO Distributors, Inc. ("INVESCO Distributors")) alleging that the
defendants charged excessive advisory and distribution fees and failed to pass
on to shareholders the perceived savings generated by economies of scale.
Certain of these lawsuits also allege that the defendants adopted unlawful
distribution plans. These lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the Federal
securities laws; (ii) breach of fiduciary duty; and/or (iii) breach of contract.
These lawsuits have been filed in both Federal and state courts and seek such
remedies as damages; injunctive relief; rescission of certain Funds' advisory
agreements and distribution plans; interest; prospective relief in the form of
reduced fees; and attorneys' and experts' fees.
Private Civil Actions Alleging Improper Distribution Fees Charged to Closed
Funds
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, IFG, AIM, AIM Distributors and/or certain of the trustees of the
AIM and INVESCO Funds) alleging that the defendants breached their fiduciary
duties by charging distribution fees while funds and/or specific share classes
were closed generally to new investors and/or while other share classes of the
same fund were not charged the same distribution fees. These lawsuits allege a
variety of theories of recovery, including but not limited to: (i) violation of
F-19
NOTE 12--LEGAL PROCEEDINGS (CONTINUED)
various provisions of the Federal securities laws; and (ii) breach of fiduciary
duty. These lawsuits have been filed in both Federal and state courts and seek
such remedies as damages; injunctive relief; and attorneys' and experts' fees.
Private Civil Actions Alleging Improper Mutual Fund Sales Practices and
Directed-Brokerage Arrangements
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, AIM Management, IFG, AIM, AIM Investment Services, Inc. ("AIS")
and/or certain of the trustees of the AIM and INVESCO Funds) alleging that the
defendants improperly used the assets of the AIM and INVESCO Funds to pay
brokers to aggressively push the AIM and INVESCO Funds over other mutual funds
and that the defendants concealed such payments from investors by disguising
them as brokerage commissions. These lawsuits allege a variety of theories of
recovery, including but not limited to: (i) violation of various provisions of
the Federal securities laws; (ii) breach of fiduciary duty; and (iii) aiding and
abetting a breach of fiduciary duty. These lawsuits have been filed in Federal
courts and seek such remedies as compensatory and punitive damages; rescission
of certain Funds' advisory agreements and distribution plans and recovery of all
fees paid; an accounting of all fund-related fees, commissions and soft dollar
payments; restitution of all unlawfully or discriminatorily obtained fees and
charges; and attorneys' and experts' fees.
At the present time, management of AIM and the Fund are unable to estimate the
impact, if any, that the outcome of the matters described above may have on AIM
or the Fund.
F-20
OTHER INFORMATION
TRUSTEES AND OFFICERS
<Table>
BOARD OF TRUSTEES OFFICERS OFFICE OF THE FUND
Bob R. Baker Robert H. Graham 11 Greenway Plaza
Chairman and President Suite 100
Frank S. Bayley Houston, TX 77046-1173
Mark H. Williamson
James T. Bunch Executive Vice President INVESTMENT ADVISOR
A I M Advisors, Inc.
Bruce L. Crockett Kevin M. Carome 11 Greenway Plaza
Senior Vice President, Secretary Suite 100
Albert R. Dowden and Chief Legal Officer Houston, TX 77046-1173
Sidney M. Dilgren TRANSFER AGENT
Edward K. Dunn Jr. Vice President and Treasurer AIM Investment Services, Inc.
P.O. Box 4739
Jack M. Fields Robert G. Alley Houston, TX 77210-4739
Vice President
Carl Frischling CUSTODIAN
Stuart W. Coco State Street Bank and Trust Company
Robert H. Graham Vice President 225 Franklin Street
Boston, MA 02110-2801
Gerald J. Lewis Melville B. Cox
Vice President COUNSEL TO THE FUND
Prema Mathai-Davis Ballard Spahr
Karen Dunn Kelley Andrews & Ingersoll, LLP
Lewis F. Pennock Vice President 1735 Market Street
Philadelphia, PA 19103-7599
Ruth H. Quigley Edgar M. Larsen
Vice President COUNSEL TO THE TRUSTEES
Louis S. Sklar Kramer, Levin, Naftalis & Frankel LLP
919 Third Avenue
Larry Soll, Ph.D. New York, NY 10022-3852
Mark H. Williamson DISTRIBUTOR
A I M Distributors, Inc.
11 Greenway Plaza
Suite 100
Houston, TX 77046-1173
</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(4) AIM High Yield Fund
AIM Blue Chip Fund AIM Global Aggressive Growth Fund AIM Income Fund
AIM Capital Development Fund AIM Global Equity Fund(5) AIM Intermediate Government Fund
AIM Charter Fund AIM Global Growth Fund AIM Limited Maturity Treasury Fund
AIM Constellation Fund AIM Global Value Fund AIM Money Market Fund
AIM Dent Demographic Trends Fund AIM International Emerging Growth Fund(6) AIM Short Term Bond Fund
AIM Diversified Dividend Fund 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(7)
AIM Large Cap Growth Fund
AIM Libra Fund SECTOR EQUITY TAX-FREE
AIM Mid Cap Basic Value Fund
AIM Mid Cap Core Equity Fund(1) AIM Global Health Care Fund AIM High Income Municipal Fund
AIM Mid Cap Growth Fund AIM Real Estate Fund AIM Municipal Bond Fund
AIM Opportunities I Fund INVESCO Advantage Health Sciences Fund AIM Tax-Exempt Cash Fund
AIM Opportunities II Fund INVESCO Energy Fund AIM Tax-Free Intermediate Fund
AIM Opportunities III Fund INVESCO Financial Services Fund
AIM Premier Equity Fund INVESCO Gold & Precious Metals Fund AIM ALLOCATION SOLUTIONS
AIM Select Equity Fund INVESCO Health Sciences Fund
AIM Small Cap Equity Fund(2) INVESCO Leisure Fund AIM Aggressive Allocation Fund
AIM Small Cap Growth Fund(3) INVESCO Multi-Sector Fund AIM Conservative Allocation Fund
AIM Trimark Endeavor Fund INVESCO Technology Fund AIM Moderate Allocation Fund
AIM Trimark Small Companies Fund INVESCO Utilities Fund
AIM Weingarten Fund
INVESCO Core Equity Fund ===============================================================================
INVESCO Dynamics Fund CONSIDER THE INVESTMENT OBJECTIVES, RISKS, AND CHARGES AND EXPENSES CAREFULLY.
INVESCO Mid-Cap Growth Fund FOR THIS AND OTHER IMPORTANT INFORMATION ABOUT AIM AND INVESCO FUNDS, OBTAIN A
INVESCO Small Company Growth Fund PROSPECTUS FROM YOUR FINANCIAL ADVISOR OR AIMINVESTMENTS.COM AND READ IT
INVESCO S&P 500 Index Fund THOROUGHLY BEFORE INVESTING.
INVESCO Total Return Fund* ===============================================================================
</Table>
* Domestic equity and income fund
(1) 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. (2) 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. (3) 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. (4) AIM European Small Company Fund will close to new investors when
net assets reach $500 million. (5) Effective March 31, 2004, AIM Global Trends
Fund was renamed AIM Global Equity Fund. (6) AIM International Emerging Growth
Fund will close to new investors when net assets reach $500 million. (7)
Effective November 24, 2003, INVESCO International Blue Chip Value Fund was
renamed INVESCO International Core Equity Fund.
If used after October 20, 2004, this report 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 $139 billion in assets. AIM is a subsidiary of
AMVESCAP PLC, one of the world's largest independent financial services
companies with $372 billion in assets under management. Data as of June 30,
2004.
AIMinvestments.com PEQ-SAR-1 A I M Distributors, Inc.
<Table>
YOUR GOALS. OUR SOLUTIONS.--Registered Trademark--
- --------------------------------------------------------------------------------------
Mutual Retirement Annuities College Separately Offshore Alternative Cash
Funds Products Savings Managed Products Investments Management [AIM INVESTMENTS LOGO APPEARS HERE]
Plans Accounts --Registered Trademark--
- --------------------------------------------------------------------------------------
</Table>
AIM SELECT EQUITY FUND
Semiannual Report to Shareholders o June 30, 2004
[COVER IMAGE]
[YOUR GOALS. OUR SOLUTIONS.] [AIM INVESTMENTS LOGO APPEARS HERE]
--Registered Trademark-- --Registered Trademark--
<Table>
====================================================================================================================================
AIM SELECT EQUITY FUND SEEKS TO ACHIEVE LONG-TERM GROWTH OF CAPITAL.
o Unless otherwise stated, information presented is as of 6/30/04 and is based on total net assets.
====================================================================================================================================
ABOUT SHARE CLASSES ABOUT INDEXES USED IN THIS REPORT o A direct investment cannot be made in
an index. Unless otherwise indicated,
o Effective 9/30/03, Class B shares are o The unmanaged MSCI World Index tracks index results include reinvested
not available as an investment for the performance of approximately 50 dividends, and they do not reflect sales
retirement plans maintained pursuant to countries covered by Morgan Stanley charges. Performance of an index of
Section 401 of the Internal Revenue Capital International that are funds reflects fund expenses;
Code, including 401(k) plans, money considered developed markets. performance of a market index does not.
purchase pension plans and profit
sharing plans. Plans that have existing o The unmanaged Lehman U.S. Aggregate OTHER INFORMATION
accounts invested in Class B shares will Bond Index, which represents the U.S.
continue to be allowed to make investment-grade fixed-rate bond market o The returns shown in the Management's
additional purchases. (including government and corporate Discussion of Fund Performance are based
securities, mortgage pass-through on net asset values calculated for
PRINCIPAL RISKS OF INVESTING IN THE FUND securities and asset-backed securities), shareholder transactions. Generally
is compiled by Lehman Brothers, a global accepted accounting principles require
o Investing in small and mid-size investment bank. adjustments to be made to the net assets
companies involves risks not associated of the fund at period end for financial
with investing in more established o The unmanaged Standard & Poor's Index reporting purposes, and as such, the net
companies, including business risk, of 500 Stocks (the S&P 500 --registered asset values for shareholder
significant stock price fluctuations and trademark--) is an index of common transactions and the returns based on
illiquidity. stocks frequently used as a general those net asset values may differ from
measure of U.S. stock market the net asset values and returns
o International investing presents performance. reported in the Financial Highlights.
certain risks not associated with
investing solely in the United States. o The unmanaged Russell 3000 o The Conference Board is a
These include risks relating to --registered trademark-- Index is an not-for-profit organization that
fluctuations in the value of the U.S. index of common stocks that measures conducts research and publishes
dollar relative to the value of other performance of the largest 3,000 U.S. information and analysis to help
currencies, the custody arrangements companies based on market businesses strengthen their performance.
made for the fund's foreign holdings, capitalization.
differences in accounting, political o Industry classifications used in this
risks and the lesser degree of public o The unmanaged Lipper Multi-Cap Core report are generally according to the
information required to be provided by Fund Index represents an average of the Global Industry Classification Standard,
non-U.S. companies. The fund may invest performance of the 30 largest multi- which was developed by and is the
up to 25% of its assets in the capitalization core funds tracked by exclusive property and a service mark of
securities of non-U.S. issuers. Lipper, Inc., an independent mutual fund Morgan Stanley Capital International
performance monitor. Inc. and Standard & Poor's.
o A significant portion of the fund's
return during certain periods was o The fund is not managed to track the A description of the policies and
attributable to its investments in performance of any particular index, procedures that the fund uses to
initial public offerings (IPOs). These including the indexes defined here, and determine how to vote proxies relating
investments had a magnified impact when consequently, the performance of the to portfolio securities is available
the fund's asset base was relatively fund may deviate significantly from the without charge, upon request, by calling
small. As the fund's assets grow, the performance of the indexes. 800-959-4246, or on the AIM Web site,
impact of IPO investments will decline, AIMinvestments.com.
which may reduce the effect of IPO
investments on the fund's total return.
For additional information regarding the
impact of IPO investments on the fund's
performance, please see the fund's
prospectus.
</Table>
================================================================================
THIS REPORT MUST BE ACCOMPANIED OR PRECEDED BY A CURRENTLY EFFECTIVE FUND
PROSPECTUS, WHICH CONTAINS MORE COMPLETE INFORMATION, INCLUDING SALES CHARGES
AND EXPENSES. READ IT CAREFULLY BEFORE YOU INVEST.
================================================================================
=====================================================
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
=====================================================
AIMinvestments.com
TO OUR SHAREHOLDERS
DEAR FELLOW SHAREHOLDER IN THE AIM FAMILY OF
FUNDS--Registered Trademark--:
[PHOTO OF The six months covered by this report could be
ROBERT H. characterized as a trendless market. Positive news about
GRAHAM] employment and a strengthening economy were offset by
concerns about higher interest rates, continued violence in
ROBERT H. GRAHAM Iraq and high oil prices. The result: muted performance in
both U.S. equity and fixed-income markets.
The same macroeconomic factors were at work overseas as
well, causing developed international markets to generally
perform in line with that of the United States. In fact,
the MSCI World Index tracked the performance of the S&P 500
Index with six-month returns of 3.52% and 3.44%,
respectively.
The anticipation of higher interest rates hampered bond performance, with
most areas of the fixed- income market turning in flat returns for the six-month
period, as evidenced by the 0.15% return of the Lehman U.S. Aggregate Bond
Index. Considered a good proxy for the U.S. bond market, this index includes
fixed-rate mortgage-backed securities, U.S. agency investments, U.S. Treasuries
of various maturities and U.S. corporate bonds.
In an unremarkable period like the one covered by this report, we encourage
shareholders to look past short-term market performance and remain focused on
their long-term investment goals. Whether markets rise, fall or go sideways, the
only certainty is their unpredictability, especially in the short run.
Historically, markets have risen over the long term, with the S&P 500 Index
returning 13.55% over the past 25 years and the Lehman U.S. Aggregate Bond Index
returning 9.20%.* While past performance cannot guarantee future results, we
believe that staying invested for the long term offers the best opportunity for
capital growth.
For information on how your fund performed and was managed during the six
months covered by this report, please read your fund managers' discussion on the
following pages. We hope you find it informative.
There continues to be increased regulatory focus on mutual funds and other
investment products. For the latest information about ongoing regulatory
matters, please visit our Web site, AIMinvestments.com. We continue to post
updates as information becomes available. We also encourage you to visit our Web
site for investor education and planning information as well as regular
performance updates on our funds.
As always, AIM is committed to building solutions for your investment goals,
and we thank you for your continued participation in AIM Investments
- --Servicemark--. If you have any questions, please contact our Client Service
representatives at 800-959-4246.
Sincerely,
/s/ ROBERT H. GRAHAM
- ----------------------------
Robert H. Graham
Chairman and President
July 20, 2004
*Average annual total returns, June 30, 1979, to June 30, 2004. Source: Lipper,
Inc.
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
<Table>
STOCK SELECTION AND INVESTMENT STRATEGY diversified across market
BENEFITED FUND capitalizations, investment
disciplines--value, growth at a
For the six months ended June 30, 2004, that policy accommodation can be removed reasonable price (GARP), and growth--and
AIM Select Equity Fund's Class A shares at a pace that is likely to be measured." sectors. We believe that this kind of
returned 6.90% at net asset value. (Had diversification can position the fund to
the effects of front-end sales charges Gross domestic product, the broadest perform well in a variety of market
been included, the performance would be measure of economic activity, expanded at environments.
lower.) Performance of the other share an annualized rate of 4.5% in the first
classes and benchmark indexes is shown in quarter of 2004 and 3.0% during the At the close of the reporting period,
the table on page 3. second quarter. What had been a "jobless approximately 57% of the fund was
recovery" produced more than 1.2 million invested in small- and mid-cap stocks,
The fund outperformed the S&P 500 new jobs from January through June, according to the capitalization sizes
Index, the Russell 3000 Index and the according to the U.S. Depart-ment of defined by Lipper, Inc. During the
Lipper Multi-Cap Core Fund Index, which Labor. An improved job market likely period, small- and mid-cap stocks
returned 3.44%, 3.59% and 4.05%, contributed to rising consumer outperformed large-cap stocks. The fund's
respectively, for the period. We believe confidence, which reached a two-year high ability to invest in stocks of all market
that strong stock selection was the main in June, according to the Conference capitalizations largely accounted for its
contributor to the fund's outperformance. Board. outperformance of the large-cap focused
S&P 500 Index. Over time, the multi-cap
MARKET CONDITIONS The S&P 500 Index advanced only investment strategy is designed to help
slightly during the reporting period, mitigate risk, because in subsequent
As the reporting period closed, the U.S. growing by single digits in January, periods it may be large-caps that
Federal Reserve (the Fed) voted to raise February, May and June, but declining by outperform. The same is true of the
the federal funds target rate by 25 basis single digits in March and April. For the various investment styles we employ,
points (0.25%)--its first rate increase reporting period, the strongest- because growth and value investing
in four years and a move much anticipated performing sector was energy, followed by generally produce varying results during
by the markets. The Fed's decision came industrials and consumer staples. The specific time periods. During this
amid signs that the economy was weakest-performing sector was information reporting period, value stocks generally
strengthening and inflation, while still technology, followed by materials and outperformed growth stocks.
relatively tame, had risen in recent consumer discretionary.
months. The announcement accompanying the Also at the close of the period, the
rate hike said that "with underlying YOUR FUND fund had 187 holdings that were
inflation still expected to be relatively distributed across nine of the 10 sectors
low, the [Fed] believes Throughout the reporting period, we in the S&P 500 Index. This
continued to perform extensive analysis diversification enables the fund to take
of potential holdings to build a advantage of strong performance in
portfolio that was whatever sector it occurs.
We believe that our stock selection
was an important contributor to the
fund's outperformance. We can validate
this by
</Table>
<Table>
====================================================================================================================================
TOP 10 EQUITY HOLDINGS* TOP 10 INDUSTRIES*
1. Citigroup Inc. 1.8% 1. Systems Software 5.2%
2. Computer Associates International, Inc. 1.7 2. Health Care Equipment 4.8
3. Fannie Mae 1.4 3. Diversified Commercial Services 4.7
4. PepsiCo, Inc. 1.3 4. Data Processing & Outsourced Services 4.5
5. Tyco International Ltd. (Bermuda) 1.3 5. Thrifts & Mortgage Finance 4.0
6. Cendant Corp. 1.3 6. Apparel Retail 3.1
7. Biomet, Inc. 1.3 7. Semiconductors 2.7
8. Microsoft Corp. 1.2 8. Health Care Services 2.5
9. Dell Inc. 1.2 9. Other Diversified Financial Services 2.4
10. Transocean Inc. (Cayman Islands) 1.2 10. Food Retail 2.1
*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>
comparing the performance of our fund its share price. We believe that this DUY NGUYEN
holdings in a particular sector to the company is currently undervalued and Duy Nguyen, CFA, is
performance of stocks in the same sector still has potential for additional [NGUYEN portfolio manager of
of our benchmark indexes. The fund growth. PHOTO] AIM Select Equity
significantly outperformed in five of the Fund. Mr. Nguyen
seven sectors in which it was most CBRL Group gets its name from the began his career in
heavily invested. The greatest sector stock symbol for the Cracker Barrel investments in 1993. He joined AIM in
contributors to fund performance for the restaurant chain it operates along with May 2000. Mr. Nguyen earned a B.B.A. at
period were health care, industrials, Logan's Roadhouse restaurants. CBRL's The University of Texas.
information technology and energy. last earnings report declared a decrease
in same-store sales for Cracker Barrel, Assisted by various domestic equity teams
Stocks that contributed positively to an increase in same-store sales for representing AIM's growth, value and GARP
fund performance included Biomet and C.R. Logan's, and decreased earnings disciplines.
Bard, both makers of medical devices. projections for the upcoming quarter. We
Biomet provides reconstructive devices to believe that the company's stock price
orthopedic surgeons in addition to decline after this announcement was an
producing dental implants, external over-reaction by the market.
devices, and operating room supplies. For
the three months ended January 29, 2004, IN CLOSING
the company reported a 19% increase in
net income over the corresponding quarter Throughout the period, we maintained a
in 2003. In the first three months of portfolio that was diversified across
2004, C.R. Bard, which makes products for investment disciplines, market
the areas of oncology, urology and capitalizations and sectors. We are
vascular medicine, exceeded analysts' committed to this strategy, as we believe
expectations by reporting a 35% increase it positions the fund to perform well in
in net income over the corresponding varying market conditions, which can
quarter of the previous year. enable us to achieve our objective of
providing long-term growth of capital.
Detractors to fund performance
included Taro Pharmaceuticals and CBRL See important fund and index
Group. Taro Pharmaceuticals makes disclosures inside front cover.
over-the-counter medications and generic
drugs for conditions ranging from skin
ailments to heart problems. Though its
first-quarter sales increased, its
research and development costs as well as
its cost of sales caused the company to
miss earnings projections, resulting in a
decline in
=======================================================================================
FUND VS. INDEXES
Total returns 12/31/03-6/30/04, excluding sales charges. Had sales charges been
included, returns would be lower.
Class A Shares 6.90%
Class B Shares 6.52
Class C Shares 6.46
S&P 500 Index (Broad Market Index) 3.44
Russell 3000 Index (Style-specific Index) 3.59
Lipper Multi-Cap Core Fund Index (Peer Group Index) 4.05
Source: Lipper, Inc.
TOTAL NUMBER OF HOLDINGS* 187
TOTAL NET ASSETS $494.0 MILLION
======================================================================================= [RIGHT ARROW GRAPHIC]
FOR A PRESENTATION OF YOUR FUND'S
LONG-TERM PERFORMANCE RECORD, PLEASE TURN
THE PAGE.
</Table>
3
LONG-TERM PERFORMANCE
YOUR FUND'S LONG-TERM PERFORMANCE
================================================================================
Below you will find a presentation of your fund's long-term performance record
for periods ended 6/30/04, the close of the six-month period covered by this
report.
Please read the important disclosure accompanying these tables, which explains
how fund performance is calculated and the sales charges, if any, that apply to
the share class in which you are invested.
================================================================================
<Table>
====================================================================================================================================
AVERAGE ANNUAL TOTAL RETURNS The performance data quoted represent Class A share performance reflects the
As of 6/30/04, including applicable past performance and cannot guarantee maximum 5.50% sales charge, and Class B
sales charges comparable future results; current and Class C share performance reflects
performance may be lower or higher. the applicable contingent deferred sales
CLASS A SHARES Please visit AIMinvestments.com for the charge (CDSC) for the period involved.
Inception (12/4/67) 8.44% most recent month-end performance. The CDSC on Class B shares declines from
10 Years 9.46 Performance figures reflect reinvested 5% beginning at the time of purchase to
5 Years -3.51 distributions, changes in net asset value 0% at the beginning of the seventh year.
1 Year 17.77 and the effect of the maximum applicable The CDSC on Class C shares is 1% for the
sales charge unless otherwise stated. first year after purchase. The
CLASS B SHARES Investment return and principal value performance of the fund's share classes
Inception (9/1/93) 7.32% will fluctuate so that you may have a will differ due to different sales charge
10 Years 9.34 gain or loss when you sell shares. structures and class expenses.
5 Years -3.47
1 Year 18.71
CLASS C SHARES
Inception (8/4/97) 2.29% [ARROW
5 Years -3.16 BUTTON For More Information Visit
1 Year 22.67 IMAGE] AIMinvestments.com
====================================================================================================================================
</Table>
4
FINANCIALS
SCHEDULE OF INVESTMENTS
June 30, 2004
(Unaudited)
<Table>
<Caption>
MARKET
SHARES VALUE
- -----------------------------------------------------------------------
COMMON STOCKS & OTHER EQUITY INTERESTS-96.22%
ADVERTISING-1.97%
Interpublic Group of Cos., Inc. (The)(a)(b) 345,100 $ 4,738,223
- -----------------------------------------------------------------------
Omnicom Group Inc. 43,300 3,286,037
- -----------------------------------------------------------------------
R.H. Donnelley Corp.(a) 39,100 1,710,234
=======================================================================
9,734,494
=======================================================================
AEROSPACE & DEFENSE-0.34%
United Technologies Corp. 18,300 1,674,084
=======================================================================
ALTERNATIVE CARRIERS-0.31%
PTEK Holdings, Inc.(a) 131,800 1,519,654
=======================================================================
APPAREL RETAIL-3.10%
bebe stores, inc.(a) 60,450 1,209,000
- -----------------------------------------------------------------------
Chico's FAS, Inc.(a) 41,100 1,856,076
- -----------------------------------------------------------------------
Gap, Inc. (The) 231,600 5,616,300
- -----------------------------------------------------------------------
Jos. A. Bank Clothiers, Inc.(a)(b) 33,000 1,035,870
- -----------------------------------------------------------------------
Men's Wearhouse, Inc. (The)(a) 56,400 1,488,396
- -----------------------------------------------------------------------
Pacific Sunwear of California, Inc.(a) 46,100 902,177
- -----------------------------------------------------------------------
Ross Stores, Inc. 51,700 1,383,492
- -----------------------------------------------------------------------
TJX Cos., Inc. (The) 76,200 1,839,468
=======================================================================
15,330,779
=======================================================================
APPAREL, ACCESSORIES & LUXURY GOODS-0.96%
Coach, Inc.(a) 64,000 2,892,160
- -----------------------------------------------------------------------
V. F. Corp. 37,800 1,840,860
=======================================================================
4,733,020
=======================================================================
APPLICATION SOFTWARE-0.60%
Reynolds & Reynolds Co. (The)-Class A 42,100 973,773
- -----------------------------------------------------------------------
SAP A.G.-ADR (Germany) 25,200 1,053,612
- -----------------------------------------------------------------------
Synopsys, Inc.(a) 33,800 960,934
=======================================================================
2,988,319
=======================================================================
ASSET MANAGEMENT & CUSTODY BANKS-1.39%
Affiliated Managers Group, Inc.(a)(b) 84,150 4,238,635
- -----------------------------------------------------------------------
Bank of New York Co., Inc. (The) 89,300 2,632,564
=======================================================================
6,871,199
=======================================================================
BIOTECHNOLOGY-0.82%
Invitrogen Corp.(a) 56,000 4,031,440
=======================================================================
BUILDING PRODUCTS-2.02%
American Standard Cos. Inc.(a) 108,800 4,385,728
- -----------------------------------------------------------------------
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- -----------------------------------------------------------------------
BUILDING PRODUCTS-(CONTINUED)
ElkCorp. 35,700 $ 854,658
- -----------------------------------------------------------------------
Masco Corp. 152,300 4,748,714
=======================================================================
9,989,100
=======================================================================
CASINOS & GAMING-1.83%
International Game Technology 61,300 2,366,180
- -----------------------------------------------------------------------
Penn National Gaming, Inc.(a) 44,000 1,460,800
- -----------------------------------------------------------------------
Scientific Games Corp.-Class A(a) 102,100 1,954,194
- -----------------------------------------------------------------------
Shuffle Master, Inc.(a)(b) 90,300 3,278,793
=======================================================================
9,059,967
=======================================================================
COMMUNICATIONS EQUIPMENT-2.02%
Avaya Inc.(a) 59,000 931,610
- -----------------------------------------------------------------------
Cisco Systems, Inc.(a) 112,000 2,654,400
- -----------------------------------------------------------------------
Inter-Tel, Inc. 49,400 1,233,518
- -----------------------------------------------------------------------
Juniper Networks, Inc.(a) 63,200 1,552,824
- -----------------------------------------------------------------------
Motorola, Inc. 64,700 1,180,775
- -----------------------------------------------------------------------
Plantronics, Inc.(a) 57,100 2,403,910
=======================================================================
9,957,037
=======================================================================
COMPUTER & ELECTRONICS RETAIL-0.54%
Best Buy Co., Inc. 30,000 1,522,200
- -----------------------------------------------------------------------
GameStop Corp.-Class A(a) 75,600 1,150,632
=======================================================================
2,672,832
=======================================================================
COMPUTER HARDWARE-1.21%
Dell Inc.(a) 166,600 5,967,612
=======================================================================
COMPUTER STORAGE & PERIPHERALS-0.80%
Electronics for Imaging, Inc.(a) 49,400 1,396,044
- -----------------------------------------------------------------------
Synaptics Inc.(a) 134,500 2,575,675
=======================================================================
3,971,719
=======================================================================
CONSUMER ELECTRONICS-0.94%
Harman International Industries, Inc. 12,700 1,155,700
- -----------------------------------------------------------------------
Koninklijke (Royal) Philips Electronics
N.V.-New York Shares (Netherlands) 56,007 1,523,390
- -----------------------------------------------------------------------
Sony Corp.-ADR (Japan) 51,900 1,974,795
=======================================================================
4,653,885
=======================================================================
CONSUMER FINANCE-1.70%
American Express Co. 74,800 3,843,224
- -----------------------------------------------------------------------
MBNA Corp. 175,700 4,531,303
=======================================================================
8,374,527
=======================================================================
</Table>
F-1
<Table>
<Caption>
MARKET
SHARES VALUE
- -----------------------------------------------------------------------
DATA PROCESSING & OUTSOURCED SERVICES-4.49%
BISYS Group, Inc. (The)(a) 81,500 $ 1,145,890
- -----------------------------------------------------------------------
Ceridian Corp.(a) 222,600 5,008,500
- -----------------------------------------------------------------------
Certegy Inc. 71,500 2,774,200
- -----------------------------------------------------------------------
DST Systems, Inc.(a) 30,100 1,447,509
- -----------------------------------------------------------------------
First Data Corp. 92,300 4,109,196
- -----------------------------------------------------------------------
Fiserv, Inc.(a) 45,500 1,769,495
- -----------------------------------------------------------------------
Paychex, Inc. 54,800 1,856,624
- -----------------------------------------------------------------------
SunGard Data Systems Inc.(a) 155,700 4,048,200
=======================================================================
22,159,614
=======================================================================
DEPARTMENT STORES-0.22%
Nordstrom, Inc. 26,100 1,112,121
=======================================================================
DIVERSIFIED BANKS-1.41%
Bank One Corp. 96,200 4,906,200
- -----------------------------------------------------------------------
U.S. Bancorp 74,600 2,055,976
=======================================================================
6,962,176
=======================================================================
DIVERSIFIED CHEMICALS-0.35%
Engelhard Corp. 52,900 1,709,199
=======================================================================
DIVERSIFIED COMMERCIAL SERVICES-4.74%
Apollo Group, Inc.-Class A(a) 27,900 2,463,291
- -----------------------------------------------------------------------
ARAMARK Corp.-Class B 94,300 2,712,068
- -----------------------------------------------------------------------
Cendant Corp. 263,700 6,455,376
- -----------------------------------------------------------------------
Cintas Corp. 22,300 1,063,041
- -----------------------------------------------------------------------
Equifax Inc. 48,400 1,197,900
- -----------------------------------------------------------------------
H&R Block, Inc. 26,600 1,268,288
- -----------------------------------------------------------------------
Navigant Consulting, Inc.(a) 73,000 1,565,120
- -----------------------------------------------------------------------
University of Phoenix Online(a) 36,100 3,161,999
- -----------------------------------------------------------------------
Viad Corp.(a) 130,500 3,524,805
=======================================================================
23,411,888
=======================================================================
ELECTRICAL COMPONENTS & EQUIPMENT-0.52%
Rockwell Automation, Inc. 68,700 2,576,937
=======================================================================
ELECTRONIC EQUIPMENT MANUFACTURERS-1.88%
Aeroflex Inc.(a) 82,400 1,180,792
- -----------------------------------------------------------------------
Amphenol Corp.-Class A(a) 78,600 2,618,952
- -----------------------------------------------------------------------
FLIR Systems, Inc.(a) 33,500 1,839,150
- -----------------------------------------------------------------------
Mettler-Toledo International Inc.(a) 36,700 1,803,438
- -----------------------------------------------------------------------
Varian Inc.(a) 43,600 1,837,740
=======================================================================
9,280,072
=======================================================================
EMPLOYMENT SERVICES-0.20%
Administaff, Inc.(a) 60,200 999,320
=======================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- -----------------------------------------------------------------------
ENVIRONMENTAL SERVICES-1.29%
Republic Services, Inc. 74,800 $ 2,164,712
- -----------------------------------------------------------------------
Waste Management, Inc. 138,000 4,229,700
=======================================================================
6,394,412
=======================================================================
FOOD DISTRIBUTORS-0.56%
Sysco Corp. 76,700 2,751,229
=======================================================================
FOOD RETAIL-2.05%
Kroger Co. (The)(a) 243,600 4,433,520
- -----------------------------------------------------------------------
Safeway Inc.(a) 225,100 5,704,034
=======================================================================
10,137,554
=======================================================================
FOOTWEAR-0.65%
NIKE, Inc.-Class B 14,500 1,098,375
- -----------------------------------------------------------------------
Reebok International Ltd. 58,200 2,094,036
=======================================================================
3,192,411
=======================================================================
GENERAL MERCHANDISE STORES-0.64%
Dollar General Corp. 53,400 1,044,504
- -----------------------------------------------------------------------
Target Corp. 50,300 2,136,241
=======================================================================
3,180,745
=======================================================================
HEALTH CARE DISTRIBUTORS-1.36%
Cardinal Health, Inc. 30,800 2,157,540
- -----------------------------------------------------------------------
McKesson Corp. 132,600 4,552,158
=======================================================================
6,709,698
=======================================================================
HEALTH CARE EQUIPMENT-4.83%
Bard (C.R.), Inc. 85,000 4,815,250
- -----------------------------------------------------------------------
Becton, Dickinson & Co. 19,400 1,004,920
- -----------------------------------------------------------------------
Biomet, Inc. 141,000 6,266,040
- -----------------------------------------------------------------------
Boston Scientific Corp.(a) 35,300 1,510,840
- -----------------------------------------------------------------------
Cytyc Corp.(a) 100,900 2,559,833
- -----------------------------------------------------------------------
Waters Corp.(a) 108,800 5,198,464
- -----------------------------------------------------------------------
Zimmer Holdings, Inc.(a) 28,600 2,522,520
=======================================================================
23,877,867
=======================================================================
HEALTH CARE FACILITIES-1.50%
HCA Inc. 51,700 2,150,203
- -----------------------------------------------------------------------
United Surgical Partners International,
Inc.(a) 40,900 1,614,323
- -----------------------------------------------------------------------
Universal Health Services, Inc.-Class B 55,300 2,537,717
- -----------------------------------------------------------------------
VCA Antech, Inc.(a) 24,300 1,089,126
=======================================================================
7,391,369
=======================================================================
HEALTH CARE SERVICES-2.49%
Caremark Rx, Inc.(a) 66,500 2,190,510
- -----------------------------------------------------------------------
eResearch Technology, Inc.(a)(b) 57,750 1,617,000
- -----------------------------------------------------------------------
Express Scripts, Inc.(a) 37,600 2,979,048
- -----------------------------------------------------------------------
ICON PLC-ADR (Ireland)(a) 38,400 1,689,216
- -----------------------------------------------------------------------
</Table>
F-2
<Table>
<Caption>
MARKET
SHARES VALUE
- -----------------------------------------------------------------------
HEALTH CARE SERVICES-(CONTINUED)
IMS Health Inc. 162,200 $ 3,801,968
=======================================================================
12,277,742
=======================================================================
HEALTH CARE SUPPLIES-1.69%
Bausch & Lomb Inc. 43,200 2,811,024
- -----------------------------------------------------------------------
Fisher Scientific International Inc.(a) 95,500 5,515,125
=======================================================================
8,326,149
=======================================================================
HOME ENTERTAINMENT SOFTWARE-0.20%
Activision, Inc.(a) 63,500 1,009,650
=======================================================================
HOME IMPROVEMENT RETAIL-0.25%
Home Depot, Inc. (The) 34,900 1,228,480
=======================================================================
HOTELS, RESORTS & CRUISE LINES-0.45%
Starwood Hotels & Resorts Worldwide, Inc. 49,900 2,238,015
=======================================================================
HOUSEHOLD PRODUCTS-1.13%
Procter & Gamble Co. (The) 83,200 4,529,408
- -----------------------------------------------------------------------
Rayovac Corp.(a) 38,300 1,076,230
=======================================================================
5,605,638
=======================================================================
HOUSEWARES & SPECIALTIES-0.34%
Yankee Candle Co., Inc. (The)(a) 57,200 1,673,100
=======================================================================
INDUSTRIAL CONGLOMERATES-1.91%
3M Co. 32,000 2,880,320
- -----------------------------------------------------------------------
Tyco International Ltd. (Bermuda) 197,100 6,531,894
=======================================================================
9,412,214
=======================================================================
INDUSTRIAL MACHINERY-1.62%
Danaher Corp. 29,400 1,524,390
- -----------------------------------------------------------------------
Graco Inc. 68,400 2,123,820
- -----------------------------------------------------------------------
Pentair, Inc. 69,600 2,341,344
- -----------------------------------------------------------------------
SPX Corp. 43,900 2,038,716
=======================================================================
8,028,270
=======================================================================
INSURANCE BROKERS-1.13%
Aon Corp. 195,300 5,560,191
=======================================================================
INTEGRATED OIL & GAS-0.97%
Exxon Mobil Corp. 107,900 4,791,839
=======================================================================
INTEGRATED TELECOMMUNICATION SERVICES-0.25%
CenturyTel, Inc. 41,700 1,252,668
=======================================================================
INTERNET RETAIL-0.34%
eBay Inc.(a) 18,200 1,673,490
=======================================================================
INTERNET SOFTWARE & SERVICES-0.70%
United Online, Inc.(a) 120,200 2,116,722
- -----------------------------------------------------------------------
Yahoo! Inc.(a) 37,600 1,366,008
=======================================================================
3,482,730
=======================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- -----------------------------------------------------------------------
INVESTMENT BANKING & BROKERAGE-1.13%
Merrill Lynch & Co., Inc. 40,300 $ 2,175,394
- -----------------------------------------------------------------------
Morgan Stanley 64,200 3,387,834
=======================================================================
5,563,228
=======================================================================
IT CONSULTING & OTHER SERVICES-0.21%
Acxiom Corp. 41,600 1,032,928
=======================================================================
LEISURE PRODUCTS-0.34%
Brunswick Corp. 41,300 1,685,040
=======================================================================
LIFE & HEALTH INSURANCE-0.54%
Prudential Financial, Inc. 57,900 2,690,613
=======================================================================
MANAGED HEALTH CARE-1.78%
Anthem, Inc.(a) 47,100 4,218,276
- -----------------------------------------------------------------------
UnitedHealth Group Inc. 73,200 4,556,700
=======================================================================
8,774,976
=======================================================================
METAL & GLASS CONTAINERS-1.40%
Ball Corp. 41,400 2,982,870
- -----------------------------------------------------------------------
Pactiv Corp.(a) 158,200 3,945,508
=======================================================================
6,928,378
=======================================================================
MOVIES & ENTERTAINMENT-0.53%
Walt Disney Co. (The) 103,700 2,643,313
=======================================================================
MULTI-LINE INSURANCE-0.16%
Assurant, Inc. 30,800 812,504
=======================================================================
OIL & GAS DRILLING-1.49%
Todco-Class A(a) 104,900 1,622,803
- -----------------------------------------------------------------------
Transocean Inc. (Cayman Islands)(a) 198,600 5,747,484
=======================================================================
7,370,287
=======================================================================
OIL & GAS EQUIPMENT & SERVICES-1.21%
BJ Services Co.(a) 56,900 2,608,296
- -----------------------------------------------------------------------
Cal Dive International, Inc.(a) 26,000 788,320
- -----------------------------------------------------------------------
Halliburton Co. 41,900 1,267,894
- -----------------------------------------------------------------------
Schlumberger Ltd. (Netherlands) 20,400 1,295,604
=======================================================================
5,960,114
=======================================================================
OIL & GAS EXPLORATION & PRODUCTION-1.63%
Comstock Resources, Inc.(a) 68,000 1,323,280
- -----------------------------------------------------------------------
Spinnaker Exploration Co.(a) 40,100 1,579,138
- -----------------------------------------------------------------------
XTO Energy, Inc. 81,300 2,421,927
- -----------------------------------------------------------------------
Ultra Petroleum Corp. (Canada)(a) 72,900 2,721,357
=======================================================================
8,045,702
=======================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES-2.37%
Citigroup Inc. 192,400 8,946,600
- -----------------------------------------------------------------------
</Table>
F-3
<Table>
<Caption>
MARKET
SHARES VALUE
- -----------------------------------------------------------------------
OTHER DIVERSIFIED FINANCIAL SERVICES-(CONTINUED)
J.P. Morgan Chase & Co. 70,900 $ 2,748,793
=======================================================================
11,695,393
=======================================================================
PACKAGED FOODS & MEATS-0.61%
Flowers Foods, Inc. 58,200 1,521,930
- -----------------------------------------------------------------------
Kraft Foods Inc.-Class A 47,600 1,507,968
=======================================================================
3,029,898
=======================================================================
PERSONAL PRODUCTS-0.42%
Estee Lauder Cos. Inc. (The)-Class A 29,500 1,439,010
- -----------------------------------------------------------------------
NBTY, Inc.(a) 20,900 614,251
=======================================================================
2,053,261
=======================================================================
PHARMACEUTICALS-1.56%
Johnson & Johnson 17,400 969,180
- -----------------------------------------------------------------------
Medicis Pharmaceutical Corp.-Class A(b) 42,000 1,677,900
- -----------------------------------------------------------------------
Merck & Co. Inc. 20,600 978,500
- -----------------------------------------------------------------------
Taro Pharmaceutical Industries Ltd.
(Israel)(a) 26,300 1,144,050
- -----------------------------------------------------------------------
Wyeth 80,600 2,914,496
=======================================================================
7,684,126
=======================================================================
PROPERTY & CASUALTY INSURANCE-1.11%
ACE Ltd. (Cayman Islands) 129,800 5,487,944
=======================================================================
REGIONAL BANKS-0.74%
East West Bancorp, Inc. 118,600 3,641,020
=======================================================================
RESTAURANTS-1.81%
CBRL Group, Inc. 84,600 2,609,910
- -----------------------------------------------------------------------
CEC Entertainment Inc.(a) 56,850 1,677,644
- -----------------------------------------------------------------------
Ruby Tuesday, Inc. 82,500 2,264,625
- -----------------------------------------------------------------------
Yum! Brands, Inc.(a) 64,400 2,396,968
=======================================================================
8,949,147
=======================================================================
SEMICONDUCTORS-2.67%
Altera Corp.(a) 121,200 2,693,064
- -----------------------------------------------------------------------
Intel Corp. 115,500 3,187,800
- -----------------------------------------------------------------------
Linear Technology Corp. 37,900 1,495,913
- -----------------------------------------------------------------------
Maxim Integrated Products, Inc. 19,000 995,980
- -----------------------------------------------------------------------
Microchip Technology Inc. 48,000 1,513,920
- -----------------------------------------------------------------------
National Semiconductor Corp.(a) 50,600 1,112,694
- -----------------------------------------------------------------------
Skyworks Solutions, Inc.(a) 109,800 958,554
- -----------------------------------------------------------------------
Xilinx, Inc. 37,000 1,232,470
=======================================================================
13,190,395
=======================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- -----------------------------------------------------------------------
SOFT DRINKS-1.33%
PepsiCo, Inc. 122,000 $ 6,573,360
=======================================================================
SPECIALTY STORES-1.18%
Rent-A-Center, Inc.(a) 55,750 1,668,598
- -----------------------------------------------------------------------
Staples, Inc. 142,700 4,182,537
=======================================================================
5,851,135
=======================================================================
SYSTEMS SOFTWARE-5.16%
Adobe Systems Inc. 35,300 1,641,450
- -----------------------------------------------------------------------
Check Point Software Technologies Ltd.
(Israel)(a) 39,900 1,076,901
- -----------------------------------------------------------------------
Computer Associates International, Inc. 304,900 8,555,494
- -----------------------------------------------------------------------
Microsoft Corp. 212,000 6,054,720
- -----------------------------------------------------------------------
Oracle Corp.(a) 342,300 4,083,639
- -----------------------------------------------------------------------
Red Hat, Inc.(a) 56,500 1,297,805
- -----------------------------------------------------------------------
Symantec Corp.(a) 63,000 2,758,140
=======================================================================
25,468,149
=======================================================================
TECHNOLOGY DISTRIBUTORS-1.35%
CDW Corp. 35,800 2,282,608
- -----------------------------------------------------------------------
Global Imaging Systems, Inc.(a) 59,500 2,181,270
- -----------------------------------------------------------------------
ScanSource, Inc.(a) 37,100 2,204,482
=======================================================================
6,668,360
=======================================================================
THRIFTS & MORTGAGE FINANCE-3.97%
Doral Financial Corp. (Puerto Rico) 109,200 3,767,400
- -----------------------------------------------------------------------
Fannie Mae 95,000 6,779,200
- -----------------------------------------------------------------------
Federal Agricultural Mortgage Corp.-Class
C(a) 31,400 751,402
- -----------------------------------------------------------------------
IndyMac Bancorp, Inc. 60,000 1,896,000
- -----------------------------------------------------------------------
MGIC Investment Corp. 28,900 2,192,354
- -----------------------------------------------------------------------
Radian Group Inc. 41,500 1,987,850
- -----------------------------------------------------------------------
Washington Mutual, Inc. 57,500 2,221,800
=======================================================================
19,596,006
=======================================================================
TRADING COMPANIES & DISTRIBUTORS-0.36%
MSC Industrial Direct Co., Inc.-Class A 54,100 1,776,644
=======================================================================
TRUCKING-0.45%
Landstar System, Inc.(a) 41,700 2,204,679
=======================================================================
Total Common Stocks & Other Equity
Interests (Cost $375,619,647) 475,313,056
=======================================================================
</Table>
F-4
<Table>
<Caption>
MARKET
SHARES VALUE
- -----------------------------------------------------------------------
MONEY MARKET FUNDS-4.02%
Liquid Assets Portfolio-Institutional
Class(c) 9,929,477 $ 9,929,477
- -----------------------------------------------------------------------
STIC Prime Portfolio-Institutional Class(c) 9,929,477 9,929,477
=======================================================================
Total Money Market Funds (Cost
$19,858,954) 19,858,954
=======================================================================
TOTAL INVESTMENTS-100.24% (excluding
investments purchased with cash collateral
from securities loaned) (Cost $395,478,601) 495,172,010
=======================================================================
INVESTMENTS PURCHASED WITH CASH COLLATERAL
FROM SECURITIES LOANED
MONEY MARKET FUNDS-2.08%
Liquid Assets Portfolio-Institutional
Class(c)(d) 10,295,900 10,295,900
=======================================================================
Total Money Market Funds (purchased with
cash collateral from securities loaned)
(Cost $10,295,900) 10,295,900
=======================================================================
TOTAL INVESTMENTS-102.32% (Cost $405,774,501) 505,467,910
=======================================================================
OTHER ASSETS LESS LIABILITIES-(2.32%) (11,458,227)
=======================================================================
NET ASSETS-100.00% $494,009,683
_______________________________________________________________________
=======================================================================
</Table>
Investment Abbreviations:
<Table>
ADR - American Depositary Receipt
</Table>
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) All or a portion of this security has been pledged as collateral for
security lending transactions at June 30, 2004.
(c) The money market fund and the Fund are affiliated by having the same
investment advisor. See Note 3.
(d) 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 7.
See accompanying notes which are an integral part of the financial statements.
F-5
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2004
(Unaudited)
<Table>
ASSETS:
Investments, at market value (cost
$375,619,647)* $ 475,313,056
- ------------------------------------------------------------
Investments in affiliated money market funds
(cost $30,154,854) 30,154,854
============================================================
Total investments (cost $405,774,501) 505,467,910
============================================================
Receivables for:
Investments sold 1,034,793
- ------------------------------------------------------------
Fund shares sold 154,847
- ------------------------------------------------------------
Dividends 216,665
- ------------------------------------------------------------
Investment for deferred compensation and
retirement plans 83,249
- ------------------------------------------------------------
Other assets 30,746
============================================================
Total assets 506,988,210
____________________________________________________________
============================================================
LIABILITIES:
Payables for:
Fund shares reacquired 998,685
- ------------------------------------------------------------
Amount due custodian 1,034,792
- ------------------------------------------------------------
Deferred compensation and retirement plans 112,580
- ------------------------------------------------------------
Collateral upon return of securities loaned 10,295,900
- ------------------------------------------------------------
Accrued distribution fees 216,352
- ------------------------------------------------------------
Accrued transfer agent fees 229,934
- ------------------------------------------------------------
Accrued operating expenses 90,284
============================================================
Total liabilities 12,978,527
============================================================
Net assets applicable to shares outstanding $ 494,009,683
____________________________________________________________
============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $ 585,078,377
- ------------------------------------------------------------
Undistributed net investment income (loss) (2,338,717)
- ------------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities (188,423,386)
- ------------------------------------------------------------
Unrealized appreciation of investment
securities 99,693,409
============================================================
$ 494,009,683
____________________________________________________________
============================================================
NET ASSETS:
Class A $ 291,625,886
____________________________________________________________
============================================================
Class B $ 170,721,615
____________________________________________________________
============================================================
Class C $ 31,662,182
____________________________________________________________
============================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER
SHARE, UNLIMITED NUMBER OF SHARES
AUTHORIZED:
Class A 17,599,315
____________________________________________________________
============================================================
Class B 11,484,120
____________________________________________________________
============================================================
Class C 2,132,922
____________________________________________________________
============================================================
Class A:
Net asset value per share $ 16.57
- ------------------------------------------------------------
Offering price per share:
(Net asset value of $16.57 divided by
94.50%) $ 17.53
____________________________________________________________
============================================================
Class B:
Net asset value and offering price per
share $ 14.87
____________________________________________________________
============================================================
Class C:
Net asset value and offering price per
share $ 14.84
____________________________________________________________
============================================================
</Table>
* At June 30, 2004, securities with an aggregate market value of $9,824,556 were
on loan to brokers.
See accompanying notes which are an integral part of the financial statements.
F-6
STATEMENT OF OPERATIONS
For the six months ended June 30, 2004
(Unaudited)
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $10,832) $ 1,920,889
- -------------------------------------------------------------------------
Dividends from affiliated money market funds* 84,128
=========================================================================
Total investment income 2,005,017
=========================================================================
EXPENSES:
Advisory fees 1,710,378
- -------------------------------------------------------------------------
Administrative services fees 68,084
- -------------------------------------------------------------------------
Custodian fees 23,158
- -------------------------------------------------------------------------
Distribution fees:
Class A 359,977
- -------------------------------------------------------------------------
Class B 924,993
- -------------------------------------------------------------------------
Class C 162,853
- -------------------------------------------------------------------------
Transfer agent fees 837,808
- -------------------------------------------------------------------------
Trustees' fees 10,581
- -------------------------------------------------------------------------
Other 180,419
=========================================================================
Total expenses 4,278,251
=========================================================================
Less: Fees waived, expenses reimbursed and expense offset
arrangement (38,922)
=========================================================================
Net expenses 4,239,329
=========================================================================
Net investment income (loss) (2,234,312)
=========================================================================
REALIZED AND UNREALIZED GAIN FROM INVESTMENT SECURITIES:
Net realized gain from investment securities 28,100,858
=========================================================================
Change in net unrealized appreciation of investment
securities 7,393,183
=========================================================================
Net gain from investment securities 35,494,041
=========================================================================
Net increase in net assets resulting from operations $33,259,729
_________________________________________________________________________
=========================================================================
</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 six months ended June 30, 2004 and the year ended December 31, 2003
(Unaudited)
<Table>
<Caption>
JUNE 30, DECEMBER 31,
2004 2003
- -------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (2,234,312) $ (4,907,964)
- -------------------------------------------------------------------------------------------
Net realized gain from investment securities, futures
contracts and option contracts 28,100,858 14,119,689
- -------------------------------------------------------------------------------------------
Change in net unrealized appreciation of investment
securities and option contracts 7,393,183 116,271,789
===========================================================================================
Net increase in net assets resulting from operations 33,259,729 125,483,514
===========================================================================================
Share transactions-net:
Class A (16,613,750) (29,873,189)
- -------------------------------------------------------------------------------------------
Class B (39,359,680) (65,917,432)
- -------------------------------------------------------------------------------------------
Class C (3,985,787) (6,917,020)
===========================================================================================
Net increase (decrease) in net assets resulting from
share transactions (59,959,217) (102,707,641)
===========================================================================================
Net increase (decrease) in net assets (26,699,488) 22,775,873
===========================================================================================
NET ASSETS:
Beginning of period 520,709,171 497,933,298
===========================================================================================
End of period (including undistributed net investment
income (loss) of $(2,338,717) and $(104,405) for 2004
and 2003, respectively). $494,009,683 $ 520,709,171
___________________________________________________________________________________________
===========================================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
F-8
NOTES TO FINANCIAL STATEMENTS
June 30, 2004
(Unaudited)
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.
Under the Trust's organizational documents, the Fund's officers, trustees,
employees and agents are indemnified against certain liabilities that may arise
out of performance of their duties to the Fund. Additionally, in the normal
course of business, the Fund enters into contracts that contain a variety of
indemnification clauses. The Fund's maximum exposure under these arrangements is
unknown as this would involve future claims that may be made against the Fund
that have not yet occurred. However, the Fund has not had prior claims or losses
pursuant to these contracts.
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 specific 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"). Futures
contracts are valued at the final settlement price set by an exchange on
which they are principally traded. Listed options are valued at the mean
between the last bid and the ask prices from the exchange on which they are
principally traded. Options not listed on an exchange are valued by an
independent source at the mean between the last bid and ask prices.
Investments in open-end registered investment companies and closed-end
registered investment companies that do not trade on an exchange are valued
at the end of day net asset value per share. Investments in closed-end
registered investment companies that trade on an exchange are valued at the
last sales price as of the close of the customary trading session on the
exchange where the security is principally traded.
Foreign securities (including foreign exchange contracts) are converted
into U.S. dollar amounts using the applicable exchange rates as of the
close of the NYSE. Generally, trading in foreign securities is
substantially completed each day at various times prior to the close of the
NYSE. The values of such securities used in computing the net asset value
of the Fund's shares are determined as of the close of the respective
markets. Events affecting the values of such foreign securities may occur
between the times at which the particular foreign market closes and the
close of the customary trading session of the NYSE which would not
ordinarily be reflected in the computation of the Fund's net asset value.
If 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.
F-9
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions
are accounted for on a trade date basis. Realized gains or losses on sales
are computed on the basis of specific identification of the securities
sold. Interest income is recorded on the accrual basis from settlement
date. Dividend income is recorded on the ex-dividend date.
Brokerage commissions and mark ups are considered transaction costs and
are recorded as an increase to the cost basis of securities purchased
and/or a reduction of proceeds on a sale of securities. Such transaction
costs are included in the determination of realized and unrealized gain
(loss) from investment securities reported in the Statement of Operations
and the Statement of Changes in Net Assets and the realized and unrealized
net gains (losses) on securities per share in the Financial Highlights.
Transaction costs are included in the calculation of the Fund's net asset
value and, accordingly, they reduce the Fund's total returns. These
transaction costs are not considered operating expenses and are not
reflected in net investment income reported in the Statement of Operations
and Statement of Changes in Net Assets, or the net investment income per
share and ratios of expenses and net investment income reported in the
Financial Highlights, nor are they limited by any expense limitation
arrangements between the Fund and the advisor.
The Fund 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 distributed to shareholders. Therefore, no provision for
federal income taxes is recorded in the financial statements.
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.
F. COVERED CALL OPTIONS -- The Fund may write call options, on a covered
basis; that is, the Fund will own the underlying security. When the Fund
writes a covered call option, an amount equal to the premium received by
the Fund is recorded as an asset and an equivalent liability. The amount of
the liability is subsequently "marked-to-market" to reflect the current
market value of the option written. The current market value of a written
option is the mean between the last bid and asked prices on that day. If a
written call option expires on the stipulated expiration date, or if the
Fund enters into a closing purchase transaction, the Fund realizes a gain
(or a loss if the closing purchase transaction exceeds the premium received
when the option was written) without regard to any unrealized gain or loss
on the underlying security, and the liability related to such option is
extinguished. If a written option is exercised, the Fund realizes a gain or
a loss from the sale of the underlying security and the proceeds of the
sale are increased by the premium originally received. 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.
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 the contracts and continue to be required to
maintain the margin deposits on the futures contracts.
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 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 six months ended June 30, 2004, AIM waived fees of $1,589.
For the period ended June 30, 2004, at the direction of the trustees of the
Trust, AMVESCAP PLC ("AMVESCAP") has assumed $34,438 of expenses incurred by the
Fund in connection with matters related to both pending regulatory complaints
against INVESCO Funds Group, Inc. ("IFG") alleging market timing and the ongoing
market timing investigations with respect to IFG and AIM, including legal,
audit, shareholder servicing, communication and trustee expenses.
The Fund, pursuant to a master administrative services agreement with AIM,
has agreed to pay AIM for certain administrative costs incurred in providing
accounting services to the Fund. For the six months ended June 30, 2004, AIM was
paid $68,084 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 six months ended June 30, 2004, AISI retained $566,962 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,
F-10
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 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 six
months ended June 30, 2004, the Class A, Class B and Class C shares paid
$359,977, $924,993 and $162,853, 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 six
months ended June 30, 2004, AIM Distributors advised the Fund that it retained
$30,019 in front-end sales commissions from the sale of Class A shares and $541,
$4,058 and $811 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"), to invest daily available cash balances and cash
collateral from securities lending transactions in affiliated money market
funds. The Fund and the money market funds below have the same investment
advisor and therefore, are considered to be affiliated. 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 tables
below show the transactions in and earnings from investments in affiliated money
market funds for the period ended June 30, 2004.
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 12/31/03 AT COST FROM SALES (DEPRECIATION) 06/30/04 INCOME GAIN (LOSS)
- ----------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $ 8,261,408 $26,967,392 $(25,299,323) $ -- $ 9,929,477 $40,145 $ --
- ----------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-
Institutional
Class 8,261,408 26,967,392 (25,299,323) -- 9,929,477 38,365 --
============================================================================================================================
Subtotal $16,522,816 $53,934,784 $(50,598,646) $ -- $19,858,954 $78,510 $ --
____________________________________________________________________________________________________________________________
============================================================================================================================
</Table>
INVESTMENTS OF CASH COLLATERAL FROM SECURITIES LENDING TRANSACTIONS:
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 12/31/03 AT COST FROM SALES (DEPRECIATION) 06/30/04 INCOME* GAIN (LOSS)
- --------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $11,874,485 $38,276,835 $(39,855,420) $ -- $10,295,900 $ 5,618 $ --
==========================================================================================================================
Total $28,397,301 $92,211,619 $(90,454,066) $ -- $30,154,854 $84,128 $ --
__________________________________________________________________________________________________________________________
==========================================================================================================================
</Table>
* Dividend income is net of fees paid to security lending counterparties of
$49,286.
NOTE 4--EXPENSE OFFSET ARRANGEMENT
The expense offset arrangement is comprised of transfer agency credits which
result from balances in Demand Deposit Accounts (DDA) used by the transfer
agency for clearing shareholder transactions. For the six months ended June 30,
2004, the Fund received credits in transfer agency fees of $2,895 under an
expense offset arrangement, which resulted in a reduction of the Fund's total
expenses of $2,895.
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. Those Trustees who defer compensation have
the option to select various AIM Funds 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.
Obligations under the deferred compensation and retirement plans represent
unsecured claims against the general assets of the Fund.
F-11
During the six months ended June 30, 2004, the Fund paid legal fees of
$1,591 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
Pursuant to an exemptive order from the SEC, 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 is 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 six months ended June 30, 2004, the Fund did not borrow or lend
under the interfund lending facility or borrow under the uncommitted unsecured
revolving credit facility.
Additionally, the Fund is permitted to temporarily carry a negative or
overdrawn balance in its account with SSB, 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 having a market value up to 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 June 30, 2004, securities with an aggregate value of $9,824,556 were on
loan to brokers. The loans were secured by cash collateral of $10,295,900
received by the Fund and subsequently invested in affiliated money market funds.
For the six months ended June 30, 2004, the Fund received dividends on cash
collateral net of fees paid to counterparties of $5,618 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 period -- $ --
- -----------------------------------------------------------------------------------
Written 200 12,249
- -----------------------------------------------------------------------------------
Exercised (200) (12,249)
===================================================================================
End of period -- $ --
___________________________________________________________________________________
===================================================================================
</Table>
NOTE 9--TAX INFORMATION
The amount and character of income and gains to be distributed are determined in
accordance with income tax regulations, which may differ from generally accepted
accounting principles. Reclassifications are made to the Fund's capital accounts
to reflect income and gains available for distribution (or available capital
loss carryforward) under income tax regulations. The tax character of
distributions paid during the year and the tax components of net assets will be
reported at the Fund's fiscal year-end.
Capital loss carryforward is calculated and reported as of a specific date.
Results of transactions and other activity after that date may affect the amount
of capital loss carryforward actually available for the Fund to utilize. The
ability to use capital loss carryforward may be limited under the Internal
Revenue Code and related regulations.
F-12
The Fund has a capital loss carryforward for tax purposes as of December 31,
2003 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>
* Capital loss carryforward as of the date listed above is reduced for
limitations, if any, to the extent required by the Internal Revenue Code.
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 six months
ended June 30, 2004 was $94,199,636 and $161,175,704, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF
INVESTMENT SECURITIES ON A TAX BASIS
- ----------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $110,188,792
- ----------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (12,777,848)
============================================================================
Net unrealized appreciation of investment securities $ 97,410,944
____________________________________________________________________________
============================================================================
Cost of investments for tax purposes is $408,056,966.
</Table>
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
- -----------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2004 DECEMBER 31, 2003
-------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
- -----------------------------------------------------------------------------------------------------------------------
Sold:
Class A 1,060,062 $ 17,070,595 1,879,248 $ 24,704,966
- -----------------------------------------------------------------------------------------------------------------------
Class B 442,012 6,394,375 1,110,183 13,223,360
- -----------------------------------------------------------------------------------------------------------------------
Class C 212,041 3,054,911 507,573 6,077,786
=======================================================================================================================
Automatic conversion of Class B shares to Class A shares:
Class A 1,360,614 22,031,140 2,268,563 30,491,869
- -----------------------------------------------------------------------------------------------------------------------
Class B (1,514,061) (22,031,140) (2,511,307) (30,491,869)
=======================================================================================================================
Reacquired:
Class A (3,467,330) (55,715,485) (6,444,289) (85,070,024)
- -----------------------------------------------------------------------------------------------------------------------
Class B (1,642,197) (23,722,915) (4,176,762) (48,648,923)
- -----------------------------------------------------------------------------------------------------------------------
Class C (489,120) (7,040,698) (1,100,332) (12,994,806)
=======================================================================================================================
(4,037,979) $(59,959,217) (8,467,123) $(102,707,641)
_______________________________________________________________________________________________________________________
=======================================================================================================================
</Table>
F-13
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
-------------------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, --------------------------------------------------------------------
2004 2003 2002 2001 2000 1999
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 15.50 $ 11.97 $ 17.00 $ 22.88 $ 26.23 $ 19.35
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.04)(a) (0.09)(a) (0.06)(a) (0.08)(a) (0.01)(a) (0.06)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) 1.11 3.62 (4.97) (5.79) (0.44) 8.00
=================================================================================================================================
Total from investment operations 1.07 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 $ 16.57 $ 15.50 $ 11.97 $ 17.00 $ 22.88 $ 26.23
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) 6.90% 29.49% (29.59)% (25.64)% (1.77)% 41.48%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $291,626 $288,976 $250,666 $396,779 $532,042 $461,628
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets 1.36%(c)(d) 1.47% 1.32% 1.24% 1.07% 1.09%
=================================================================================================================================
Ratio of net investment income (loss) to
average net assets (0.56)%(c) (0.65)% (0.45)% (0.45)% (0.02)% (0.31)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(e) 19% 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 as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. 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
$289,563,617.
(d) After fee waivers and expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and expense reimbursements was
1.37% (Annualized).
(e) Not annualized for periods less than one year.
F-14
NOTE 12--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS B
-------------------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, --------------------------------------------------------------------
2004 2003 2002 2001 2000 1999
- ---------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of
period $ 13.96 $ 10.86 $ 15.54 $ 21.07 $ 24.57 $ 18.33
- ---------------------------------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income (loss) (0.09)(a) (0.17)(a) (0.16)(a) (0.20)(a) (0.22)(a) (0.23)(a)
- ---------------------------------------------------------------------------------------------------------------------
Net gains (losses) on
securities (both realized
and unrealized) 1.00 3.27 (4.52) (5.32) (0.38) 7.53
=====================================================================================================================
Total from investment
operations 0.91 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 $ 14.87 $ 13.96 $ 10.86 $ 15.54 $ 21.07 $ 24.57
_____________________________________________________________________________________________________________________
=====================================================================================================================
Total return(b) 6.52% 28.55% (30.12)% (26.19)% (2.50)% 40.29%
_____________________________________________________________________________________________________________________
=====================================================================================================================
Ratios/supplemental data:
Net assets, end of period
(000s omitted) $170,722 $198,148 $214,709 $432,002 $661,445 $592,555
_____________________________________________________________________________________________________________________
=====================================================================================================================
Ratio of expenses to average
net assets 2.11%(c)(d) 2.22% 2.07% 2.00% 1.84% 1.90%
=====================================================================================================================
Ratio of net investment income
(loss) to average net assets (1.31)%(c) (1.40)% (1.20)% (1.21)% (0.80)% (1.12)%
_____________________________________________________________________________________________________________________
=====================================================================================================================
Portfolio turnover rate(e) 19% 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 as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. 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
$186,015,197.
(d) After fee waivers and expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and expense reimbursements was
2.12% (Annualized).
(e) Not annualized for periods less than one year.
F-15
NOTE 12--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS C
-------------------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, -------------------------------------------------------------------
2004 2003 2002 2001 2000 1999
- -------------------------------------------------------------------------------------------------------------------
Net asset value, beginning
of period $ 13.94 $ 10.84 $ 15.52 $ 21.05 $ 24.55 $ 18.32
- -------------------------------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income
(loss) (0.09)(a) (0.17)(a) (0.16)(a) (0.20)(a) (0.22)(a) (0.23)(a)
- -------------------------------------------------------------------------------------------------------------------
Net gains (losses) on
securities (both
realized and unrealized) 0.99 3.27 (4.52) (5.32) (0.38) 7.52
===================================================================================================================
Total from investment
operations 0.90 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 $ 14.84 $ 13.94 $ 10.84 $ 15.52 $ 21.05 $ 24.55
___________________________________________________________________________________________________________________
===================================================================================================================
Total return(b) 6.46% 28.60% (30.15)% (26.21)% (2.50)% 40.26%
___________________________________________________________________________________________________________________
===================================================================================================================
Ratios/supplemental data:
Net assets, end of period
(000s omitted) $31,662 $33,585 $32,558 $59,112 $71,989 $25,275
___________________________________________________________________________________________________________________
===================================================================================================================
Ratio of expenses to average
net assets 2.11%(c)(d) 2.22% 2.07% 2.00% 1.84% 1.90%
===================================================================================================================
Ratio of net investment
income (loss) to average
net assets (1.31)%(c) (1.40)% (1.20)% (1.21)% (0.80)% (1.12)%
___________________________________________________________________________________________________________________
===================================================================================================================
Portfolio turnover rate(e) 19% 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 as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. 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
$32,749,514.
(d) After fee waivers and expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and expense reimbursements was
2.12% (Annualized).
(e) Not annualized for periods less than one year.
F-16
NOTE 13--LEGAL PROCEEDINGS
The mutual fund industry as a whole is currently subject to regulatory inquiries
and litigation related to a wide range of issues. These issues include, among
others, market timing activity, late trading, fair value pricing, excessive or
improper advisory and/or distribution fees, mutual fund sales practices,
including revenue sharing and directed-brokerage arrangements, investments in
securities of other registered investment companies and issues related to
Section 529 college savings plans.
As described more fully below, INVESCO Funds Group, Inc. ("IFG"), the former
investment advisor to the INVESCO Funds, is the subject of three regulatory
actions concerning market timing activity in the INVESCO Funds. In addition, IFG
and A I M Advisors, Inc. ("AIM"), the Fund's investment advisor, are the subject
of a number of regulatory inquiries and civil lawsuits, as described more fully
below. Both IFG and AIM are indirect wholly owned subsidiaries of AMVESCAP PLC
("AMVESCAP"). Additional regulatory actions and/or civil lawsuits related to the
above or other issues may be filed against IFG, AIM and/or related entities and
individuals in the future. Additional regulatory inquiries related to the above
or other issues also may be received by IFG, AIM and/or related entities and
individuals in the future.
As a result of the regulatory actions and inquiries and civil lawsuits
discussed below, 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.
Regulatory Actions Pending Against 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 former capacity as the
chief executive officer of IFG. Mr. Cunningham also formerly held the positions
of Chief Operating Officer and Senior Vice President of A I M Management Group
Inc. ("AIM Management"), 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. There
can be no assurance that the SEC, NYAG or State of Colorado will not file
additional charges against IFG or Mr. Cunningham or civil proceedings against
other current or former officers or employees of IFG.
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.
Response of AMVESCAP
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 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. AMVESCAP has retained outside counsel to represent its subsidiaries in
connection with the market timing regulatory inquiries and certain other
matters. As part of this representation, this outside counsel has been
conducting a review of IFG's and AIM's conduct with respect to market timing and
related matters. In addition, AMVESCAP has retained separate 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.
At the direction of the trustees of the AIM and INVESCO Funds, AMVESCAP has
agreed to pay all of the expenses incurred by the AIM and INVESCO Funds related
to the market timing investigations, including expenses incurred in connection
with the pending regulatory complaints against IFG alleging market timing and
the ongoing market timing investigations with respect to IFG and AIM.
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, including
but not limited to A I M Capital Management, Inc. ("AIM Capital"), AIM Funds
Management Inc., INVESCO Institutional (N.A.), Inc. ("IINA"), INVESCO Global
Asset Management (N.A.), Inc. and INVESCO Senior Secured Management, Inc., from
serving as an investment advisor to any investment company registered under the
Investment Company Act of 1940, including the Fund. The Fund has been informed
by AIM that, if AIM is so barred, 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.
Regulatory Inquiries Concerning IFG
IFG, certain related entities, certain of their current and former officers
and/or certain of the INVESCO Funds have received regulatory inquiries in the
form of subpoenas or other oral or written requests for information and/or
documents related to one or more of the following issues, some of which concern
one or more INVESCO Funds: market timing activity, late trading, fair value
pricing, excessive or improper advisory and/or distribution fees,
F-17
NOTE 13--LEGAL PROCEEDINGS (CONTINUED)
mutual fund sales practices, including revenue sharing and directed-brokerage
arrangements, and investments in securities of other registered investment
companies. These regulators include the Securities and Exchange Commission
("SEC"), the NASD, Inc. ("NASD"), the Florida Department of Financial Services,
the Commissioner of Securities for the State of Georgia, the Attorney General of
the State of West Virginia, the West Virginia Securities Commission, the
Colorado Securities Division and the Bureau of Securities of the State of New
Jersey. IFG and certain of these other parties also have received more limited
inquiries from the United States Department of Labor ("DOL") and the United
States Attorney's Office for the Southern District of New York, some of which
concern one or more INVESCO Funds. IFG is providing full cooperation with
respect to these inquiries.
Regulatory Inquiries Concerning AIM
AIM, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds have received regulatory inquiries in the form
of subpoenas or other oral or written requests for information and/or documents
related to one or more of the following issues, some of which concern one or
more AIM Funds: market timing activity, late trading, fair value pricing,
excessive or improper advisory and/or distribution fees, mutual fund sales
practices, including revenue sharing and directed-brokerage arrangements,
investments in securities of other registered investment companies and issues
related to Section 529 college savings plans. These regulators include the SEC,
the NASD, the Department of Banking for the State of Connecticut, the NYAG, the
Commissioner of Securities for the State of Georgia, the Attorney General of the
State of West Virginia, the West Virginia Securities Commission and the Bureau
of Securities of the State of New Jersey. AIM and certain of these other parties
also have received more limited inquiries from the DOL, the Internal Revenue
Service, the United States Attorney's Office for the Southern District of New
York, the United States Attorney's Office for the Central District of
California, the United States Attorney's Office for the District of
Massachusetts, the Massachusetts Securities Division and the U.S. Postal
Inspection Service, some of which concern one or more AIM Funds. AIM is
providing full cooperation with respect to these inquiries.
Private Civil Actions Alleging Market Timing
Multiple civil 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, AIM
Management, AMVESCAP, certain related entities and/or certain of their current
and former officers) making allegations substantially similar to the allegations
in the three regulatory actions concerning market timing activity in the INVESCO
Funds that have been filed by the SEC, the NYAG and the State of Colorado
against these parties. These 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/or
(iv) breach of contract. These lawsuits were initiated 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; declaration that the advisory
agreement is unenforceable or void; refund of advisory fees; interest; and
attorneys' and experts' fees.
The Judicial Panel on Multidistrict Litigation (the "Panel") has ruled that
all actions pending in Federal court that allege market timing and/or late
trading be transferred to the United States District Court for the District of
Maryland for coordinated pre-trial proceedings. All such cases against IFG and
the other AMVESCAP defendants filed to date have been conditionally or finally
transferred to the District of Maryland in accordance with the Panel's
directive. In addition, the proceedings initiated in state court have been
removed by IFG to Federal court and transferred to the District of Maryland. The
plaintiff in one such action continues to seek remand to state court.
Private Civil Actions Alleging Improper Use of Fair Value Pricing
Multiple civil class action lawsuits have been filed against various parties
(including, depending on the lawsuit, certain INVESCO Funds, certain AIM Funds,
IFG and/or AIM) alleging that certain AIM and INVESCO Funds inadequately
employed fair value pricing. These lawsuits allege a variety of theories of
recovery, including but not limited to: (i) violations of various provisions of
the Federal securities laws; (ii) common law breach of duty; and (iii) common
law negligence and gross negligence. These lawsuits have been filed in both
Federal and state courts and seek such remedies as compensatory and punitive
damages; interest; and attorneys' fees and costs.
Private Civil Actions Alleging Excessive Advisory and Distribution Fees
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, IFG, AIM, IINA, A I M Distributors, Inc. ("AIM Distributors")
and/or INVESCO Distributors, Inc. ("INVESCO Distributors")) alleging that the
defendants charged excessive advisory and distribution fees and failed to pass
on to shareholders the perceived savings generated by economies of scale.
Certain of these lawsuits also allege that the defendants adopted unlawful
distribution plans. These lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the Federal
securities laws; (ii) breach of fiduciary duty; and/or (iii) breach of contract.
These lawsuits have been filed in both Federal and state courts and seek such
remedies as damages; injunctive relief; rescission of certain Funds' advisory
agreements and distribution plans; interest; prospective relief in the form of
reduced fees; and attorneys' and experts' fees.
Private Civil Actions Alleging Improper Distribution Fees Charged to Closed
Funds
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, IFG, AIM, AIM Distributors and/or certain of the trustees of the
AIM and INVESCO Funds) alleging that the defendants breached their fiduciary
duties by charging distribution fees while funds and/or specific share classes
were closed generally to new investors and/or while other share classes of the
same fund were not charged the same distribution fees. These lawsuits allege a
variety of theories of recovery, including but not limited to: (i) violation of
F-18
NOTE 13--LEGAL PROCEEDINGS (CONTINUED)
various provisions of the Federal securities laws; and (ii) breach of fiduciary
duty. These lawsuits have been filed in both Federal and state courts and seek
such remedies as damages; injunctive relief; and attorneys' and experts' fees.
Private Civil Actions Alleging Improper Mutual Fund Sales Practices and
Directed-Brokerage Arrangements
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, AIM Management, IFG, AIM, AIM Investment Services, Inc. ("AIS")
and/or certain of the trustees of the AIM and INVESCO Funds) alleging that the
defendants improperly used the assets of the AIM and INVESCO Funds to pay
brokers to aggressively push the AIM and INVESCO Funds over other mutual funds
and that the defendants concealed such payments from investors by disguising
them as brokerage commissions. These lawsuits allege a variety of theories of
recovery, including but not limited to: (i) violation of various provisions of
the Federal securities laws; (ii) breach of fiduciary duty; and (iii) aiding and
abetting a breach of fiduciary duty. These lawsuits have been filed in Federal
courts and seek such remedies as compensatory and punitive damages; rescission
of certain Funds' advisory agreements and distribution plans and recovery of all
fees paid; an accounting of all fund-related fees, commissions and soft dollar
payments; restitution of all unlawfully or discriminatorily obtained fees and
charges; and attorneys' and experts' fees.
At the present time, management of AIM and the Fund are unable to estimate the
impact, if any, that the outcome of the matters described above may have on AIM
or the Fund.
F-19
OTHER INFORMATION
TRUSTEES AND OFFICERS
<Table>
BOARD OF TRUSTEES OFFICERS OFFICE OF THE FUND
Bob R. Baker Robert H. Graham 11 Greenway Plaza
Frank S. Bayley Chairman and President Suite 100
James T. Bunch Houston, TX 77046-1173
Bruce L. Crockett Mark H. Williamson
Albert R. Dowden Executive Vice President INVESTMENT ADVISOR
Edward K. Dunn Jr. A I M Advisors, Inc.
Jack M. Fields Kevin M. Carome 11 Greenway Plaza
Carl Frischling Senior Vice President, Secretary Suite 100
Robert H. Graham and Chief Legal Officer Houston, TX 77046-1173
Gerald J. Lewis
Prema Mathai-Davis Sidney M. Dilgren TRANSFER AGENT
Lewis F. Pennock Vice President and Treasurer AIM Investment Services, Inc.
Ruth H. Quigley P.O. Box 4739
Louis S. Sklar Robert G. Alley Houston, TX 77210-4739
Larry Soll, Ph.D. Vice President
Mark H. Williamson CUSTODIAN
Stuart W. Coco State Street Bank and Trust Company
Vice President 225 Franklin Street
Boston, MA 02110-2801
Melville B. Cox
Vice President COUNSEL TO THE FUND
Ballard Spahr
Karen Dunn Kelley Andrews & Ingersoll, LLP
Vice President 1735 Market Street
Philadelphia, PA 19103-7599
Edgar M. Larsen
Vice President COUNSEL TO THE TRUSTEES
Kramer, Levin, Naftalis & Frankel LLP
919 Third Avenue
New York, NY 10022-3852
DISTRIBUTOR
A I M Distributors, Inc.
11 Greenway Plaza
Suite 100
Houston, TX 77046-1173
</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(4) AIM High Yield Fund
AIM Blue Chip Fund AIM Global Aggressive Growth Fund AIM Income Fund
AIM Capital Development Fund AIM Global Equity Fund(5) AIM Intermediate Government Fund
AIM Charter Fund AIM Global Growth Fund AIM Limited Maturity Treasury Fund
AIM Constellation Fund AIM Global Value Fund AIM Money Market Fund
AIM Dent Demographic Trends Fund AIM International Emerging Growth Fund(6) AIM Short Term Bond Fund
AIM Diversified Dividend Fund 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(7)
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(1) 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 ALLOCATION SOLUTIONS
AIM Premier Equity Fund INVESCO Gold & Precious Metals Fund
AIM Select Equity Fund INVESCO Health Sciences Fund AIM Aggressive Allocation Fund
AIM Small Cap Equity Fund(2) INVESCO Leisure Fund AIM Conservative Allocation Fund
AIM Small Cap Growth Fund(3) INVESCO Multi-Sector Fund AIM Moderate Allocation Fund
AIM Trimark Endeavor Fund INVESCO Technology Fund
AIM Trimark Small Companies Fund INVESCO Utilities Fund
AIM Weingarten Fund
INVESCO Core Equity Fund ======================================================================================
INVESCO Dynamics Fund CONSIDER THE INVESTMENT OBJECTIVES, RISKS, AND CHARGES AND EXPENSES CAREFULLY. FOR
INVESCO Mid-Cap Growth Fund THIS AND OTHER IMPORTANT INFORMATION ABOUT AIM AND INVESCO FUNDS, OBTAIN A PROSPECTUS
INVESCO Small Company Growth Fund FROM YOUR FINANCIAL ADVISOR OR AIMINVESTMENTS.COM AND READ IT THOROUGHLY BEFORE
INVESCO S&P 500 Index Fund INVESTING.
INVESCO Total Return Fund* ======================================================================================
</Table>
* Domestic equity and income fund
(1) 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. (2) 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. (3) 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. (4) AIM European Small Company Fund will close to new investors when
net assets reach $500 million. (5) Effective March 31, 2004, AIM Global Trends
Fund was renamed AIM Global Equity Fund. (6) AIM International Emerging Growth
Fund will close to new investors when net assets reach $500 million. (7)
Effective November 24, 2003, INVESCO International Blue Chip Value Fund was
renamed INVESCO International Core Equity Fund.
If used after October 20, 2004, this report 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 $139 billion in assets. AIM is a subsidiary of
AMVESCAP PLC, one of the world's largest independent financial services
companies with $372 billion in assets under management. Data as of June 30,
2004.
<Table>
AIMinvestments.com SEQ-SAR-1 A I M Distributors, Inc.
YOUR GOALS. OUR SOLUTIONS.--Registered Trademark--
- -------------------------------------------------------------------------------------
Mutual Retirement Annuities College Separately Offshore Alternative Cash [AIM INVESTMENTS LOGO APPEARS HERE]
Funds Products Savings Managed Products Investments Management --Registered Trademark--
Plans Accounts
- -------------------------------------------------------------------------------------
</Table>
AIM SMALL CAP EQUITY FUND
Semiannual Report to Shareholders o June 30, 2004
[COVER IMAGE]
YOUR GOALS. OUR SOLUTIONS. [AIM INVESTMENTS LOGO APPEARS HERE]
--Registered Trademark-- --Registered Trademark--
<Table>
====================================================================================================================================
AIM SMALL CAP EQUITY FUND SEEKS LONG-TERM GROWTH OF CAPITAL.
o Unless otherwise stated, information presented is as of 6/30/04 and is based on total net assets.
====================================================================================================================================
ABOUT SHARE CLASSES ABOUT INDEXES USED IN THIS REPORT are generally according to the Global
Industry Classification Standard,
o Effective 9/30/03, Class B shares are o The unmanaged Standard & Poor's which was developed by and is the
not available as an investment for Composite Index of 500 Stocks (the S&P exclusive property and a service mark of
retirement plans maintained pursuant to 500--Registered Trademark-- Index) is Morgan Stanley Capital International
Section 401 of the Internal Revenue an index of common stocks frequently Inc. and Standard & Poor's.
Code, including 401(k) plans, money used as a general measure of U.S. stock
purchase pension plans and profit market performance. o The returns shown in the Management's
sharing plans. Plans that have existing Discussion of Fund Performance are based
accounts invested in Class B shares will o The unmanaged Russell 2000 on net asset values calculated for
continue to be allowed to make --Registered Trademark-- Index shareholder transactions. Generally
additional purchases. represents the performance of the stocks accepted accounting principles require
of small-capitalization companies. adjustments to be made to the net assets
o Class R shares are available only to of the fund at period end for financial
certain retirement plans. Please see the o The unmanaged Lipper Small-Cap Core reporting purposes, and as such, the net
prospectus for more information. Fund Index represents an average of the asset values for shareholder
performance of the 30 largest transactions and the returns based on
PRINCIPAL RISKS OF INVESTING IN THE FUND small-capitalization core equity funds those net asset values may differ from
tracked by Lipper, Inc., an independent the net asset values and returns
o Investing in small and mid-size mutual fund performance monitor. reported in the Financial Highlights.
companies involves risks not associated
with investing in more established o The unmanaged Lehman U.S. Aggregate o Bloomberg, Inc. is a well-known
companies, including business risk, Bond Index (the Lehman Aggregate), which financial research firm.
significant stock price fluctuations and represents the U.S. investment-grade
illiquidity. fixed-rate bond market (including o The Conference Board is a
government and corporate securities, not-for-profit organization that
o International investing presents mortgage pass-through securities and conducts research and publishes
certain risks not associated with asset-backed securities), is compiled by information and analysis to help
investing solely in the United States. Lehman Brothers, a global investment businesses strengthen their performance.
These include risks relating to bank.
fluctuations in the value of the U.S. A description of the policies and
dollar relative to the values of other o The unmanaged MSCI World Index is a procedures that the fund uses to
currencies, the custody arrangements group of global securities tracked by determine how to vote proxies relating
made for the fund's foreign holdings, Morgan Stanley Capital International. to portfolio securities is available
differences in accounting, political without charge, upon request, by calling
risks and the lesser degree of public o The fund is not managed to track the 800-959-4246, or on the AIM Web site,
information required to be provided by performance of any particular index, AIMinvestments.com.
non-U.S. companies. The fund may invest including the indexes defined here, and
up to 25% of its assets in the consequently, the performance of the
securities of non-U.S. issuers. fund may deviate significantly from the
performance of the indexes.
o The fund may participate in the
initial public offering (IPO) market in o A direct investment cannot be made in
some market cycles. Because of the an index. Unless otherwise indicated,
fund's small asset base, any investment index results include reinvested
the fund may make in IPOs may dividends, and they do not reflect sales
significantly affect the fund's total charges. Performance of an index of
return. As the fund's assets grow, the funds reflects fund expenses;
impact of IPO investments will decline, performance of a market index does not.
which may reduce the effect of IPO
investments on the fund's total return. OTHER INFORMATION
o Industry classifications used in this
report
</Table>
================================================================================
THIS REPORT MUST BE ACCOMPANIED OR PRECEDED BY A CURRENTLY EFFECTIVE FUND
PROSPECTUS, WHICH CONTAINS MORE COMPLETE INFORMATION, INCLUDING SALES CHARGES
AND EXPENSES. READ IT CAREFULLY BEFORE YOU INVEST.
================================================================================
=====================================================
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
=====================================================
AIMinvestments.com
TO OUR SHAREHOLDERS
DEAR FELLOW SHAREHOLDER IN THE AIM FAMILY OF
FUNDS--Registered Trademark--:
[PHOTO OF The six months covered by this report could be characterized
ROBERT H. as a trendless market. Positive news about employment and a
GRAHAM] strengthening economy were offset by concerns about higher
interest rates, continued violence in Iraq and high oil
ROBERT H. GRAHAM prices. The result: muted performance in both U.S. equity
and fixed-income markets.
The same macroeconomic factors were at work overseas as
well, causing developed international markets to generally
perform in line with that of the United States. In fact, the
MSCI World Index tracked the performance of the S&P 500
Index with six-month returns of 3.52% and 3.44%,
respectively.
The anticipation of higher interest rates hampered bond performance, with
most areas of the fixed- income market turning in flat returns for the six-month
period, as evidenced by the 0.15% return of the Lehman U.S. Aggregate Bond
Index. Considered a good proxy for the U.S. bond market, this index includes
fixed-rate mortgage-backed securities, U.S. agency investments, U.S. Treasuries
of various maturities and U.S. corporate bonds.
In an unremarkable period like the one covered by this report, we encourage
shareholders to look past short-term market performance and remain focused on
their long-term investment goals. Whether markets rise, fall or go sideways, the
only certainty is their unpredictability, especially in the short run.
Historically, markets have risen over the long term, with the S&P 500 Index
returning 13.55% over the past 25 years and the Lehman U.S. Aggregate Bond Index
returning 9.20%.* While past performance cannot guarantee future results, we
believe that staying invested for the long term offers the best opportunity for
capital growth.
For information on how your fund performed and was managed during the six
months covered by this report, please read your fund managers' discussion on the
following pages. We hope you find it informative.
There continues to be increased regulatory focus on mutual funds and other
investment products. For the latest information about ongoing regulatory
matters, please visit our Web site, AIMinvestments.com. We continue to post
updates as information becomes available. We also encourage you to visit our Web
site for investor education and planning information as well as regular
performance updates on our funds.
As always, AIM is committed to building solutions for your investment goals,
and we thank you for your continued participation in AIM Investments
- --Servicemark--. If you have any questions, please contact our Client Service
representatives at 800-959-4246.
Sincerely,
/s/ ROBERT H. GRAHAM
- -------------------------
Robert H. Graham
Chairman and President
July 20, 2004
*Average annual total returns, June 30, 1979, to June 30, 2004.
Source: Lipper, Inc.
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
<Table>
FUND MAINTAINED FOCUS ON increase in four years and a move much Small-cap stocks generally
REASONABLY PRICED GROWTH STOCKS anticipated by markets. The Fed's outperformed mid- and large-cap stocks.
decision came amid signs that the Small-cap value stocks were the
For the six months ended June 30, 2004, economy was strengthening and inflation, best-performing stock-market category.
AIM Small Cap Equity Fund, Class A while still relatively subdued, had Small-cap growth stocks also performed
shares, returned 5.82%, excluding sales risen in recent months. well, but not as well as small-cap value
charges. (Had the effects of sales stocks.
charges been included, the return would Gross domestic product, the broadest
have been lower.) For the performance of measure of economic activity, expanded YOUR FUND
other share classes, please see page 3. at an annualized rate of 4.5% in the
The fund outperformed the S&P 500 Index, first quarter of 2004 and 3.0% during Our focus continued to be on the
which returned 3.44%, but underperformed the second quarter. What had been a reasonably priced stocks of companies
the Lipper Small-Cap Core Fund Index and "jobless recovery" produced 1.2 million which we believe have attractive growth
the Russell 2000 Index, which returned new jobs from January through June, prospects. To reduce risk and enhance
7.76% and 6.76%, respectively, over the according to the U.S. Department of potential return, we also generally
same period. Labor. An improved job market likely avoided concentrating the fund's assets
contributed to rising consumer in one particular sector or industry.
Small-cap stocks outperformed confidence, which reached a two-year
large-cap stocks over the reporting high in June, according to the During the reporting period, we made
period, helping the fund outpace the Conference Board. relatively minor changes to the fund's
large-cap oriented S&P 500 Index. We sector weightings. We reduced the fund's
believe the fund underperformed the Corporate profits showed strength. exposure to financials because we
Lipper Small-Cap Core Fund Index because According to Bloomberg, more than 85% of believed this sector would be adversely
of the portfolio's weak-performing S&P 500 Index firms reporting affected by rising interest rates. While
information technology stocks. The first-quarter 2004 earnings met or the fund benefited from an
portfolio's financial holdings lagged exceeded expectations. underweighting in financials relative to
those of the Russell 2000 Index, the Russell 2000 Index, it was adversely
contributing to the fund's For the reporting period, the affected by stock selection in this
underperformance of that benchmark. strongest-performing stock sectors of sector. We shifted slightly more assets
the S&P 500 Index were energy, into information technology stocks as we
MARKET CONDITIONS industrials and consumer staples while believed they could potentially benefit
the weakest-performing sectors were from an improving economy. However, this
As the reporting period closed, the U.S. materials, information technology and sector also detracted from performance,
Federal Reserve (the Fed) voted to hike consumer discretionary. although it showed improvement for the
the federal funds target rate by final month of the reporting period.
0.25%--its first rate
The sectors that contributed most to
fund per-
</Table>
<Table>
====================================================================================================================================
TOP 10 EQUITY HOLDINGS* TOP 10 INDUSTRIES*
1. PTEK Holdings, Inc. 1.3% 1. Diversified Commercial Services 6.8%
2. CONSOL Energy Inc. 1.3 2. Real Estate 5.4
3. CSG Systems International, Inc. 1.2 3. Apparel Retail 3.5
4. Overnite Corp. 1.2 4. Trucking 3.4
5. Landstar System, Inc. 1.2 5. Data Processing & Outsourced Services 2.9
6. Jarden Corp. 1.2 6. Semiconductor Equipment 2.7
7. Wabash National Corp. 1.1 7. Computer Storage & Peripherals 2.7
8. Tsakos Energy Navigation Ltd. (Bermuda) 1.1 8. Health Care Facilities 2.6
9. Corrections Corp. of America 1.1 9. Specialty Stores 2.6
10. GrafTech International Ltd. 1.1 10. Health Care Supplies 2.5
*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>
formance were health care, consumer this stock at the end of the reporting MICHAEL CHAPMAN
discretionary and industrials. Please period. DDi's stock declined after one Mr. Chapman, Chartered
note that the fund's sector weightings of its competitors reported [CHAPMAN Financial Analyst,
are primarily a byproduct of our disappointing financial results and PHOTO] began his investment
stock-selection process, which is based reduced its earnings estimates. The fund career in 1995 as an
on an analysis of individual companies. continued to hold DDi because its analyst. He joined AIM
fundamentals remained sound; in fact, in 2001 and was promoted to his current
Stocks that contributed positively to the company reported a 17% increase in position as a portfolio manager of AIM
fund performance were Sierra Health sales for the first quarter of 2004 Small Cap Equity Fund. Mr. Chapman has a
Services, a diversified health care compared that same period for the B.S. in Petroleum Engineering and an
services company, and Consol Energy, one previous year. M.A. in Energy and Mineral Resources
of the largest coal mining companies in from The University of Texas.
the United States. Sierra Health IN CLOSING
displayed attractive earnings growth as PAUL J. RASPLICKA
its revenue grew faster than health care Throughout the reporting period, we Mr. Rasplicka, Chartered
costs. For example, the company reported remained committed to the fund's [RASPLICKA Financial Analyst, is
a 51% increase in earnings for the first investment objective of seeking growth PHOTO] lead portfolio manager
quarter of 2004 in comparison to the of capital by investing at least 80% of of AIM Small Cap Equity
same quarter for the previous year. its assets in the securities of Fund.
Consol Energy reported a 16.3% increase small-capitalization companies.
in revenue for the first quarter of this Mr. Rasplicka joined AIM in 1998.
year relative to the same period in Prior to joining AIM he was with INVESCO
2003. A German utility company, which See important fund and index Trust Company, the Denver-based
owned 80% of Consol's stock, sold its disclosures inside front cover. investment management subsidiary of
shares, increasing liquidity for U.S. AMVESCAP PLC, since 1994. He was
investors. responsible for portfolio management of
small-capitalization growth separate
Detracting from fund performance were accounts.
Quality Distribution, a trucking
company, and DDi, which produces Mr. Rasplicka began his investment
electronic systems for medical career in 1982. A native of Denver, Mr.
instruments, military equipment and Rasplicka is a magna cum laude graduate
computers. Shortly after its initial of the University of Colorado at Boulder
public offering, Quality Distribution with a B.S. in Business Administration.
announced that it had uncovered He received an M.B.A from the University
financial irregularities at one of its of Chicago. He is a Chartered Investment
subsidiaries, adversely affecting the Counselor.
company's stock price. The fund no
longer held Assisted by the Small/Mid-Cap Core Team
=====================================================================================
FUND VS. INDEXES
Total returns 12/31/03-6/30/04, excluding sales charges. Had sales charges been
included, returns would be lower.
CLASS A SHARES 5.82%
CLASS B SHARES 5.52
CLASS C SHARES 5.44
CLASS R SHARES 5.76
S&P 500 INDEX (BROAD MARKET INDEX) 3.44
RUSSELL 2000 INDEX
(STYLE-SPECIFIC INDEX) 6.76
LIPPER SMALL-CAP CORE FUND INDEX
(PEER GROUP INDEX) 7.76
SOURCE: LIPPER, INC.
TOTAL NUMBER OF HOLDINGS* 119
TOTAL NET ASSETS $516.1 million
===================================================================================== [RIGHT ARROW GRAPHIC]
FOR A PRESENTATION OF YOUR FUND'S
LONG-TERM PERFORMANCE RECORD, PLEASE
TURN THE PAGE.
</Table>
3
LONG-TERM PERFORMANCE
YOUR FUND'S LONG-TERM PERFORMANCE
================================================================================
Below you will find a presentation of your fund's long-term performance record
for periods ended 6/30/04, the close of the six-month period covered by this
report.
Please read the important disclosure accompanying these tables, which explains
how fund performance is calculated and the sales charges, if any, that apply to
the share class in which you are invested.
================================================================================
<Table>
====================================================================================================================================
AVERAGE ANNUAL TOTAL RETURNS comparable future results; current
As of 6/30/04, including applicable performance may be lower or higher.
sales charges Please visit AIMinvestments.com for the
most recent month-end performance.
CLASS A SHARES Performance figures reflect reinvested
Inception (8/31/00) 4.96% distributions, changes in net asset
1 Year 26.04 value and the effect of the maximum
sales charge unless otherwise stated.
CLASS B SHARES Investment return and principal value
Inception (8/31/00) 5.15% will fluctuate so that you may have a
1 Year 27.55 gain or loss when you sell shares.
CLASS C SHARES Class A share performance reflects
Inception (8/31/00) 5.80% the maximum 5.50% sales charge, and
1 Year 31.59 Class B and Class C share performance
reflects the applicable contingent
CLASS R SHARES deferred sales charge (CDSC) for the
Inception 6.34% period involved. The CDSC on Class B
1 Year 33.19 shares declines from 5% beginning at the
time of purchase to 0% at the beginning
Class R shares' inception date is of the seventh year. The CDSC on Class C
6/3/02. Returns since that date are shares is 1% for the first year after
historical returns. All other returns purchase. Class R shares do not have a
are blended returns of historical Class front-end sales charge; returns shown
R share performance and restated Class A are at net asset value and do not
share performance (for periods prior to reflect a 0.75% CDSC that may be imposed
the inception date of Class R shares) at on a total redemption of retirement plan
net asset value, adjusted to reflect the assets within the first year.
higher Rule 12b-1 fees applicable to
Class R shares. Class A shares' The performance of the fund's share
inception date is 8/31/00. classes will differ due to different
sales charge structures and class [ARROW
The performance data quoted represent expenses. BUTTON For More Information Visit
past performance and cannot guarantee IMAGE] AIMinvestments.com
====================================================================================================================================
</Table>
4
FINANCIALS
SCHEDULE OF INVESTMENTS
June 30, 2004
(Unaudited)
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
COMMON STOCKS & OTHER EQUITY INTERESTS-98.05%
ADVERTISING-2.14%
ADVO, Inc.(a) 164,000 $ 5,398,880
- ------------------------------------------------------------------------
R.H. Donnelley Corp.(b) 129,400 5,659,956
========================================================================
11,058,836
========================================================================
AIR FREIGHT & LOGISTICS-2.00%
UTI Worldwide, Inc. (United Kingdom) 102,500 5,400,725
- ------------------------------------------------------------------------
Pacer International, Inc.(b) 266,100 4,922,850
========================================================================
10,323,575
========================================================================
AIRLINES-0.91%
AirTran Holdings, Inc.(b) 333,600 4,717,104
========================================================================
ALTERNATIVE CARRIERS-1.34%
PTEK Holdings, Inc.(b) 600,000 6,918,000
========================================================================
APPAREL RETAIL-3.52%
Aeropostale, Inc.(b) 152,850 4,113,194
- ------------------------------------------------------------------------
Cache, Inc.(b) 347,250 4,691,348
- ------------------------------------------------------------------------
Charlotte Russe Holding Inc.(b) 205,400 4,391,452
- ------------------------------------------------------------------------
Stage Stores, Inc.(b) 131,700 4,959,822
========================================================================
18,155,816
========================================================================
ASSET MANAGEMENT & CUSTODY BANKS-0.94%
Affiliated Managers Group, Inc.(a)(b) 96,300 4,850,631
========================================================================
AUTO PARTS & EQUIPMENT-0.52%
LKQ Corp.(b) 144,800 2,683,144
========================================================================
BIOTECHNOLOGY-1.07%
Serologicals Corp.(a)(b) 277,100 5,539,229
========================================================================
BROADCASTING & CABLE TV-0.36%
Cumulus Media Inc.-Class A(a)(b) 110,200 1,852,462
========================================================================
BUILDING PRODUCTS-1.84%
ElkCorp. 169,400 4,055,436
- ------------------------------------------------------------------------
York International Corp. 132,000 5,421,240
========================================================================
9,476,676
========================================================================
CASINOS & GAMING-1.05%
Scientific Games Corp.-Class A(b) 282,600 5,408,964
========================================================================
COMMUNICATIONS EQUIPMENT-1.73%
Inter-Tel, Inc. 108,028 2,697,459
- ------------------------------------------------------------------------
</Table>
<Table>
- ------------------------------------------------------------------------
<Caption>
MARKET
SHARES VALUE
COMMUNICATIONS EQUIPMENT-(CONTINUED)
InterDigital Communications Corp.(a)(b) 209,300 3,936,933
- ------------------------------------------------------------------------
Powerwave Technologies, Inc.(a)(b) 300,000 $ 2,310,000
========================================================================
8,944,392
========================================================================
COMPUTER STORAGE & PERIPHERALS-2.67%
Dot Hill Systems Corp.(a)(b) 212,059 2,377,181
- ------------------------------------------------------------------------
Electronics for Imaging, Inc.(a)(b) 187,200 5,290,272
- ------------------------------------------------------------------------
Overland Storage, Inc.(b) 270,800 3,598,932
- ------------------------------------------------------------------------
Synaptics Inc.(b) 130,400 2,497,160
========================================================================
13,763,545
========================================================================
CONSTRUCTION & ENGINEERING-0.82%
Chicago Bridge & Iron Co. N.V.-New York
Shares (Netherlands) 151,700 4,224,845
========================================================================
CONSTRUCTION & FARM MACHINERY & HEAVY
TRUCKS-1.14%
Wabash National Corp.(a)(b) 213,600 5,884,680
========================================================================
CONSUMER FINANCE-1.77%
AmeriCredit Corp.(a)(b) 181,300 3,540,789
- ------------------------------------------------------------------------
First Cash Financial Services, Inc.(b) 123,700 2,632,336
- ------------------------------------------------------------------------
Rewards Network Inc.(a)(b) 326,600 2,939,400
========================================================================
9,112,525
========================================================================
DATA PROCESSING & OUTSOURCED SERVICES-2.94%
Alliance Data Systems Corp.(b) 133,300 5,631,925
- ------------------------------------------------------------------------
CSG Systems International, Inc.(b) 309,600 6,408,720
- ------------------------------------------------------------------------
Intrado Inc.(a)(b) 193,900 3,119,851
========================================================================
15,160,496
========================================================================
DIVERSIFIED COMMERCIAL SERVICES-6.78%
Corinthian Colleges, Inc.(b) 119,200 2,949,008
- ------------------------------------------------------------------------
Corrections Corp. of America(b) 147,300 5,816,877
- ------------------------------------------------------------------------
Integrated Alarm Services Group, Inc.(b) 200,000 1,080,000
- ------------------------------------------------------------------------
Intersections Inc.(b) 113,500 2,722,865
- ------------------------------------------------------------------------
Jackson Hewitt Tax Service Inc.(b) 285,000 4,987,500
- ------------------------------------------------------------------------
LECG Corp.(b) 149,500 2,587,845
- ------------------------------------------------------------------------
Navigant Consulting, Inc.(b) 260,000 5,574,400
- ------------------------------------------------------------------------
NCO Group, Inc.(b) 171,900 4,588,011
- ------------------------------------------------------------------------
United Rentals, Inc.(a)(b) 260,500 4,660,345
========================================================================
34,966,851
========================================================================
</Table>
F-1
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
DIVERSIFIED METALS & MINING-2.26%
Compass Minerals International, Inc. 263,400 $ 5,104,692
- ------------------------------------------------------------------------
CONSOL Energy Inc. (Acquired 09/17/03; Cost
$3,237,894)(c)(d) 181,700 6,541,200
========================================================================
11,645,892
========================================================================
ELECTRONIC EQUIPMENT MANUFACTURERS-1.94%
Aeroflex Inc.(b) 386,200 5,534,246
- ------------------------------------------------------------------------
Varian Inc.(b) 106,300 4,480,545
========================================================================
10,014,791
========================================================================
ELECTRONIC MANUFACTURING SERVICES-1.66%
Cherokee International Corp.(b) 167,900 1,915,739
- ------------------------------------------------------------------------
DDi Corp.(b) 340,800 2,804,784
- ------------------------------------------------------------------------
Xyratex Ltd. (Bermuda)(b) 300,000 3,840,000
========================================================================
8,560,523
========================================================================
ENVIRONMENTAL SERVICES-0.76%
Casella Waste Systems, Inc.-Class A(b) 300,000 3,945,000
========================================================================
GENERAL MERCHANDISE STORES-0.99%
Fred's, Inc. 230,800 5,098,372
========================================================================
HEALTH CARE EQUIPMENT-0.99%
VISX, Inc.(b) 192,000 5,130,240
========================================================================
HEALTH CARE FACILITIES-2.61%
Select Medical Corp. 234,200 3,142,964
- ------------------------------------------------------------------------
United Surgical Partners International,
Inc.(a)(b) 129,200 5,099,524
- ------------------------------------------------------------------------
VCA Antech, Inc.(b) 116,700 5,230,494
========================================================================
13,472,982
========================================================================
HEALTH CARE SERVICES-1.74%
Apria Healthcare Group Inc.(b) 174,500 5,008,150
- ------------------------------------------------------------------------
HealthExtras, Inc.(b) 238,400 3,950,288
========================================================================
8,958,438
========================================================================
HEALTH CARE SUPPLIES-2.51%
Align Technology, Inc.(b) 140,000 2,660,000
- ------------------------------------------------------------------------
DJ Orthopedics Inc.(b) 216,300 4,974,900
- ------------------------------------------------------------------------
PolyMedica Corp.(a) 171,100 5,310,944
========================================================================
12,945,844
========================================================================
HOME ENTERTAINMENT SOFTWARE-0.97%
PLATO Learning, Inc.(b) 506,400 5,018,424
========================================================================
HOME FURNISHINGS-0.83%
Tempur-Pedic International Inc.(b) 306,900 4,299,669
========================================================================
</Table>
<Table>
- ------------------------------------------------------------------------
<Caption>
MARKET
SHARES VALUE
HOTELS, RESORTS & CRUISE LINES-1.02%
Kerzner International Ltd. (Bahamas)(a)(b) 111,100 $ 5,283,916
========================================================================
HOUSEHOLD PRODUCTS-0.68%
Rayovac Corp.(a)(b) 125,600 3,529,360
========================================================================
HOUSEWARES & SPECIALTIES-2.12%
Jarden Corp.(b) 166,900 6,006,731
- ------------------------------------------------------------------------
Yankee Candle Co., Inc. (The)(b) 168,700 4,934,475
========================================================================
10,941,206
========================================================================
INDUSTRIAL GASES-0.78%
Airgas, Inc. 168,300 4,024,053
========================================================================
INDUSTRIAL MACHINERY-0.96%
Kennametal Inc. 108,300 4,960,140
========================================================================
INSURANCE BROKERS-1.41%
Hilb Rogal & Hobbs Co. 83,000 2,961,440
- ------------------------------------------------------------------------
U.S.I. Holdings Corp.(a)(b) 273,200 4,316,560
========================================================================
7,278,000
========================================================================
INTEGRATED OIL & GAS-0.19%
Atlas America, Inc.(b) 49,300 986,493
========================================================================
INTEGRATED TELECOMMUNICATION SERVICES-0.73%
Primus Telecommunications Group, Inc.(a)(b) 742,200 3,770,376
========================================================================
INTERNET SOFTWARE & SERVICES-1.03%
United Online, Inc.(a)(b) 300,900 5,298,849
========================================================================
INVESTMENT BANKING & BROKERAGE-1.43%
CMET Finance Holdings, Inc. (Acquired
12/08/03; Cost $4,480,000)(b)(c)(d)(e) 44,800 4,480,000
- ------------------------------------------------------------------------
Piper Jaffray Cos., Inc.(b) 64,200 2,903,766
========================================================================
7,383,766
========================================================================
LEISURE PRODUCTS-0.93%
Steinway Musical Instruments, Inc.(b) 137,400 4,821,366
========================================================================
LIFE & HEALTH INSURANCE-1.06%
American Medical Security Group, Inc.(b) 200,600 5,466,350
========================================================================
MANAGED HEALTH CARE-0.49%
Sierra Health Services, Inc.(a)(b) 57,000 2,547,900
========================================================================
MOVIES & ENTERTAINMENT-0.55%
Navarre Corp.(b) 196,200 2,823,318
========================================================================
MULTI-LINE INSURANCE-0.98%
Quanta Capital Holdings Ltd. (Bermuda)
(Acquired 08/27/03-11/21/03; Cost
$4,710,940)(b)(c)(d) 469,700 5,044,578
========================================================================
</Table>
F-2
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
MULTI-UTILITIES & UNREGULATED POWER-0.62%
Energen Corp. 66,400 $ 3,186,536
========================================================================
OFFICE SERVICES & SUPPLIES-0.62%
Danka Business Systems PLC-ADR (United
Kingdom)(a)(b) 711,400 3,215,528
========================================================================
OIL & GAS EQUIPMENT & SERVICES-1.19%
FMC Technologies, Inc.(b) 119,300 3,435,840
- ------------------------------------------------------------------------
Key Energy Services, Inc.(b) 287,600 2,714,944
========================================================================
6,150,784
========================================================================
OIL & GAS EXPLORATION & PRODUCTION-1.28%
Comstock Resources, Inc.(b) 140,000 2,724,400
- ------------------------------------------------------------------------
Southwestern Energy Co.(b) 135,400 3,881,918
========================================================================
6,606,318
========================================================================
OIL & GAS REFINING, MARKETING &
TRANSPORTATION-1.70%
Golar LNG Ltd. (Bermuda)(b) 191,600 2,958,710
- ------------------------------------------------------------------------
Tsakos Energy Navigation Ltd. (Bermuda) 171,400 5,820,744
========================================================================
8,779,454
========================================================================
PACKAGED FOODS & MEATS-0.89%
Flowers Foods, Inc. 174,900 4,573,635
========================================================================
PERSONAL PRODUCTS-1.08%
NBTY, Inc.(b) 189,600 5,572,344
========================================================================
PHARMACEUTICALS-1.02%
Axcan Pharma Inc. (Canada)(a)(b) 250,700 5,289,770
========================================================================
PROPERTY & CASUALTY INSURANCE-2.13%
Bristol West Holdings Inc. 231,400 4,209,166
- ------------------------------------------------------------------------
Direct General Corp. 120,200 3,877,652
- ------------------------------------------------------------------------
ProCentury Corp.(b) 297,600 2,895,648
========================================================================
10,982,466
========================================================================
PUBLISHING-0.88%
Journal Communications, Inc.-Class A 242,000 4,556,860
========================================================================
REAL ESTATE-5.37%
Ashford Hospitality Trust 149,900 1,251,665
- ------------------------------------------------------------------------
Capital Lease Funding, Inc.(a)(b) 485,700 5,051,280
- ------------------------------------------------------------------------
Fieldstone Investment Corp. (Acquired
11/10/03-11/11/03; Cost
$4,704,275)(c)(d)(e) 311,300 4,902,975
- ------------------------------------------------------------------------
Highland Hospitality Corp.(a) 245,000 2,462,250
- ------------------------------------------------------------------------
JER Investors Trust Inc. (Acquired 05/27/04;
Cost $4,359,000)(b)(c)(d)(e) 290,600 4,359,000
- ------------------------------------------------------------------------
</Table>
<Table>
- ------------------------------------------------------------------------
<Caption>
MARKET
SHARES VALUE
REAL ESTATE-(CONTINUED)
Medical Properties Trust, Inc. (Acquired
03/31/04-04/30/04; Cost
$4,669,325)(c)(d)(e) 465,000 $ 4,650,000
- ------------------------------------------------------------------------
New York Mortgage Trust, Inc.(b) 566,500 5,019,190
========================================================================
27,696,360
========================================================================
REAL ESTATE MANAGEMENT & DEVELOPMENT-0.83%
Jones Lang LaSalle Inc.(b) 157,250 4,261,475
========================================================================
SEMICONDUCTOR EQUIPMENT-2.73%
Axcelis Technologies, Inc.(b) 420,800 5,234,752
- ------------------------------------------------------------------------
Cabot Microelectronics Corp.(a)(b) 107,000 3,275,270
- ------------------------------------------------------------------------
FormFactor Inc.(b) 248,700 5,583,315
========================================================================
14,093,337
========================================================================
SPECIALIZED FINANCE-0.53%
eSPEED, Inc.-Class A(b) 156,100 2,755,165
========================================================================
SPECIALTY CHEMICALS-2.00%
Great Lakes Chemical Corp.(a) 190,400 5,152,224
- ------------------------------------------------------------------------
Minerals Technologies Inc. 89,250 5,176,500
========================================================================
10,328,724
========================================================================
SPECIALTY STORES-2.56%
Pep Boys (The)-Manny, Moe & Jack 198,200 5,024,370
- ------------------------------------------------------------------------
Select Comfort Corp.(b) 160,600 4,561,040
- ------------------------------------------------------------------------
West Marine, Inc.(a)(b) 134,400 3,608,640
========================================================================
13,194,050
========================================================================
STEEL-1.10%
GrafTech International Ltd.(b) 544,400 5,694,424
========================================================================
TECHNOLOGY DISTRIBUTORS-1.98%
Global Imaging Systems, Inc.(a)(b) 147,300 5,400,018
- ------------------------------------------------------------------------
ScanSource, Inc.(b) 80,700 4,795,194
========================================================================
10,195,212
========================================================================
THRIFTS & MORTGAGE FINANCE-1.02%
Franklin Bank Corp.(b)(c) 135,000 2,135,700
- ------------------------------------------------------------------------
Saxon Capital, Inc.(b) 138,200 3,155,106
========================================================================
5,290,806
========================================================================
TRUCKING-3.36%
Dollar Thrifty Automotive Group, Inc.(b) 187,500 5,145,000
- ------------------------------------------------------------------------
Landstar System, Inc.(a)(b) 115,300 6,095,911
- ------------------------------------------------------------------------
Overnite Corp. 207,400 6,097,560
========================================================================
17,338,471
========================================================================
Total Common Stocks & Other Equity
Interests (Cost $405,346,324) 506,053,336
========================================================================
</Table>
F-3
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
MONEY MARKET FUNDS-2.05%
Liquid Assets Portfolio-Institutional
Class(f) 5,283,914 $ 5,283,914
- ------------------------------------------------------------------------
STIC Prime Portfolio-Institutional Class(f) 5,283,914 5,283,914
========================================================================
Total Money Market Funds (Cost
$10,567,828) 10,567,828
========================================================================
TOTAL INVESTMENTS-100.10% (excluding
investments purchased with cash collateral
from securities loaned) (Cost $415,914,152) 516,621,164
========================================================================
</Table>
<Table>
- ------------------------------------------------------------------------
<Caption>
MARKET
SHARES VALUE
INVESTMENTS PURCHASED WITH CASH COLLATERAL
FROM SECURITIES LOANED
MONEY MARKET FUNDS-12.71%
Liquid Assets Portfolio-Institutional
Class(f)(g) 32,787,668 $ 32,787,668
- ------------------------------------------------------------------------
STIC Prime Portfolio-Institutional
Class(f)(g) 32,787,667 32,787,667
========================================================================
Total Money Market Funds (purchased with
cash collateral from securities loaned)
(Cost $65,575,335) 65,575,335
========================================================================
TOTAL INVESTMENTS-112.81% (Cost $481,489,487) 582,196,499
========================================================================
OTHER ASSETS LESS LIABILITIES-(12.81%) (66,105,353)
========================================================================
NET ASSETS-100.00% $516,091,146
________________________________________________________________________
========================================================================
</Table>
Investment Abbreviations:
<Table>
ADR - American Depositary Receipt
</Table>
Notes to Schedule of Investments:
(a) All or a portion of this security has been pledged as collateral for
security lending transactions at June 30, 2004.
(b) Non-income producing security.
(c) Security fair valued in accordance with the procedures established by the
Board of Trustees. The aggregate market value of these securities at June
30, 2004 was $32,113,453, which represented 5.52% of the Fund's total
investments. See Note 1A.
(d) 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 June 30, 2004 was
$29,977,753, which represented 5.81% of the Fund's net assets. Unless
otherwise indicated, these securities are not considered to be illiquid.
(e) Security considered to be illiquid. The aggregate market value of these
securities considered illiquid at June 30, 2004 was $18,391,975, which
represented 3.56% of the Fund's net assets.
(f) The money market fund and the Fund are affiliated by having the same
investment advisor. See Note 3.
(g) 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 7.
See accompanying notes which are an integral part of the financial statements.
F-4
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2004
(Unaudited)
<Table>
ASSETS:
Investments, at market value (cost
$405,346,324)* $506,053,336
- -----------------------------------------------------------
Investments in affiliated money market funds
(cost $76,143,163) 76,143,163
===========================================================
Total investments (cost $481,489,487) 582,196,499
===========================================================
Cash 1,019,453
- -----------------------------------------------------------
Receivables for:
Investments sold 4,901,998
- -----------------------------------------------------------
Fund shares sold 291,079
- -----------------------------------------------------------
Dividends 103,256
- -----------------------------------------------------------
Investment for deferred compensation and
retirement plans 25,859
- -----------------------------------------------------------
Other assets 87,737
===========================================================
Total assets 588,625,881
___________________________________________________________
===========================================================
LIABILITIES:
Payables for:
Investments purchased 5,257,967
- -----------------------------------------------------------
Fund shares reacquired 1,192,502
- -----------------------------------------------------------
Deferred compensation and retirement plans 31,741
- -----------------------------------------------------------
Collateral upon return of securities loaned 65,575,335
- -----------------------------------------------------------
Accrued distribution fees 258,226
- -----------------------------------------------------------
Accrued transfer agent fees 152,444
- -----------------------------------------------------------
Accrued operating expenses 66,520
===========================================================
Total liabilities 72,534,735
===========================================================
Net assets applicable to shares outstanding $516,091,146
___________________________________________________________
===========================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $402,597,121
- -----------------------------------------------------------
Undistributed net investment income (loss) (2,904,586)
- -----------------------------------------------------------
Undistributed net realized gain from
investment securities 15,691,599
- -----------------------------------------------------------
Unrealized appreciation of investment
securities 100,707,012
===========================================================
$516,091,146
___________________________________________________________
===========================================================
NET ASSETS:
Class A $267,531,700
___________________________________________________________
===========================================================
Class B $169,005,358
___________________________________________________________
===========================================================
Class C $ 72,126,224
___________________________________________________________
===========================================================
Class R $ 7,427,864
___________________________________________________________
===========================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER
SHARE, UNLIMITED NUMBER OF SHARES
AUTHORIZED:
Class A 21,007,913
___________________________________________________________
===========================================================
Class B 13,608,329
___________________________________________________________
===========================================================
Class C 5,810,244
___________________________________________________________
===========================================================
Class R 585,840
___________________________________________________________
===========================================================
Class A:
Net asset value per share $ 12.73
- -----------------------------------------------------------
Offering price per share:
(Net asset value of $12.73 divided by
94.50%) $ 13.47
___________________________________________________________
===========================================================
Class B:
Net asset value and offering price per
share $ 12.42
___________________________________________________________
===========================================================
Class C:
Net asset value and offering price per
share $ 12.41
___________________________________________________________
===========================================================
Class R:
Net asset value and offering price per
share $ 12.68
___________________________________________________________
===========================================================
</Table>
* At June 30, 2004, securities with an aggregate market value of $64,346,224
were on loan to brokers.
See accompanying notes which are an integral part of the financial statements.
F-5
STATEMENT OF OPERATIONS
For the six months ended June 30, 2004
(Unaudited)
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $3,034) $ 1,761,200
- --------------------------------------------------------------------------
Dividends from affiliated money market funds* 132,109
- --------------------------------------------------------------------------
Interest 104,185
==========================================================================
Total investment income 1,997,494
==========================================================================
EXPENSES:
Advisory fees 2,241,192
- --------------------------------------------------------------------------
Administrative services fees 75,562
- --------------------------------------------------------------------------
Custodian fees 29,588
- --------------------------------------------------------------------------
Distribution fees:
Class A 475,966
- --------------------------------------------------------------------------
Class B 880,997
- --------------------------------------------------------------------------
Class C 370,842
- --------------------------------------------------------------------------
Class R 12,477
- --------------------------------------------------------------------------
Transfer agent fees 766,458
- --------------------------------------------------------------------------
Trustees' fees 10,573
- --------------------------------------------------------------------------
Other 186,730
==========================================================================
Total expenses 5,050,385
==========================================================================
Less: Fees waived, expenses reimbursed and expense offset
arrangements (176,703)
==========================================================================
Net expenses 4,873,682
==========================================================================
Net investment income (loss) (2,876,188)
==========================================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES:
Net realized gain from investment securities 53,206,877
- --------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities (21,848,636)
==========================================================================
Net gain from investment securities 31,358,241
==========================================================================
Net increase in net assets resulting from operations $ 28,482,053
__________________________________________________________________________
==========================================================================
</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 six months ended June 30, 2004 and the year ended December 31, 2003
(Unaudited)
<Table>
<Caption>
JUNE 30, DECEMBER 31,
2004 2003
- ------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (2,876,188) $ (4,347,265)
- ------------------------------------------------------------------------------------------
Net realized gain from investment securities and foreign
currencies 53,206,877 23,914,515
- ------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities (21,848,636) 123,707,904
==========================================================================================
Net increase in net assets resulting from operations 28,482,053 143,275,154
==========================================================================================
Share transactions-net:
Class A (13,764,375) 52,426,841
- ------------------------------------------------------------------------------------------
Class B (18,123,317) 29,417,204
- ------------------------------------------------------------------------------------------
Class C (7,571,310) 13,847,595
- ------------------------------------------------------------------------------------------
Class R 4,707,643 2,003,122
==========================================================================================
Net increase (decrease) in net assets resulting from
share transactions (34,751,359) 97,694,762
==========================================================================================
Net increase (decrease) in net assets (6,269,306) 240,969,916
==========================================================================================
NET ASSETS:
Beginning of period 522,360,452 281,390,536
==========================================================================================
End of period (including undistributed net investment
income (loss) of $(2,904,586) and $(28,398) for 2004 and
2003, respectively) $516,091,146 $522,360,452
__________________________________________________________________________________________
==========================================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
F-7
NOTES TO FINANCIAL STATEMENTS
June 30, 2004
(Unaudited)
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 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.
Under the Trust's organizational documents, the Fund's officers, trustees,
employees and agents are indemnified against certain liabilities that may arise
out of performance of their duties to the Fund. Additionally, in the normal
course of business, the Fund enters into contracts that contain a variety of
indemnification clauses. The Fund's maximum exposure under these arrangements is
unknown as this would involve future claims that may be made against the Fund
that have not yet occurred. However, the Fund has not had prior claims or losses
pursuant to these contracts.
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 specific 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"). Futures
contracts are valued at the final settlement price set by an exchange on
which they are principally traded. Listed options are valued at the mean
between the last bid and the ask prices from the exchange on which they are
principally traded. Options not listed on an exchange are valued by an
independent source at the mean between the last bid and ask prices.
Investments in open-end registered investment companies and closed-end
registered investment companies that do not trade on an exchange are valued
at the end of day net asset value per share. Investments in closed-end
registered investment companies that trade on an exchange are valued at the
last sales price as of the close of the customary trading session on the
exchange where the security is principally traded.
Foreign securities (including foreign exchange contracts) are converted
into U.S. dollar amounts using the applicable exchange rates as of the
close of the NYSE. Generally, trading in foreign securities is
substantially completed each day at various times prior to the close of the
NYSE. The values of such securities used in computing the net asset value
of the Fund's shares are determined as of the close of the respective
markets. Events affecting the values of such foreign securities may occur
between the times at which the particular foreign market closes and the
close of the customary trading session of the NYSE which would not
ordinarily be reflected in the computation of the Fund's net asset value.
If 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.
F-8
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions
are accounted for on a trade date basis. Realized gains or losses on sales
are computed on the basis of specific identification of the securities
sold. Interest income is recorded on the accrual basis from settlement
date. Dividend income is recorded on the ex-dividend date.
Brokerage commissions and mark ups are considered transaction costs and
are recorded as an increase to the cost basis of securities purchased
and/or a reduction of proceeds on a sale of securities. Such transaction
costs are included in the determination of realized and unrealized gain
(loss) from investment securities reported in the Statement of Operations
and the Statement of Changes in Net Assets and the realized and unrealized
net gains (losses) on securities per share in the Financial Highlights.
Transaction costs are included in the calculation of the Fund's net asset
value and, accordingly, they reduce the Fund's total returns. These
transaction costs are not considered operating expenses and are not
reflected in net investment income reported in the Statement of Operations
and Statement of Changes in Net Assets, or the net investment income per
share and ratios of expenses and net investment income reported in the
Financial Highlights, nor are they limited by any expense limitation
arrangements between the Fund and the advisor.
The Fund 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 distributed to shareholders. Therefore, no provision for
federal income taxes is recorded in the financial statements.
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.
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.
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 six months
ended June 30, 2004, AIM waived fees of $1,984.
For the period ended June 30, 2004, at the direction of the trustees of the
Trust, AMVESCAP PLC ("AMVESCAP") has assumed $34,339 of expenses incurred by the
Fund in connection with matters related to both pending regulatory complaints
against INVESCO Funds Group, Inc. ("IFG") alleging market timing and the ongoing
market timing investigations with respect to IFG and AIM, including legal,
audit, shareholder servicing, communication and trustee expenses.
The Fund, pursuant to a master administrative services agreement with AIM,
has agreed to pay AIM for certain administrative costs incurred in providing
accounting services to the Fund. For the six months ended June 30, 2004, AIM was
paid $75,562 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 six months ended June 30, 2004, AISI retained $525,759 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
F-9
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 six months ended June 30, 2004, the Class A, Class B, Class C and
Class R shares paid $339,976, $880,997, $370,842 and $12,477, respectively,
after AIM Distributors waived Class A plan fees of $135,990.
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 six
months ended June 30, 2004, AIM Distributors advised the Fund that it retained
$42,981 in front-end sales commissions from the sale of Class A shares and $534,
$4,474, $3,463 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"), to invest daily available cash balances and cash
collateral from securities lending transactions in affiliated money market
funds. The Fund and the money market funds below have the same investment
advisor and therefore, are considered to be affiliated. 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 tables
below show the transactions in and earnings from investments in affiliated money
market funds for the period ended June 30, 2004.
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 12/31/03 AT COST FROM SALES (DEPRECIATION) 06/30/04 INCOME GAIN (LOSS)
- -------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $10,035,910 $ 70,816,697 $ (75,568,693) $ -- $ 5,283,914 $ 36,453 $ --
- -------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-
Institutional
Class 10,035,910 70,816,697 (75,568,693) -- 5,283,914 34,750 --
===============================================================================================================================
Subtotal $20,071,820 $141,633,394 $(151,137,386) $ -- $10,567,828 $ 71,203 $ --
===============================================================================================================================
</Table>
INVESTMENTS OF CASH COLLATERAL FROM SECURITIES LENDING TRANSACTIONS:
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 12/31/03 AT COST FROM SALES (DEPRECIATION) 06/30/04 INCOME* GAIN (LOSS)
- -------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $34,938,267 $ 45,187,529 $ (47,338,128) $ -- $32,787,668 $ 31,181 $ --
- -------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-
Institutional
Class 34,938,266 45,187,529 (47,338,128) -- 32,787,667 29,725 --
===============================================================================================================================
Subtotal $69,876,533 $ 90,375,058 $ (94,676,256) $ -- $65,575,335 $ 60,906 $ --
===============================================================================================================================
Total $89,948,353 $232,008,452 $(245,813,642) $ -- $76,143,163 $132,109 $ --
_______________________________________________________________________________________________________________________________
===============================================================================================================================
</Table>
* Dividend income is net of fees paid to security lending counterparties of
$269,791.
NOTE 4--EXPENSE OFFSET ARRANGEMENTS
The expense offset arrangements are comprised of (i) transfer agency credits
which result from balances in Demand Deposit Accounts (DDA) used by the transfer
agent for clearing shareholder transactions and (ii) custodian credits which
result from periodic overnight cash balance at the custodian. For the six months
ended June 30, 2004, the Fund received credits in transfer agency fees of $3,021
and credits in custodian fees of $1,369 under expense offset arrangements, which
resulted in a reduction of the Fund's total expense of $4,390.
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. Those Trustees who defer compensation have
the option to select various AIM Funds and INVESCO Funds in which their deferral
accounts shall be deemed to be invested.
F-10
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.
Obligations under the deferred compensation and retirement plans represent
unsecured claims against the general assets of the Fund.
During the six months ended June 30, 2004, the Fund paid legal fees of
$1,582 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
Pursuant to an exemptive order from the SEC, 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 is 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 six months ended June 30, 2004, the Fund did not borrow or lend
under the interfund lending facility or borrow under the uncommitted unsecured
revolving credit facility.
Additionally, the Fund is permitted to temporarily carry a negative or
overdrawn balance in its account with SSB, 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 having a market value up to 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 June 30, 2004, securities with an aggregate value of $64,346,224 were on
loan to brokers. The loans were secured by cash collateral of $65,575,335
received by the Fund and subsequently invested in affiliated money market funds.
For the six months ended June 30, 2004, the Fund received dividends on cash
collateral net of fees paid to counterparties $60,906 for securities lending
transactions.
NOTE 8--TAX INFORMATION
The amount and character of income and gains to be distributed are determined in
accordance with income tax regulations, which may differ from generally accepted
accounting principles. Reclassifications are made to the Fund's capital accounts
to reflect income and gains available for distribution (or available capital
loss carryforward) under income tax regulations. The tax character of
distributions paid during the year and the tax components of net assets will be
reported at the Fund's fiscal year-end.
Capital loss carryforward is calculated and reported as of a specific date.
Results of transactions and other activity after that date may affect the amount
of capital loss carryforward actually available for the Fund to utilize. The
ability to use capital loss carryforward may be limited under the Internal
Revenue Code and related regulations.
The Fund has a capital loss carryforward for tax purposes as of December 31,
2003 which expires as follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD*
- -----------------------------------------------------------------------------
December 31, 2010 $36,493,693
_____________________________________________________________________________
=============================================================================
</Table>
* Capital loss carryforward as of the date listed above is reduced for
limitations, if any, to the extent required by the Internal Revenue Code.
F-11
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 six months
ended June 30, 2004 was $284,609,169 and $313,299,686, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF
INVESTMENT SECURITIES ON A TAX BASIS
- --------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $113,737,307
- --------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (14,019,899)
==========================================================================
Net unrealized appreciation of investment securities $ 99,717,408
__________________________________________________________________________
==========================================================================
Cost of investments for tax purposes is $482,479,091.
</Table>
NOTE 10--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
- ----------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
2004 2003
-------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------------------------------------------------------------
Sold:
Class A 2,314,747 $ 28,881,969 11,095,421 $109,381,334
- ----------------------------------------------------------------------------------------------------------------------
Class B 643,583 7,882,514 5,802,424 56,480,592
- ----------------------------------------------------------------------------------------------------------------------
Class C 512,912 6,294,671 2,724,692 26,562,929
- ----------------------------------------------------------------------------------------------------------------------
Class R 429,838 5,369,622 231,356 2,309,531
======================================================================================================================
Automatic conversion of Class B shares to Class A shares:
Class A 337,081 4,260,130 474,336 4,772,838
- ----------------------------------------------------------------------------------------------------------------------
Class B (345,056) (4,260,130) (483,310) (4,772,838)
======================================================================================================================
Reacquired:
Class A (3,784,213) (46,906,474) (6,516,746) (61,727,331)
- ----------------------------------------------------------------------------------------------------------------------
Class B (1,793,399) (21,745,701) (2,491,251) (22,290,550)
- ----------------------------------------------------------------------------------------------------------------------
Class C (1,141,032) (13,865,981) (1,358,495) (12,715,334)
- ----------------------------------------------------------------------------------------------------------------------
Class R (52,686) (661,979) (29,381) (306,409)
======================================================================================================================
(2,878,225) $(34,751,359) 9,449,046 $ 97,694,762
______________________________________________________________________________________________________________________
======================================================================================================================
</Table>
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
SIX MONTHS OPERATIONS
ENDED YEAR ENDED DECEMBER 31, COMMENCED) TO
JUNE 30, ------------------------------------------ DECEMBER 31,
2004 2003 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 12.03 $ 8.23 $ 10.19 $ 9.36 $ 10.00
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.05)(a) (0.09)(a) (0.05)(a) (0.05)(a) (0.00)(a)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities
(both realized and unrealized) 0.75 3.89 (1.91) 0.88 (0.64)
=================================================================================================================================
Total from investment operations 0.70 3.80 (1.96) 0.83 (0.64)
=================================================================================================================================
Less dividends from net investment
income -- -- -- (0.00) --
=================================================================================================================================
Net asset value, end of period $ 12.73 $ 12.03 $ 8.23 $ 10.19 $ 9.36
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) 5.82% 46.17% (19.23)% 8.92% (6.40)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s
omitted) $267,532 $266,284 $140,652 $105,146 $32,805
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets 1.49%(c)(d) 1.77% 1.67% 1.78% 1.78%(d)(e)
=================================================================================================================================
Ratio of net investment income (loss)
to average net assets (0.73)(c) (0.89)% (0.54)% (0.57)% (0.12)%(e)
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(f) 56% 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 and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. 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
$273,475,197.
(d) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 1.60% (annualized) and 2.72% (annualized) for the periods ended June
30, 2004 and December 31, 2000, respectively.
(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
SIX MONTHS OPERATIONS
ENDED YEAR ENDED DECEMBER 31, COMMENCED) TO
JUNE 30, ---------------------------------------- DECEMBER 31,
2004 2003 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 11.77 $ 8.11 $ 10.11 $ 9.33 $ 10.00
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.09)(a) (0.15)(a) (0.11)(a) (0.11)(a) (0.03)(a)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) 0.74 3.81 (1.89) 0.89 (0.64)
=================================================================================================================================
Total from investment operations 0.65 3.66 (2.00) 0.78 (0.67)
=================================================================================================================================
Net asset value, end of period $ 12.42 $ 11.77 $ 8.11 $ 10.11 $ 9.33
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) 5.52% 45.13% (19.78)% 8.36% (6.70)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $169,005 $177,811 $99,551 $64,012 $16,385
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets 2.24%(c)(d) 2.42% 2.32% 2.44% 2.49%(d)(e)
=================================================================================================================================
Ratio of net investment income (loss) to
average net assets (1.48)(c) (1.54)% (1.19)% (1.23)% (0.83)%(e)
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(f) 56% 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 and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. 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
$177,167,453.
(d) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 2.25% (annualized) and 3.43% (annualized) for the periods ended June
30, 2004 and December 31, 2000, respectively.
(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
SIX MONTHS OPERATIONS
ENDED YEAR ENDED DECEMBER 31, COMMENCED) TO
JUNE 30, --------------------------------------- DECEMBER 31,
2004 2003 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 11.77 $ 8.11 $ 10.10 $ 9.34 $10.00
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.09)(a) (0.15)(a) (0.11)(a) (0.11)(a) (0.03)(a)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) 0.73 3.81 (1.88) 0.87 (0.63)
=================================================================================================================================
Total from investment operations 0.64 3.66 (1.99) 0.76 (0.66)
=================================================================================================================================
Net asset value, end of period $ 12.41 $ 11.77 $ 8.11 $ 10.10 $ 9.34
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) 5.44% 45.13% (19.70)% 8.14% (6.60)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $72,126 $75,763 $41,132 $29,548 $9,028
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets 2.24%(c)(d) 2.42% 2.32% 2.44% 2.49%(d)(e)
=================================================================================================================================
Ratio of net investment income (loss) to
average net assets (1.48)(c) (1.54)% (1.19)% (1.23)% (0.83)%(e)
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(f) 56% 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 and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. 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
$74,575,998.
(d) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 2.25% (annualized) and 3.43% (annualized) for the periods ended June
30, 2004 and December 31, 2000, respectively.
(e) Annualized.
(f) Not annualized for periods less than one year.
<Table>
<Caption>
CLASS R
--------------------------------------------------------
JUNE 3, 2002
SIX MONTHS (DATE SALES
ENDED YEAR ENDED COMMENCED) TO
JUNE 30, DECEMBER 31, DECEMBER 31,
2004 2003 2002
- ----------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $11.99 $ 8.22 $ 10.58
- ----------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.06)(a) (0.11)(a) (0.04)(a)
- ----------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.75 3.88 (2.32)
======================================================================================================================
Total from investment operations 0.69 3.77 (2.36)
======================================================================================================================
Net asset value, end of period $12.68 $11.99 $ 8.22
______________________________________________________________________________________________________________________
======================================================================================================================
Total return(b) 5.76% 45.86% (22.31)%
______________________________________________________________________________________________________________________
======================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $7,428 $2,502 $ 55
______________________________________________________________________________________________________________________
======================================================================================================================
Ratio of expenses to average net assets 1.74%(c)(d) 1.92% 1.92%(e)
======================================================================================================================
Ratio of net investment income (loss) to average net assets (0.98)(c) (1.04)% (0.78)%(e)
______________________________________________________________________________________________________________________
======================================================================================================================
Portfolio turnover rate(f) 56% 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 as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Not annualized for periods less than one year.
(c) Ratios are annualized and based on average daily net assets of
$5,018,173.
(d) After fee waivers and expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and expense reimbursements was
1.75% (annualized).
(e) Annualized.
(f) Not annualized for periods less than one year.
F-15
NOTE 12--LEGAL PROCEEDINGS
The mutual fund industry as a whole is currently subject to regulatory inquiries
and litigation related to a wide range of issues. These issues include, among
others, market timing activity, late trading, fair value pricing, excessive or
improper advisory and/or distribution fees, mutual fund sales practices,
including revenue sharing and directed-brokerage arrangements, investments in
securities of other registered investment companies and issues related to
Section 529 college savings plans.
As described more fully below, INVESCO Funds Group, Inc. ("IFG"), the former
investment advisor to the INVESCO Funds, is the subject of three regulatory
actions concerning market timing activity in the INVESCO Funds. In addition, IFG
and A I M Advisors, Inc. ("AIM"), the Fund's investment advisor, are the subject
of a number of regulatory inquiries and civil lawsuits, as described more fully
below. Both IFG and AIM are indirect wholly owned subsidiaries of AMVESCAP PLC
("AMVESCAP"). Additional regulatory actions and/or civil lawsuits related to the
above or other issues may be filed against IFG, AIM and/or related entities and
individuals in the future. Additional regulatory inquiries related to the above
or other issues also may be received by IFG, AIM and/or related entities and
individuals in the future.
As a result of the regulatory actions and inquiries and civil lawsuits
discussed below, 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.
Regulatory Actions Pending Against 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 former capacity as the
chief executive officer of IFG. Mr. Cunningham also formerly held the positions
of Chief Operating Officer and Senior Vice President of A I M Management Group
Inc. ("AIM Management"), 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. There
can be no assurance that the SEC, NYAG or State of Colorado will not file
additional charges against IFG or Mr. Cunningham or civil proceedings against
other current or former officers or employees of IFG.
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.
Response of AMVESCAP
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 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. AMVESCAP has retained outside counsel to represent its subsidiaries in
connection with the market timing regulatory inquiries and certain other
matters. As part of this representation, this outside counsel has been
conducting a review of IFG's and AIM's conduct with respect to market timing and
related matters. In addition, AMVESCAP has retained separate 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.
At the direction of the trustees of the AIM and INVESCO Funds, AMVESCAP has
agreed to pay all of the expenses incurred by the AIM and INVESCO Funds related
to the market timing investigations, including expenses incurred in connection
with the pending regulatory complaints against IFG alleging market timing and
the ongoing market timing investigations with respect to IFG and AIM.
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, including
but not limited to A I M Capital Management, Inc. ("AIM Capital"), AIM Funds
Management Inc., INVESCO Institutional (N.A.), Inc. ("IINA"), INVESCO Global
Asset Management (N.A.), Inc. and INVESCO Senior Secured Management, Inc., from
serving as an investment advisor to any investment company registered under the
Investment Company Act of 1940, including the Fund. The Fund has been informed
by AIM that, if AIM is so barred, 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.
Regulatory Inquiries Concerning IFG
IFG, certain related entities, certain of their current and former officers
and/or certain of the INVESCO Funds have received regulatory inquiries in the
form of subpoenas or other oral or written requests for information and/or
documents related to one or more of the following issues, some of which concern
one or more INVESCO Funds: market timing activity, late trading, fair value
pricing, excessive or improper advisory and/or distribution fees,
F-16
NOTE 12--LEGAL PROCEEDINGS (CONTINUED)
mutual fund sales practices, including revenue sharing and directed-brokerage
arrangements, and investments in securities of other registered investment
companies. These regulators include the Securities and Exchange Commission
("SEC"), the NASD, Inc. ("NASD"), the Florida Department of Financial Services,
the Commissioner of Securities for the State of Georgia, the Attorney General of
the State of West Virginia, the West Virginia Securities Commission, the
Colorado Securities Division and the Bureau of Securities of the State of New
Jersey. IFG and certain of these other parties also have received more limited
inquiries from the United States Department of Labor ("DOL") and the United
States Attorney's Office for the Southern District of New York, some of which
concern one or more INVESCO Funds. IFG is providing full cooperation with
respect to these inquiries.
Regulatory Inquiries Concerning AIM
AIM, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds have received regulatory inquiries in the form
of subpoenas or other oral or written requests for information and/or documents
related to one or more of the following issues, some of which concern one or
more AIM Funds: market timing activity, late trading, fair value pricing,
excessive or improper advisory and/or distribution fees, mutual fund sales
practices, including revenue sharing and directed-brokerage arrangements,
investments in securities of other registered investment companies and issues
related to Section 529 college savings plans. These regulators include the SEC,
the NASD, the Department of Banking for the State of Connecticut, the NYAG, the
Commissioner of Securities for the State of Georgia, the Attorney General of the
State of West Virginia, the West Virginia Securities Commission and the Bureau
of Securities of the State of New Jersey. AIM and certain of these other parties
also have received more limited inquiries from the DOL, the Internal Revenue
Service, the United States Attorney's Office for the Southern District of New
York, the United States Attorney's Office for the Central District of
California, the United States Attorney's Office for the District of
Massachusetts, the Massachusetts Securities Division and the U.S. Postal
Inspection Service, some of which concern one or more AIM Funds. AIM is
providing full cooperation with respect to these inquiries.
Private Civil Actions Alleging Market Timing
Multiple civil 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, AIM
Management, AMVESCAP, certain related entities and/or certain of their current
and former officers) making allegations substantially similar to the allegations
in the three regulatory actions concerning market timing activity in the INVESCO
Funds that have been filed by the SEC, the NYAG and the State of Colorado
against these parties. These 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/or
(iv) breach of contract. These lawsuits were initiated 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; declaration that the advisory
agreement is unenforceable or void; refund of advisory fees; interest; and
attorneys' and experts' fees.
The Judicial Panel on Multidistrict Litigation (the "Panel") has ruled that
all actions pending in Federal court that allege market timing and/or late
trading be transferred to the United States District Court for the District of
Maryland for coordinated pre-trial proceedings. All such cases against IFG and
the other AMVESCAP defendants filed to date have been conditionally or finally
transferred to the District of Maryland in accordance with the Panel's
directive. In addition, the proceedings initiated in state court have been
removed by IFG to Federal court and transferred to the District of Maryland. The
plaintiff in one such action continues to seek remand to state court.
Private Civil Actions Alleging Improper Use of Fair Value Pricing
Multiple civil class action lawsuits have been filed against various parties
(including, depending on the lawsuit, certain INVESCO Funds, certain AIM Funds,
IFG and/or AIM) alleging that certain AIM and INVESCO Funds inadequately
employed fair value pricing. These lawsuits allege a variety of theories of
recovery, including but not limited to: (i) violations of various provisions of
the Federal securities laws; (ii) common law breach of duty; and (iii) common
law negligence and gross negligence. These lawsuits have been filed in both
Federal and state courts and seek such remedies as compensatory and punitive
damages; interest; and attorneys' fees and costs.
Private Civil Actions Alleging Excessive Advisory and Distribution Fees
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, IFG, AIM, IINA, A I M Distributors, Inc. ("AIM Distributors")
and/or INVESCO Distributors, Inc. ("INVESCO Distributors")) alleging that the
defendants charged excessive advisory and distribution fees and failed to pass
on to shareholders the perceived savings generated by economies of scale.
Certain of these lawsuits also allege that the defendants adopted unlawful
distribution plans. These lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the Federal
securities laws; (ii) breach of fiduciary duty; and/or (iii) breach of contract.
These lawsuits have been filed in both Federal and state courts and seek such
remedies as damages; injunctive relief; rescission of certain Funds' advisory
agreements and distribution plans; interest; prospective relief in the form of
reduced fees; and attorneys' and experts' fees.
Private Civil Actions Alleging Improper Distribution Fees Charged to Closed
Funds
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, IFG, AIM, AIM Distributors and/or certain of the trustees of the
AIM and INVESCO Funds) alleging that the defendants breached their fiduciary
duties by charging distribution fees while funds and/or specific share classes
were closed generally to new investors and/or while other share classes of the
same fund were not charged the same distribution fees. These lawsuits allege a
variety of theories of recovery, including but not limited to: (i) violation of
various provisions of the Federal securities laws; and (ii) breach of fiduciary
duty. These lawsuits have been filed in both Federal and state courts and seek
such remedies as damages; injunctive relief; and attorneys' and experts' fees.
F-17
NOTE 12--LEGAL PROCEEDINGS (CONTINUED)
Private Civil Actions Alleging Improper Mutual Fund Sales Practices and
Directed-Brokerage Arrangements
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, AIM Management, IFG, AIM, AIM Investment Services, Inc. ("AIS")
and/or certain of the trustees of the AIM and INVESCO Funds) alleging that the
defendants improperly used the assets of the AIM and INVESCO Funds to pay
brokers to aggressively push the AIM and INVESCO Funds over other mutual funds
and that the defendants concealed such payments from investors by disguising
them as brokerage commissions. These lawsuits allege a variety of theories of
recovery, including but not limited to: (i) violation of various provisions of
the Federal securities laws; (ii) breach of fiduciary duty; and (iii) aiding and
abetting a breach of fiduciary duty. These lawsuits have been filed in Federal
courts and seek such remedies as compensatory and punitive damages; rescission
of certain Funds' advisory agreements and distribution plans and recovery of all
fees paid; an accounting of all fund-related fees, commissions and soft dollar
payments; restitution of all unlawfully or discriminatorily obtained fees and
charges; and attorneys' and experts' fees.
At the present time, management of AIM and the Fund are unable to estimate the
impact, if any, that the outcome of the matters described above may have on AIM
or the Fund.
F-18
TRUSTEES AND OFFICERS
<Table>
BOARD OF TRUSTEES OFFICERS OFFICE OF THE FUND
Bob R. Baker Robert H. Graham 11 Greenway Plaza
Chairman and President Suite 100
Frank S. Bayley Houston, TX 77046-1173
Mark H. Williamson
James T. Bunch Executive Vice President INVESTMENT ADVISOR
A I M Advisors, Inc.
Bruce L. Crockett Kevin M. Carome 11 Greenway Plaza
Senior Vice President, Secretary Suite 100
Albert R. Dowden and Chief Legal Officer Houston, TX 77046-1173
Edward K. Dunn Jr. Sidney M. Dilgren TRANSFER AGENT
Vice President and Treasurer AIM Investment Services, Inc.
Jack M. Fields P.O. Box 4739
Robert G. Alley Houston, TX 77210-4739
Carl Frischling Vice President
CUSTODIAN
Robert H. Graham Stuart W. Coco State Street Bank and Trust Company
Vice President 225 Franklin Street
Gerald J. Lewis Boston, MA 02110-2801
Melville B. Cox
Prema Mathai-Davis Vice President COUNSEL TO THE FUND
Ballard Spahr
Lewis F. Pennock Karen Dunn Kelley Andrews & Ingersoll, LLP
Vice President 1735 Market Street
Ruth H. Quigley Philadelphia, PA 19103-7599
Edgar M. Larsen
Louis S. Sklar Vice President COUNSEL TO THE TRUSTEES
Kramer, Levin, Naftalis & Frankel LLP
Larry Soll, Ph.D. 919 Third Avenue
New York, NY 10022-3852
Mark H. Williamson
DISTRIBUTOR
A I M Distributors, Inc.
11 Greenway Plaza
Suite 100
Houston, TX 77046-1173
</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(4) AIM High Yield Fund
AIM Blue Chip Fund AIM Global Aggressive Growth Fund AIM Income Fund
AIM Capital Development Fund AIM Global Equity Fund(5) AIM Intermediate Government Fund
AIM Charter Fund AIM Global Growth Fund AIM Limited Maturity Treasury Fund
AIM Constellation Fund AIM Global Value Fund AIM Money Market Fund
AIM Dent Demographic Trends Fund AIM International Emerging Growth Fund(6) AIM Short Term Bond Fund
AIM Diversified Dividend Fund 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(7)
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(1) 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 ALLOCATION SOLUTIONS
AIM Premier Equity Fund INVESCO Gold & Precious Metals Fund
AIM Select Equity Fund INVESCO Health Sciences Fund AIM Aggressive Allocation Fund
AIM Small Cap Equity Fund(2) INVESCO Leisure Fund AIM Conservative Allocation Fund
AIM Small Cap Growth Fund(3) INVESCO Multi-Sector Fund AIM Moderate Allocation Fund
AIM Trimark Endeavor Fund INVESCO Technology Fund
AIM Trimark Small Companies Fund INVESCO Utilities Fund
AIM Weingarten Fund
INVESCO Core Equity Fund ================================================================================
INVESCO Dynamics Fund CONSIDER THE INVESTMENT OBJECTIVES, RISKS, AND CHARGES AND EXPENSES CAREFULLY.
INVESCO Mid-Cap Growth Fund FOR THIS AND OTHER IMPORTANT INFORMATION ABOUT AIM AND INVESCO FUNDS, OBTAIN A
INVESCO Small Company Growth Fund PROSPECTUS FROM YOUR FINANCIAL ADVISOR OR AIMINVESTMENTS.COM AND READ IT
INVESCO S&P 500 Index Fund THOROUGHLY BEFORE INVESTING.
INVESCO Total Return Fund* ================================================================================
</Table>
* Domestic equity and income fund
(1) 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. (2) 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. (3) 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. (4) AIM European Small Company Fund will close to new investors when
net assets reach $500 million. (5) Effective March 31, 2004, AIM Global Trends
Fund was renamed AIM Global Equity Fund. (6) AIM International Emerging Growth
Fund will close to new investors when net assets reach $500 million. (7)
Effective November 24, 2003, INVESCO International Blue Chip Value Fund was
renamed INVESCO International Core Equity Fund.
If used after October 20, 2004, this report 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 $139 billion in assets. AIM is a subsidiary of
AMVESCAP PLC, one of the world's largest independent financial services
companies with $372 billion in assets under management. Data as of June 30,
2004.
AIMinvestments.com SCE-SAR-1 A I M Distributors, Inc.
<Table>
YOUR GOALS. OUR SOLUTIONS.--Registered Trademark--
- -------------------------------------------------------------------------------------
Mutual Retirement Annuities College Separately Offshore Alternative Cash [AIM INVESTMENTS LOGO APPEARS HERE]
Funds Products Savings Managed Products Investments Management --Registered Trademark--
Plans Accounts
- -------------------------------------------------------------------------------------
</Table>
ITEM 2. CODE OF ETHICS.
There were no amendments to the Code of Ethics (the "Code") that
applies to the Registrant's Principal Executive Officer ("PEO") and
Principal Financial Officer ("PFO") during the period covered by the
report. The Registrant did not grant any waivers, including implicit
waivers, from any provisions of the Code to the PEO or PFO during the
period covered by this report.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not applicable.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not applicable.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable.
ITEM 6. SCHEDULE OF INVESTMENTS.
Investments in securities of unaffiliated issuers is included as part
of the reports to stockholders filed under Item 1 of this Form.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 8. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
ITEM 9. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Registrant adopted Shareholder Communication Procedures (the
"Procedures") on December 10, 2003, which Procedures were amended
effective June 9, 2004. The Procedures set forth the process by which
shareholders of the Registrant may send communications to the Board. As
originally drafted, the Procedures covered recommendations of nominees
sent by shareholders to the Board or to an individual trustee. However,
the amended Procedures adopted effective June 9, 2004 do not cover such
shareholder communications. Therefore, the adoption of amended
Procedures could be viewed as a material change to the procedures by
which shareholders may recommend nominees to the Registrant's Board of
Trustees.
ITEM 10. CONTROLS AND PROCEDURES.
(a) As of June 18, 2004, an evaluation was performed under the supervision
and with the participation of the officers of the Registrant, including
the PEO and PFO, to assess the effectiveness of the Registrant's
disclosure controls and procedures, as that term is defined in Rule
30a-3(c) under the Investment Company Act of 1940 (the "Act"), as
amended. Based on that evaluation, the Registrant's officers, including
the PEO and PFO, concluded that, as of June 18, 2004, the Registrant's
disclosure controls and procedures were reasonably designed to ensure:
(1) that information required to be disclosed by the Registrant on Form
N-CSR is recorded, processed, summarized and reported within the time
periods specified by the rules and forms of the Securities and Exchange
Commission; and (2) that material information relating to the
Registrant is made known to the PEO and PFO as appropriate to allow
timely decisions regarding required disclosure.
(b) There have been no changes in the Registrant's internal control over
financial reporting (as defined in Rule 30a-3(d) under the Act) that
occurred during the 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.
ITEM 11. EXHIBITS.
11(a)(1) Not applicable.
11(a)(2) Certifications of principal executive officer and principal
financial officer as required by Rule 30a-2(a) under the Investment
Company Act of 1940.
11(a)(3) Not applicable.
11(b) Certifications of principal executive officer and principal
financial officer as required by Rule 30a-2(b) under the Investment
Company Act of 1940.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Registrant: AIM Funds Group
By: /s/ ROBERT H. GRAHAM
----------------------------------------
Robert H. Graham
Principal Executive Officer
Date: September 1, 2004
Pursuant to the requirements of the Securities and Exchange Act of 1934 and the
Investment Company Act of 1940, this Report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated.
By: /s/ ROBERT H. GRAHAM
----------------------------------------
Robert H. Graham
Principal Executive Officer
Date: September 1, 2004
By: /s/ SIDNEY M. DILGREN
----------------------------------------
Sidney M. Dilgren
Principal Financial Officer
Date: September 1, 2004
EXHIBIT INDEX
11(a)(1) Not applicable.
11(a)(2) Certifications of principal executive officer and principal financial
officer as required by Rule 30a-2(a) under the Investment Company Act
of 1940.
11(a)(3) Not applicable.
11(b) Certifications of principal executive officer and principal
financial officer as required by Rule 30a-2(b) under the Investment
Company Act of 1940.