.
.
.
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OMB APPROVAL
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OMB Number: 3235-0570
Expires: Nov. 30, 2005
Estimated average burden
hours per response: 5.0
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</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 811-05426
---------------------------------------------
AIM Investment Funds
- --------------------------------------------------------------------------------
(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: 10/31
------------------
Date of reporting period: 10/31/04
-----------------
Item 1. Reports to Stockholders.
AIM DEVELOPING MARKETS FUND
Annual Report to Shareholders o October 31, 2004
[COVER IMAGE]
[YOUR GOALS. OUR SOLUTIONS.] [AIM INVESTMENTS LOGO APPEARS HERE]
- --Registered Trademark-- --Registered Trademark--
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===================================================================================================================================
AIM DEVELOPING MARKETS FUND SEEKS TO PROVIDE LONG-TERM GROWTH OF CAPITAL WITH A SECONDARY INVESTMENT OBJECTIVE OF INCOME.
o Unless otherwise stated, information presented in this report is as of 10/31/04 and is based on total net assets.
===================================================================================================================================
ABOUT SHARE CLASSES ABOUT INDEXES USED IN THIS REPORT and the returns based on those net asset
values may differ from the net asset
o Effective 9/30/03, Class B shares are o The unmanaged MSCI Europe, Australasia values and returns reported in the
not available as an investment for and the Far East Index (the MSCI EAFE Financial Highlights.
retirement plans maintained pursuant to Index--Registered Trademark--) is a
Section 401 of the Internal Revenue group of foreign securities tracked by o Industry classifications used in this
Code, including 401(k) plans, money Morgan Stanley Capital International. report are generally according to the
purchase pension plans and profit Global Industry Classification Standard,
sharing plans. Plans that have existing o The unmanaged MSCI Emerging Markets which was developed by and is the
accounts invested in Class B shares will Free Index is a group of securities from exclusive property and a service mark of
continue to be allowed to make emerging markets tracked by Morgan Morgan Stanley Capital International
additional purchases. Stanley Capital International. A "free" Inc. and Standard & Poor's.
index represents investable
PRINCIPAL RISKS OF INVESTING IN THE FUND opportunities for global investors, The fund files its complete schedule of
taking into account the local market portfolio holdings with the Securities
o International investing presents restrictions on share ownership by and Exchange Commission ("SEC") for the
certain risks not associated with foreign investors. 1st and 3rd quarters of each fiscal year
investing solely in the United States. on Form N-Q. The fund's Form N-Q filings
These include risks relating to o The unmanaged Lipper Emerging Markets are available on the SEC's Web site at
fluctuations in the value of the U.S. Fund Index represents an average of the http://www.sec.gov. Copies of the fund's
dollar relative to the values of other 30 largest emerging markets funds Forms N-Q may be reviewed and copied at
currencies, the custody arrangements tracked by Lipper, Inc., an independent the SEC's Public Reference Room at 450
made for the fund's foreign holdings, mutual fund performance monitor. Fifth Street, N.W., Washington, D.C.
differences in accounting, political 20549-0102. You can obtain information
risks and the lesser degree of public o The unmanaged MSCI World Index is a on the operation of the Public Reference
information required to be provided by group of global securities tracked by Room, including information about
non-U.S. companies. Morgan Stanley Capital International. duplicating fee charges, by calling
1-202-942-8090 or by electronic request
o Investing in emerging markets involves o The unmanaged Standard & Poor's at the following e-mail address:
greater risk and potential reward than Composite Index of 500 Stocks (the S&P publicinfo@sec.gov. The SEC file numbers
investing in more established markets. 500--Registered Trademark-- Index) is an for the fund are 811-05426 and 33-19338.
index of common stocks frequently used The fund's most recent portfolio
o Investing in small and mid-size as a general measure of U.S. stock holdings, as filed on Form N-Q, are also
companies involves risks not associated market performance. available at AIMinvestments.com.
with investing in more established
companies, including business risk, o A direct investment cannot be made in A description of the policies and
significant stock price fluctuations and an index. Unless otherwise indicated, procedures that the fund uses to
illiquidity. index results include reinvested determine how to vote proxies relating
dividends, and they do not reflect sales to portfolio securities is available
o The fund invests in higher-yielding, charges. Performance of an index of without charge, upon request, from our
lower-rated corporate bonds, commonly funds reflects fund expenses; Client Services department at
known as junk bonds, which have a performance of a market index does not. 800-959-4246 or on the AIM Web site,
greater risk of price fluctuation and AIMinvestments.com. On the home page,
loss of principal and income than do o The fund is not managed to track the scroll down and click on AIM Funds Proxy
U.S. government securities such as U.S. performance of any particular index, Policy. The information is also
Treasury bills, notes and bonds, for including the indexes defined here, and available on the Securities and Exchange
which principal and any applicable consequently, the performance of the Commission's Web site, sec.gov.
interest are guaranteed by the fund may deviate significantly from the
government if held to maturity. performance of the indexes. Information regarding how the fund voted
proxies related to its portfolio
o The fund may participate in the OTHER INFORMATION securities during the 12 months ended
initial public offering (IPO) market is 6/30/04 is available at our Web site. Go
some cycles. Because of the fund's small o The returns shown in the Management's to AIMinvestments.com, access the About
asset base, any investment the fund may Discussion of Fund Performance are based Us tab, click on Required Notices and
make in IPOs may significantly affect on net asset values calculated for then click on Proxy Voting Activity.
the fund's total return. As the fund's shareholder transactions. Generally Next, select your fund from the
assets grow, the impact of IPO accepted accounting principles require drop-down menu.
investments will decline, which may adjustments to be made to the net assets
reduce the effect of IPO investments on of the fund at period end for financial
the fund's total return. reporting purposes, and as such, the net
asset values for shareholder
transactions
</Table>
=============================================================================
THIS REPORT MUST BE ACCOMPANIED OR PRECEDED BY A CURRENTLY EFFECTIVE FUND
PROSPECTUS, WHICH CONTAINS MORE COMPLETE INFORMATION, INCLUDING SALES CHARGES
AND EXPENSES. INVESTORS SHOULD READ IT CAREFULLY BEFORE INVESTING.
=============================================================================
=====================================================
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
=====================================================
AIMinvestments.com
TO OUR SHAREHOLDERS
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DEAR FELLOW SHAREHOLDER OF THE AIM FAMILY OF
FUNDS--Registered Trademark--:
NEW BOARD CHAIRMAN
[PHOTO OF It is our pleasure to introduce you to Bruce Crockett, the
ROBERT H. new Chairman of the Board of Trustees of the AIM Funds. Bob
GRAHAM] Graham has served as Chairman of the Board of Trustees of
the AIM Funds ever since Ted Bauer retired from that
ROBERT H. GRAHAM position in 2000. However, as you may be aware, the U.S.
Securities and Exchange Commission recently adopted a rule
requiring that an independent fund trustee, meaning a
[PHOTO OF trustee who is not an officer of the fund's investment
MARK H. advisor, serve as chairman of the funds' Board. In addition,
WILLIAMSON] a similar provision was included in the terms of AIM
Advisors' recent settlements with certain regulators.
MARK H. WILLIAMSON Accordingly, the AIM Funds' Board recently elected Mr.
Crockett, one of the fourteen independent trustees on the
AIM Funds' Board, as Chairman. His appointment became
[PHOTO OF effective on October 4, 2004. Mr. Graham will remain on the
BRUCE L. funds' Board, as will Mark Williamson, President and Chief
CROCKETT] Executive Officer of AIM. Mr. Graham will also remain
Chairman of AIM Investments--Registered Trademark--.
BRUCE L. CROCKETT
Mr. Crockett has been a member of the AIM Funds' board
since 1992, when AIM acquired certain funds that had been
advised by CIGNA. He had been a member of the board of those
funds since 1978. Mr. Crockett has more than 30 years of
experience in finance and general management and has been
Chairman of Crockett Technologies Associates since 1996. He
is the first independent chairman of the funds' board in
AIM's history, as he is not affiliated with AIM or AMVESCAP
in any way. He is committed to ensuring that the AIM Funds
adhere to the highest standards of corporate governance for
the benefit of fund shareholders, and we at AIM share that
commitment.
MARKET CONDITIONS DURING THE FISCAL YEAR
Virtually every equity index, domestic and foreign, produced
positive returns for the fiscal year ended October 31, 2004.
Domestically, the S&P 500 Index was up 9.41% for the year.
Globally, the MSCI World Index advanced more than 13%.
However, a goodly portion of this positive performance was
achieved during 2003. Year to date as of October 31, the S&P
500 Index was up just over 3%, the MSCI World Index just
about 5%. In the pages that follow, you will find a more
detailed discussion of the market conditions that affected
your fund during the fiscal year.
While it is agreeable to report positive market
performance for the year covered by this report, as ever, we
encourage our shareholders to look past short-term
performance and focus on their long-term investment goals.
Over the short term, the one sure thing about the investment
markets is their unpredictability. Over the long term,
equities have produced very attractive returns. For the
25-year period ended October 31, 2004, the S&P 500 Index
averaged 13.50% growth per year and the MSCI World Index
averaged 11.16%. While past performance cannot guarantee
future results, we believe staying invested for the long
term offers the best opportunity for capital growth.
YOUR FUND
The following pages of this report provide an explanation of
how your fund was managed during the fiscal year, how it
performed in comparison to various benchmarks, and a
presentation of its long-term performance. We hope you find
this information helpful. Current information about your
fund and about the markets in general is always available on
our Web site, AIMinvestments.com.
As always, AIM remains committed to building solutions
for your investment goals, and we thank you for your
continued participation in AIM Investments. If you have any
questions, please contact our Client Service representatives
at 800-959-4246.
Sincerely,
/s/ ROBERT H. GRAHAM /s/ MARK H. WILLIAMSON
-------------------------------- --------------------------------
Robert H. Graham Mark H. Williamson
Chairman, AIM Investments CEO & President, AIM Investments
President & Vice Chairman, AIM Funds Trustee, AIM Funds
December 16, 2004
AIM Investments is a registered service mark of A I M Management Group Inc.
A I M Advisors, Inc. and A I M Capital Management, Inc. are the investment
advisors, and A I M Distributors, Inc. is the distributor for the retail funds
represented by AIM Investments.
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MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
<Table>
FUND'S FINANCIAL HOLDINGS ADDED TO and the Czech Republic. Both countries
PERFORMANCE reported double-digit returns for the
fiscal year. Also of note in emerging
For the fiscal year ended October 31, market nations are commodity exporters. Europe was Russia. This oil-rich country
2004, AIM Developing Markets Fund Class Also, many Asian countries continued to continued to be buoyed by strong energy
A shares returned 21.05% at net asset produce strong economic growth, albeit prices.
value. PERFORMANCE SHOWN AT NAV DOES NOT more subdued at the end of the fiscal
INCLUDE FRONT-END SALES CHARGES, WHICH year. Market and economic conditions, Latin American markets posted some of
WOULD HAVE REDUCED THE PERFORMANCE. however, varied by region. the highest returns for the emerging
Returns for other share classes are market asset class during the fiscal
shown in the table on page 3. China--the world's growth year. Higher commodity prices lifted
engine--raised its lending rate by 27 Brazil and Argentina, while oil-producing
For the same period, the fund basis points (0.27%) in late October in Mexico was aided by high energy prices
outperformed the MSCI EAFE Index and an effort to slow down an overheating and economic growth trends in the United
MSCI Emerging Markets Free Index, which economy. Hong Kong also witnessed strong States--its largest trade partner.
returned 18.84% and 19.02%, economic growth amid an easing in
respectively. We attribute the fund's deflation and strong domestic demand. In South African stocks were also
higher return to several factors: Korea, however, domestic consumption noteworthy as they produced double-digit
Emerging markets outperformed developed remained weak due to heavily indebted gains amid decreasing political risk, an
markets for the fiscal year (the MSCI households. Taiwan--one of the few expansionary fiscal/monetary policy and
EAFE Index is comprised largely of emerging markets to produce negative a large commodity export environment.
developed markets) and strong stock returns for the fiscal year--was hard
selection. Conversely, the fund hit by a significant drop in the YOUR FUND
performed in line with the Lipper technology sector.
Emerging Markets Fund Index, which We attribute the fund's strong
returned 21.58%. In Europe, 10 developing nations performance during the fiscal year to
joined the European Union (EU) during our investment philosophy which focuses
MARKET CONDITIONS the fiscal year. It's estimated that the on companies with both accelerating
addition of these new members will earnings and strong corporate
Despite rising global interest rates and increase the EU's gross domestic product governance. We believed this strategy
a significant decline in the tech sector --a broad measure of economic would give us a margin of safety during
during the summer, emerging markets activity--by 5%. However, many of these volatile market conditions. (Emerging
outperformed developed markets for the new additions were growing faster than markets are often more volatile than
fiscal year. In many cases, emerging the EU before admittance. As of the more developed international markets.)
markets were buoyed by higher commodity close of the reporting period, the fund
prices as many emerging had investments in two of the new member Investment decisions are based on a
countries: Hungary bottom-up or individual company basis.
Holdings in South Africa, Mexico, Russia
and China contributed the most to fund
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<Table>
===================================================================================================================================
PORTFOLIO COMPOSITION TOP 10 COUNTRIES* TOP 10 EQUITY HOLDINGS*
By sector
1. South Korea 15.6% 1. Hana Bank (South Korea) 3.6%
[PIE CHART]
2. South Africa 11.6 2. LUKOIL-ADR (Russia) 3.1
Consumer Staples 11.5%
3. Mexico 8.8 3. Standard Bank Group Ltd.
Information Technology 10.8% (South Africa) 2.8
4. Russia 7.7
Energy 7.8% 4. Infosys Technologies-ADR 2.7
5. Taiwan 7.4 (India)
Materials 4.7%
6. Brazil 7.0 5. Samsung Electronic Co.
Industrials 3.9% Ltd.-GRD REGS (South Korea) 2.7
7. India 6.8
Money Market Funds Plus Other 6. Mobile Telesystems-ADR
Assets Less Liabilities 3.3% 8. Cayman Islands 4.6 (Russia) 2.7
Health Care 3.2% 9. China 3.7 7. America Movil S.A. de
C.V.-Series L-ADR (Mexico) 2.3
Financials 21.5% 10. Malaysia 3.3
8. Philippine Long Distance
Consumer Discretionary 18.7% Telephone Co. (Philippines) 2.1
Telecommunication Services 14.6% 9. Anglo American PLC
(United Kingdom) 2.1
10. AO VimpleCom-ADR (Russia) 1.9
The fund's holdings are subject to change, and there is no assurance that the
fund will continue to hold any particular security.
*Excluding money market fund holdings.
===================================================================================================================================
</Table>
2
<Table>
performance during the fiscal year. Our sold the stock. We reduced our position THE VIEWS AND OPINIONS EXPRESSED IN
South African retail stocks performed in Teva, but continued to own the stock MANAGEMENT'S DISCUSSION OF FUND
particularly well, with Foschini based on stronger-than-expected PERFORMANCE ARE THOSE OF A I M ADVISORS,
appreciating more than 100% during the third-quarter earnings. INC. THESE VIEWS AND OPINIONS ARE
reporting period. Despite the stock's SUBJECT TO CHANGE AT ANY TIME BASED ON
run, it remained attractively valued In Taiwan, our semiconductor FACTORS SUCH AS MARKET AND ECONOMIC
with sales growth expected to continue holdings, MediaTek and Taiwan CONDITIONS. THESE VIEWS AND OPINIONS MAY
in the mid-teens. Semiconductor, were hard hit by a NOT BE RELIED UPON AS INVESTMENT ADVICE
sell-off in the industry. MediaTek OR RECOMMENDATIONS, OR AS AN OFFER FOR A
Shanda Interactive--an operator of reported disappointing earnings, and we PARTICULAR SECURITY. THE INFORMATION IS
online games in China--also witnessed therefore sold the stock. Long-time fund NOT A COMPLETE ANALYSIS OF EVERY ASPECT
exceptional stock appreciation as its holding Taiwan Semiconductor continued OF ANY MARKET, COUNTRY, INDUSTRY,
share price nearly tripled after listing to post good earnings results so we SECURITY OR THE FUND. STATEMENTS OF FACT
on the Nasdaq. Revenues for the third simply reduced our position. ARE FROM SOURCES CONSIDERED RELIABLE,
quarter of 2004 increased 133% BUT A I M ADVISORS, INC. MAKES NO
year-over-year and income from Another key aspect in our investment REPRESENTATION OR WARRANTY AS TO THEIR
operations rose 166% year-over-year. strategy is that we do not hedge COMPLETENESS OR ACCURACY. ALTHOUGH
currencies. We purchase stocks in their HISTORICAL PERFORMANCE IS NO GUARANTEE
On a sector basis, our financial local currency and then translate that OF FUTURE RESULTS, THESE INSIGHTS MAY
holdings contributed the most to value back into the fund in US dollars. HELP YOU UNDERSTAND OUR INVESTMENT
performance. Standard Bank in South During the fiscal year, the South MANAGEMENT PHILOSOPHY
Africa and OTP Bank, the largest savings African Rand, along with select eastern
and commercial bank in Hungary, both European currencies, appreciated against See important fund and index
operate in environments with low credit the US dollar, contributing to the disclosures inside front cover.
penetration; therefore, they are poised fund's return.
to benefit from strong loan growth, SHUXIN CAO
particularly mortgages. OTP also IN CLOSING
benefited from Hungary's recent EU Mr. Cao, Chartered
admittance as rates in Hungary Emerging markets have evolved [CAO Financial Analyst, is
eventually fall to EU levels. considerably over the last five years. PHOTO] manager of AIM
Many developing nations have replaced Developing Markets Fund.
Health care stocks in Israel and large trade deficits with large trade He joined AIM in 1997.
information technology holdings in surpluses. Transparencies are also Mr. Cao graduated from Tianjin Foreign
Taiwan proved the largest detractors to improving as more companies adopt Language Institute with a B.A. in
fund performance. Teva Pharmaceutical international accounting standards. We English. He also received an M.B.A. from
and Taro Pharmaceutical, both based in are pleased to report these improving Texas A&M University and is a Certified
Israel, fell precipitously amid a conditions and to provide shareholders Public Accountant.
sell-off of generic drug companies and with double-digit returns for the fiscal
increasing competition from India. Amid year. BORGE ENDRESEN
earnings disappointments, we felt Taro
no longer fit our investment discipline Mr. Endresen, Chartered
and we [ENDRESEN Financial Analyst, is
PHOTO] manager of AIM
Developing Markets Fund.
Mr. Endresen joined AIM
in 1999 and graduated summa cum laude
from the University of Oregon with a
B.S. in finance. He also earned an
M.B.A. from The University of Texas at
Austin.
Assisted by Asia/Latin America Team and
Europe/Canada Team
=======================================================================================
TOP 10 INDUSTRIES* FUND VS. INDEXES
1. Diversified Banks 17.9% TOTAL RETURNS, 10/31/03-10/31/04,
EXCLUDING APPLICABLE SALES CHARGES. IF
2. Wireless Telecommunication SALES CHARGES WERE INCLUDED, RETURNS
Services 8.9 WOULD BE LOWER.
3. Integrated Oil & Gas 6.2 Class A Shares 21.05%
4. Integrated Telecommunication Class B Shares 20.46
Services 5.7
Class C Shares 20.60
5. Hypermarkets & Super Centers 5.3
MSCI EAFE Index
6. Electronic Equipment (Broad Market Index) 18.84
Manufacturers 5.2
MSCI Emerging Market Free
7. Broadcasting & Cable TV 3.4 Index (Style-specific Index) 19.02
8. IT Consulting & Other Lipper Emerging Market Fund
Services 2.7 Index (Peer Group Index) 21.58
9. Packaged Foods & Meats 2.3 SOURCE: LIPPER, INC.
10. Pharmaceuticals 2.2 TOTAL NET ASSETS $230.5 MILLION
TOTAL NUMBER OF HOLDINGS* 99
======================================================================================= [RIGHT ARROW GRAPHIC]
FOR A PRESENTATION OF YOUR FUND'S
LONG-TERM PERFORMANCE RECORD, PLEASE
TURN TO PAGE 5.
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3
INFORMATION ABOUT YOUR FUND'S EXPENSES
<Table>
CALCULATING YOUR ONGOING FUND EXPENSES
EXAMPLE You may use the information in this or expenses you paid for the period. You
table, together with the amount you may use this information to compare the
As a shareholder of the fund, you incur invested, to estimate the expenses that ongoing costs of investing in the fund
two types of costs: (1) transaction you paid over the period. Simply divide and other funds. To do so, compare this
costs, which may include sales charges your account value by $1,000 (for 5% hypothetical example with the 5%
(loads) on purchase payments; contingent example, an $8,600 account value divided hypothetical examples that appear in the
deferred sales charges on redemptions; by $1,000 = 8.6), then multiply the shareholder reports of the other funds.
and redemption fees, if any; and (2) result by the number in the table under
ongoing costs, including management the heading entitled "Actual Expenses Please note that the expenses shown
fees; distribution and/or service fees Paid During Period" to estimate the in the table are meant to highlight your
(12b-1); and other fund expenses. This expenses you paid on your account during ongoing costs only and do not reflect
example is intended to help you this period. any transactional costs, such as sales
understand your ongoing costs (in charges (loads) on purchase payments,
dollars) of investing in the fund and to HYPOTHETICAL EXAMPLE FOR COMPARISON contingent deferred sales charges on
compare these costs with ongoing costs PURPOSES redemptions, and redemption fees, if
of investing in other mutual funds. The any. Therefore, the hypothetical
example is based on an investment of The table below also provides information is useful in comparing
$1,000 invested at the beginning of the information about hypothetical account ongoing costs only, and will not help
period and held for the entire period, values and hypothetical expenses based you determine the relative total costs
May 1, 2004-October 31, 2004. on the fund's actual expense ratio and of owning different funds. In addition,
an assumed rate of return of 5% per year if these transactional costs were
ACTUAL EXPENSES before expenses, which is not the fund's included, your costs would have been
actual return. The hypothetical account higher.
The table below provides information values and expenses may not be used to
about actual account values and actual estimate the actual ending account
expenses. balance
===================================================================================================================================
ACTUAL HYPOTHETICAL
(5% ANNUAL RETURN BEFORE EXPENSES)
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES ENDING ACCOUNT EXPENSES
VALUE VALUE PAID DURING VALUE PAID DURING
(5/01/04) (10/31/04)(1) PERIOD(2) (10/31/04) PERIOD(2)
Class A $1,000.00 $1,124.80 $10.68 $1,015.08 $10.13
Class B 1,000.00 1,121.30 13.44 1,012.47 12.75
Class C 1,000.00 1,122.40 13.44 1,012.47 12.75
(1)The actual ending account value is based on the actual total return of the
fund for the period May 1, 2004, to October 31, 2004, after actual expenses and
will differ from the hypothetical ending account value which is based on the
fund's expense ratio and a hypothetical annual return of 5% before expenses. The
actual cumulative return at net asset value for the period May 1, 2004, to
October 31, 2004, was 12.48%, 12.13%, and 12.24% for Class A, B and C shares,
respectively.
(2)Expenses are equal to the fund's annualized expense ratio (2.00%, 2.52%, and
2.52% for Class A, B, and C shares, respectively) multiplied by the average
account value over the period, multiplied by 184/366 (to reflect the one-half
year period).
===================================================================================================================================
[ARROW
BUTTON For More Information Visit
IMAGE] AIMinvestments.com
</Table>
4
LONG-TERM PERFORMANCE
YOUR FUND'S LONG-TERM PERFORMANCE
<Table>
===================================================================================================================================
Past performance cannot guarantee RESULTS OF A $10,000 INVESTMENT
comparable future results. 1/11/94-10/31/04 Index data from 12/31/93
Your fund's total return includes [MOUNTAIN CHART]
reinvested distributions, applicable
sales charges, fund expenses and AIM Developing Lipper Emerging
management fees. Index results include Markets Fund Market Fund MSCI EAFE MSCI EMF
reinvested dividends, but they do not Date Class A Shares Index Index Index
reflect sales charges. Performance of an
index of funds reflects fund expenses 1/11/1994 $ 9525 $10000 $10000 $10000
and management fees; performance of a 1/94 9614 10253 10845 10182
market index does not. Performance shown 4/94 7944 8874 10789 8914
in the chart does not reflect deduction 7/94 8274 9164 10983 9522
of taxes a shareholder would pay on fund 10/94 9194 10016 11251 10631
distributions or sale of fund shares. 1/95 7381 7936 10364 8282
Performance of the indexes does not 4/95 7250 8090 11391 8486
reflect the effects of taxes. 7/95 7862 8798 11747 9165
10/95 7665 8176 11210 8565
In evaluating this chart, please note 1/96 8799 8990 12035 9410
that the chart uses a logarithmic scale 4/96 9036 9275 12691 9706
along the vertical axis (the value 7/96 9000 8841 12161 9058
scale). This means that each scale 10/96 9581 8965 12383 9121
increment always represents the same 1/97 10365 9954 12266 9951
percent change in price; in a linear 4/97 10510 10047 12578 10122
chart each scale increment always 7/97 11495 11222 14364 11133
represents the same absolute change in 10/97 9092 8619 12957 8347
price. In this example, the scale 1/98 8363 7722 13528 7590
increment between $5,000 and $10,000 is 4/98 9426 8767 14957 8651
the same as that between $10,000 and 7/98 7641 7099 15149 6894
$20,000. In a linear chart, the latter 10/98 5719 5760 14206 5761
scale increment would be twice as large. 1/99 5760 5947 15478 6050
The benefit of using a logarithmic scale 4/99 7351 7463 16377 7769
is that it better illustrates 7/99 7699 7996 16619 8367
performance during the fund's early 10/99 7614 7857 17479 8331
years depicted in the chart before 1/00 9337 10137 18457 10294
reinvested distributions and compounding 4/00 8253 9331 18652 9487
create the potential for the original 7/00 7796 8894 18116 8931
investment to grow to very large 10/00 6889 7520 16973 7597
numbers. Had the chart used a linear 1/01 7192 7908 16908 8078
scale along its vertical axis, you would 4/01 6163 6936 15612 7046
not be able to see as clearly the 7/01 5774 6569 14183 6543
movements in the value of the fund and 10/01 4924 5850 12741 5815
the indexes during the early years 1/02 6453 7109 12583 7167
depicted. We use a logarithmic scale in 4/02 6989 7760 13445 7773
financial reports of funds that have 7/02 5792 6594 11783 6537
more than five years of performance 10/02 5492 6267 11058 6306
history. 1/03 5689 6485 10705 6488
4/03 5830 6718 11258 6680
7/03 6901 7910 12525 8042
AVERAGE ANNUAL TOTAL RETURNS 10/03 8288 9298 14047 9380
As of 10/31/04, including sales charges 1/04 9188 10530 15700 10545
4/04 8920 10272 15788 10260
CLASS A SHARES 7/04 8723 9974 15663 9925
10 Years 0.39% 10/04 $10035 $11304 $16693 $11200
5 Years 4.66 Source: Lipper, Inc.
1 Year 15.35
In addition to returns as of the close Class A share performance reflects
CLASS B SHARES of the fiscal year, industry regulations the maximum 4.75% sales charge, and
Inception (11/3/97) 0.29% require us to provide average annual Class B and Class C share performance
5 Years 4.76 total returns as of 9/30/04, the most reflects the applicable contingent
1 Year 15.46 recent calendar quarter-end. deferred sales charge (CDSC) for the
period involved. The CDSC on Class B
CLASS C SHARES AVERAGE ANNUAL TOTAL RETURNS shares declines from 5% beginning at the
Inception (3/1/99) 9.57% As of 9/30/04, most recent calendar time of purchase to 0% at the beginning
5 Years 5.07 quarter-end, including applicable sales of the seventh year. The CDSC on Class C
1 Year 19.60 charges shares is 1% for the first year after
purchase.
CLASS A SHARES
10 Years -0.18% The performance of the fund's share
5 Years 4.51 classes will differ due to different
1 Year 20.15 sales charge structures and class
expenses.
CLASS B SHARES
Inception (11/3/97) -0.35% Had the advisor not waived fees
5 Years 4.59 and/or reimbursed expenses, performance
1 Year 20.42 would have been lower.
CLASS C SHARES A redemption fee of 2% will be
Inception (3/1/99) 8.85% imposed on certain redemptions or
5 Years 4.93 exchanges out of the fund within 30 days
1 Year 24.58 of purchase. Exceptions to the
redemption fee are listed in the fund's
The performance data quoted represent prospectus.
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.
===================================================================================================================================
</Table>
5
FINANCIALS
SCHEDULE OF INVESTMENTS
October 31, 2004
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
FOREIGN STOCKS & OTHER EQUITY
INTERESTS-96.66%
BERMUDA-1.09%
Central European Media Enterprises Ltd.-Class
A (Broadcasting & Cable TV)(a) 40,000 $ 1,415,600
- --------------------------------------------------------------------------
Texwinca Holdings Ltd. (Textiles)(b) 1,212,000 1,098,780
==========================================================================
2,514,380
==========================================================================
BRAZIL-7.02%
Banco Itau Holding Financeira S.A.-Pfd.
(Diversified Banks)(a) 29,100 3,521,413
- --------------------------------------------------------------------------
Companhia Brasileira de Distribuicao Grupo
Pao de Acucar-ADR (Hypermarkets & Super
Centers) 93,800 2,232,440
- --------------------------------------------------------------------------
Companhia de Bebidas das Americas-ADR
(Brewers) 81,600 2,023,680
- --------------------------------------------------------------------------
Grendene S.A.(Apparel Accessories & Luxury
Goods)(a) 86,000 1,045,204
- --------------------------------------------------------------------------
Natura Cosmeticos S.A. (Household Products)
(Acquired 05/25/04-10/21/04; Cost
$849,758)(c) 57,200 1,160,304
- --------------------------------------------------------------------------
Petroleo Brasileiro S.A.-ADR (Integrated Oil
& Gas) 132,200 4,309,720
- --------------------------------------------------------------------------
Tele Norte Leste Participacoes S.A.-ADR
(Integrated Telecommunication Services) 144,234 1,886,581
- --------------------------------------------------------------------------
Telesp Celular Participacoes S.A.-Pfd.
(Wireless Telecommunication Services)(a) 1 2
==========================================================================
16,179,344
==========================================================================
CANADA-0.58%
PetroKazakhstan Inc.-Class A
(Integrated Oil & Gas) 36,000 1,330,158
==========================================================================
CAYMAN ISLANDS-4.59%
China Mengniu Dairy Co. Ltd. (Packaged Foods
& Meats)(a) 2,032,000 1,683,870
- --------------------------------------------------------------------------
Global Bio-chem Technology Group Co. Ltd.
(Biotechnology)(b) 1,730,000 1,359,504
- --------------------------------------------------------------------------
Global Bio-chem Technology Group Co., Ltd.-
Wts., expiring 05/31/07 (Biotechnology)(d) 193,500 13,425
- --------------------------------------------------------------------------
Golden Meditech Co. Ltd. (Health Care
Equipment) 3,894,800 940,737
- --------------------------------------------------------------------------
Luen Thai Holdings Ltd. (Distributors)
(Acquired 08/19/04-10/07/04; Cost
$1,095,086)(a)(c) 2,488,000 1,278,602
- --------------------------------------------------------------------------
Sa Sa International Holdings Ltd.
(Specialty Stores)(b) 2,586,000 1,080,520
- --------------------------------------------------------------------------
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
CAYMAN ISLANDS-(CONTINUED)
Shanda Interactive Entertainment Ltd.-ADR
(Leisure Products)(a)(e) 100,200 $ 3,044,978
- --------------------------------------------------------------------------
Solomon Systech International Ltd.
(Semiconductors) 4,618,000 1,168,814
==========================================================================
10,570,450
==========================================================================
CHINA-3.71%
China Petroleum and Chemical Corp.
(Sinopec)-Class H (Integrated Oil & Gas)(b) 4,252,000 1,623,439
- --------------------------------------------------------------------------
China Shipping Development Co. Ltd.-Class H
(Marine)(b) 1,418,000 1,187,455
- --------------------------------------------------------------------------
PICC Property & Casualty Co. Ltd.-Class H
(Property & Casualty Insurance)(a)(b) 3,000,000 1,082,856
- --------------------------------------------------------------------------
Ping An Insurance Co. of China Ltd.-Class H
(Life & Health Insurance)(a) 1,132,000 1,781,589
- --------------------------------------------------------------------------
Tong Ren Tang Technologies Co. Ltd.-Class H
(Pharmaceuticals) 421,000 924,918
- --------------------------------------------------------------------------
Weiqiao Textile Co. Ltd.-Class H (Textiles)
(Acquired 09/19/03-08/31/04; Cost
$1,751,982)(b)(c) 1,338,500 1,954,788
==========================================================================
8,555,045
==========================================================================
CZECH REPUBLIC-0.54%
Komercni Banka A.S.-GDR (Diversified Banks) 29,700 1,247,400
==========================================================================
EGYPT-1.40%
Orascom Construction Industries (Construction
& Engineering) 278,212 3,221,990
==========================================================================
GREECE-0.26%
Coca-Cola Hellenic Bottling Co. S.A. (Soft
Drinks)(b) 26,675 596,463
==========================================================================
HONG KONG-0.85%
CNOOC Ltd. (Oil & Gas Exploration &
Production)(b) 3,813,000 1,964,330
==========================================================================
HUNGARY-2.47%
OTP Bank Rt. (Diversified Banks)(b) 126,400 3,211,343
- --------------------------------------------------------------------------
OTP Bank Rt.-GDR REGS (Diversified Banks)
(Acquired 01/14/03-04/15/03; Cost
$1,017,884)(c)(e) 49,100 2,479,550
- --------------------------------------------------------------------------
Technoimpex (Multi-Sector Holdings) (Acquired
11/22/90; Cost $2,989,406)(a)(c)(f)(g) 1,400 0
==========================================================================
5,690,893
==========================================================================
</Table>
F-1
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
INDIA-6.81%
HDFC Bank Ltd.-ADR (Diversified Banks)(e) 101,061 $ 3,554,315
- --------------------------------------------------------------------------
Infosys Technologies Ltd.-ADR (IT Consulting
& Services)(e) 94,800 6,304,200
- --------------------------------------------------------------------------
Ranbaxy Laboratories Ltd.-GDR
(Pharmaceuticals) (Acquired 10/22/03; Cost
$1,258,200)(c)(f)(g) 54,000 1,309,500
- --------------------------------------------------------------------------
Ranbaxy Laboratories Ltd.-GDR
(Pharmaceuticals) 48,000 1,164,000
- --------------------------------------------------------------------------
Tata Motors Ltd.-ADR (Automobile
Manufacturers)(a)(e) 232,000 2,134,400
- --------------------------------------------------------------------------
Tata Motors Ltd.-GDR (Automobile
Manufacturers) (Acquired 10/22/03-01/27/04;
Cost $1,246,879)(c)(f)(g) 134,000 1,232,800
==========================================================================
15,699,215
==========================================================================
INDONESIA-1.53%
PT Astra Agro Lestari TBK (Agricultural
Products)(b) 4,710,500 1,515,922
- --------------------------------------------------------------------------
PT Telekomunikasi Indonesia (Integrated
Telecommunication Services)(b) 4,199,000 2,011,985
==========================================================================
3,527,907
==========================================================================
ISRAEL-0.69%
Teva Pharmaceutical Industries Ltd.-ADR
(Pharmaceuticals) 61,500 1,599,000
==========================================================================
LUXEMBOURG-1.26%
Millicom International Cellular S.A.
(Wireless Telecommunication Services)(a) 62,200 1,235,914
- --------------------------------------------------------------------------
Tenaris S.A. (Oil & Gas Equipment & Services) 5 22
- --------------------------------------------------------------------------
Tenaris S.A.-ADR (Oil & Gas Equipment &
Services) 37,068 1,659,534
==========================================================================
2,895,470
==========================================================================
MALAYSIA-3.26%
Genting Berhad (Casinos & Gaming)(b) 334,000 1,485,835
- --------------------------------------------------------------------------
IOI Corp. Berhad (Agricultural Products)(b) 666,000 1,666,618
- --------------------------------------------------------------------------
Maxis Communications Berhad (Wireless
Telecommunications Services)(b) 1,378,100 3,116,558
- --------------------------------------------------------------------------
Public Bank Berhad (Diversified Banks)(b) 684,000 1,251,311
==========================================================================
7,520,322
==========================================================================
MEXICO-8.84%
Alfa, S.A.-Class A (Industrial Conglomerates) 774,000 3,008,398
- --------------------------------------------------------------------------
America Movil S.A. de C.V.-Series L-ADR
(Wireless Telecommunication Services) 122,700 5,398,800
- --------------------------------------------------------------------------
Consorcio ARA, S.A. de C.V. (Homebuilding)(a) 508,900 1,358,360
- --------------------------------------------------------------------------
Corporacion GEO, S.A. de C.V.-Series B
(Homebuilding)(a) 877,900 1,377,068
- --------------------------------------------------------------------------
Grupo Financiero Banorte S.A. de C.V.-Class O
(Diversified Banks) 472,700 2,220,326
- --------------------------------------------------------------------------
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
MEXICO-(CONTINUED)
Grupo Televisa S.A.-ADR (Broadcasting & Cable
TV) 42,228 $ 2,322,540
- --------------------------------------------------------------------------
Urbi, Desarrollos Urbanos, S.A. de C.V.
(Homebuilding)(a) 313,700 1,169,001
- --------------------------------------------------------------------------
Wal-Mart de Mexico S.A. de C.V.-Series V
(Hypermarkets & Super Centers) 1,077,100 3,519,081
==========================================================================
20,373,574
==========================================================================
NETHERLANDS-0.44%
Efes Breweries International-GDR REGS
(Brewers) (Acquired 10/15/04; Cost
$857,925)(a)(c)(f)(g) 36,900 1,023,975
==========================================================================
PHILIPPINES-2.65%
Philippine Long Distance Telephone Co.
(Integrated Telecommunication
Services)(a)(b) 196,500 4,896,436
- --------------------------------------------------------------------------
SM Prime Holdings (Real Estate Management &
Development) 9,095,000 1,212,020
==========================================================================
6,108,456
==========================================================================
RUSSIA-7.71%
AO VimpelCom-ADR (Wireless Telecommunication
Services)(a)(e) 39,200 4,468,800
- --------------------------------------------------------------------------
LUKOIL-ADR (Integrated Oil & Gas)(h) 57,158 7,112,742
- --------------------------------------------------------------------------
Mobile Telesystems-ADR (Wireless
Telecommunication Services) 42,700 6,196,624
==========================================================================
17,778,166
==========================================================================
SOUTH AFRICA-11.63%
Barloworld Ltd. (Industrial Conglomerates) 121,900 1,710,649
- --------------------------------------------------------------------------
Foschini Ltd. (Apparel Retail) 658,400 3,294,025
- --------------------------------------------------------------------------
Impala Platinum Holdings Ltd. (Precious
Metals & Minerals)(b) 14,101 1,138,999
- --------------------------------------------------------------------------
JD Group Ltd. (Home Improvement Retail) 210,000 1,963,502
- --------------------------------------------------------------------------
Massmart Holdings Ltd. (Hypermarkets & Super
Centers)(a) 559,800 3,930,193
- --------------------------------------------------------------------------
Naspers Ltd.-Class N (Broadcasting & Cable
TV) 447,000 4,120,796
- --------------------------------------------------------------------------
Standard Bank Group Ltd. (Diversified Banks) 722,586 6,376,892
- --------------------------------------------------------------------------
Telkom South Africa Ltd. (Integrated
Telecommunication Services) (Acquired
11/25/03-06/18/04; Cost $3,233,413)(c) 299,700 4,262,291
==========================================================================
26,797,347
==========================================================================
SOUTH KOREA-15.56%
Cheil Communications Inc. (Advertising)(b) 15,100 1,999,279
- --------------------------------------------------------------------------
CJ Corp. (Packaged Foods & Meats)(b) 63,000 3,506,676
- --------------------------------------------------------------------------
Hana Bank (Diversified Banks)(b) 334,200 8,356,679
- --------------------------------------------------------------------------
Hankook Tire Co. Ltd. (Tires & Rubber)(b) 174,700 1,620,185
- --------------------------------------------------------------------------
</Table>
F-2
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
SOUTH KOREA-(CONTINUED)
Hyundai Department Store Co., Ltd.
(Department Stores)(b) 88,700 $ 2,580,181
- --------------------------------------------------------------------------
Hyundai Motor Co. (Automobile
Manufacturers)(b) 19,600 953,251
- --------------------------------------------------------------------------
POSCO-ADR (Steel) 94,200 3,522,138
- --------------------------------------------------------------------------
Samsung Electronics Co., Ltd.-GDR REGS
(Electronic Equipment Manufacturers)
(Acquired 11/03/00-08/29/01; Cost
$2,632,053)(b)(c)(f) 32,023 6,296,936
- --------------------------------------------------------------------------
Samsung Electronics Co., Ltd.-Pfd.
(Electronic Equipment Manufacturers)(b) 11,300 3,032,823
- --------------------------------------------------------------------------
Shinhan Financial Group Co., Ltd.
(Diversified Banks)(b) 78,800 1,557,674
- --------------------------------------------------------------------------
Shinsegae Co., Ltd. (Hypermarkets & Super
Centers)(b) 8,700 2,449,497
==========================================================================
35,875,319
==========================================================================
TAIWAN-7.36%
Asia Optical Co., Inc. (Photographic
Products)(b) 469,463 2,226,053
- --------------------------------------------------------------------------
Catcher Technology Co., Ltd. (Computer
Storage & Peripherals)(b) 757,400 2,322,796
- --------------------------------------------------------------------------
Chinatrust Financial Holding Co. Ltd.
(Diversified Banks)(b) 2,658,540 3,035,818
- --------------------------------------------------------------------------
Hon Hai Precision Industry Co., Ltd.
(Electronic Equipment Manufacturers)(b) 310,959 1,143,450
- --------------------------------------------------------------------------
Hon Hai Precision Industry Co., Ltd.-GDR REGS
(Electronic Equipment Manufacturers)
(Acquired 08/14/02-03/10/03; Cost
$1,083,796)(b)(c)(e)(f) 205,994 1,569,851
- --------------------------------------------------------------------------
Ichia Technologies, Inc. (Computer Storage &
Peripherals)(b) 929,061 1,416,538
- --------------------------------------------------------------------------
Merry Electronics Co., Ltd. (Consumer
Electronics)(b) 1,015,581 2,297,176
- --------------------------------------------------------------------------
Novatek Microelectronics Corp., Ltd.
(Semiconductors)(b) 74,801 182,093
- --------------------------------------------------------------------------
President Chain Store Corp. (Food Retail)(b) 683,086 1,020,687
- --------------------------------------------------------------------------
Taiwan Semiconductor Manufacturing Co.
Ltd.-Equity Participation Ctfs., expiring
01/14/05 (ABN AMRO) (Semiconductors)
(Acquired 01/02/03-06/14/04; Cost
$1,332,392)(c) 1,330,489 1,744,005
==========================================================================
16,958,467
==========================================================================
THAILAND-2.53%
Bangkok Bank PCL-NVDR (Diversified
Banks)(a)(g) 481,000 1,096,389
- --------------------------------------------------------------------------
Kasikornbank PCL (Diversified Banks)(a)(b) 1,527,000 1,750,528
- --------------------------------------------------------------------------
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
THAILAND-(CONTINUED)
Siam Cement PCL (The) (Construction
Materials)(b) 230,000 $ 1,437,621
- --------------------------------------------------------------------------
Siam Commercial Bank PCL (Diversified
Banks)(b) 1,480,600 1,554,343
==========================================================================
5,838,881
==========================================================================
TURKEY-1.79%
Haci Omer Sabanci Holding A.S. (Multi-Sector
Holdings) 413,100,000 1,496,334
- --------------------------------------------------------------------------
Koc Holding A.S. (Industrial Conglomerates) 434,400,000 2,632,282
==========================================================================
4,128,616
==========================================================================
UNITED KINGDOM-2.09%
Anglo American PLC (Diversified Metals &
Mining)(b) 219,200 4,813,387
==========================================================================
Total Foreign Stocks & Other Equity
Interests (Cost $139,107,681) 222,808,555
==========================================================================
<Caption>
PRINCIPAL
AMOUNT
BONDS-0.00%
BRAZIL-0.00%
Companhia Vale do Rio Doce (Diversified
Metals & Mining), Sub. Deb., 0.00%,
(Acquired 01/22/99; Cost
$0)(c)(f)(g)(i)(j)(k) BRL 276 0
==========================================================================
<Caption>
SHARES
MONEY MARKET FUNDS-1.02%
Liquid Assets Portfolio-Institutional
Class(l) 1,179,829 1,179,829
- --------------------------------------------------------------------------
STIC Prime Portfolio-Institutional Class(l) 1,179,829 1,179,829
==========================================================================
Total Money Market Funds (Cost
$2,359,658) 2,359,658
==========================================================================
TOTAL INVESTMENTS-97.68% (excluding
investments purchased with cash collateral
from securities loaned) (Cost $141,467,339) 225,168,213
==========================================================================
INVESTMENTS PURCHASED WITH CASH COLLATERAL
FROM SECURITIES LOANED
MONEY MARKET FUNDS-5.64%
Liquid Assets Portfolio-Institutional
Class(l)(m) 6,498,615 6,498,615
- --------------------------------------------------------------------------
STIC Prime Portfolio-Institutional
Class(l)(m) 6,498,615 6,498,615
==========================================================================
Total Money Market Funds (purchased with
cash collateral from securities loaned)
(Cost $12,997,230) 12,997,230
==========================================================================
TOTAL INVESTMENTS-103.32% (Cost $154,464,569) 238,165,443
==========================================================================
OTHER ASSETS LESS LIABILITIES-(3.32%) (7,649,490)
==========================================================================
NET ASSETS-100.00% $230,515,953
__________________________________________________________________________
==========================================================================
</Table>
F-3
Investment Abbreviations:
<Table>
ADR - American Depositary Receipt
BRL - Brazilian Real
Ctfs. - Certificates
Deb. - Debentures
GDR - Global Depositary Receipt
NVDR - Non-Voting Depositary Receipt
Pfd. - Preferred
REGS - Regulation S
Sub. - Subordinated
Wts. - Warrants
</Table>
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) In accordance with the procedures established by the Board of Trustees, the
foreign security is fair valued using adjusted closing market prices. The
aggregate market value of these securities at October 31, 2004 was
$89,366,664, which represented 37.52% of the Fund's Total Investments. See
Note 1A.
(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 October 31, 2004 was
$24,312,602, which represented 10.55% of the Fund's net assets. Unless
otherwise indicated, these securities are not considered to be illiquid.
(d) Non-income producing security acquired through a corporate action.
(e) All or a portion of this security has been pledged as collateral for
security lending transactions at October 31, 2004.
(f) Security considered to be illiquid. The aggregate market value of these
securities considered illiquid at October 31, 2004 was $11,433,062, which
represented 4.96% of the Fund's net assets.
(g) Security fair valued in good faith in accordance with the procedures
established by the Board of Trustees. The aggregate market value of these
securities at October 31, 2004 was $4,662,664, which represented 1.96% of
the Fund's Total Investments. See Note 1A.
(h) In accordance with the procedures established by the Board of Trustees,
security fair valued based on an evaluated quote provided by an independent
pricing service. The aggregate market value of these securities at October
31, 2004 was $7,112,742, which represented 2.99% of the Fund's Total
Investments. See Note 1A.
(i) Foreign denominated security. Par value is denominated in currency
indicated.
(j) Zero coupon bond issued at a discount and acquired through a corporate
action.
(k) Perpetual bond with no specified maturity date.
(l) The money market fund and the Fund are affiliated by having the same
investment advisor. See Note 3.
(m) 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 8.
See accompanying notes which are an integral part of the financial statements.
F-4
STATEMENT OF ASSETS AND LIABILITIES
October 31, 2004
<Table>
ASSETS:
Investments, at market value (cost
$139,107,681)* $222,808,555
- -----------------------------------------------------------
Investments in affiliated money market funds
(cost $15,356,888) 15,356,888
===========================================================
Total investments (cost $154,464,569) 238,165,443
===========================================================
Foreign currencies, at value (cost
$4,872,861) 4,962,157
- -----------------------------------------------------------
Receivables for:
Investments sold 1,809,548
- -----------------------------------------------------------
Fund shares sold 198,309
- -----------------------------------------------------------
Dividends 559,493
- -----------------------------------------------------------
Investment for trustee deferred compensation
and retirement plans 14,134
- -----------------------------------------------------------
Other assets 24,605
===========================================================
Total assets 245,733,689
___________________________________________________________
===========================================================
LIABILITIES:
Payables for:
Investments purchased 978,217
- -----------------------------------------------------------
Fund shares reacquired 405,844
- -----------------------------------------------------------
Trustee deferred compensation and
retirement plans 18,721
- -----------------------------------------------------------
Collateral upon return of securities loaned 12,997,230
- -----------------------------------------------------------
Accrued distribution fees 153,555
- -----------------------------------------------------------
Accrued trustees' fees 950
- -----------------------------------------------------------
Accrued transfer agent fees 98,473
- -----------------------------------------------------------
Accrued operating expenses 564,746
===========================================================
Total liabilities 15,217,736
===========================================================
Net assets applicable to shares outstanding $230,515,953
___________________________________________________________
===========================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $385,694,171
- -----------------------------------------------------------
Undistributed net investment income (15,136)
- -----------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities and foreign
currencies (238,936,715)
- -----------------------------------------------------------
Unrealized appreciation of investment
securities and foreign currencies 83,773,633
===========================================================
$230,515,953
___________________________________________________________
===========================================================
NET ASSETS:
Class A $197,847,726
___________________________________________________________
===========================================================
Class B $ 26,446,697
___________________________________________________________
===========================================================
Class C $ 6,221,530
___________________________________________________________
===========================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER
SHARE, UNLIMITED NUMBER OF SHARES
AUTHORIZED:
Class A 15,568,200
___________________________________________________________
===========================================================
Class B 2,119,959
___________________________________________________________
===========================================================
Class C 499,144
___________________________________________________________
===========================================================
Class A:
Net asset value per share $ 12.71
- -----------------------------------------------------------
Offering price per share:
(Net asset value of $12.71 divided by
95.25%) $ 13.34
___________________________________________________________
===========================================================
Class B:
Net asset value and offering price per
share $ 12.48
___________________________________________________________
===========================================================
Class C:
Net asset value and offering price per
share $ 12.46
___________________________________________________________
===========================================================
</Table>
* At October 31, 2004, securities with an aggregate market value of $12,421,446
were on loan to brokers.
See accompanying notes which are an integral part of the financial statements.
F-5
STATEMENT OF OPERATIONS
For the year ended October 31, 2004
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $652,851) $ 4,977,762
- -------------------------------------------------------------------------
Dividends from affiliated money market funds (including
security lending income of $73,121)* 119,062
- -------------------------------------------------------------------------
Interest 9,670
=========================================================================
Total investment income 5,106,494
=========================================================================
EXPENSES:
Advisory fees 2,305,531
- -------------------------------------------------------------------------
Administrative services fees 74,387
- -------------------------------------------------------------------------
Custodian fees 364,353
- -------------------------------------------------------------------------
Distribution fees:
Class A 976,226
- -------------------------------------------------------------------------
Class B 291,650
- -------------------------------------------------------------------------
Class C 57,331
- -------------------------------------------------------------------------
Transfer agent fees 1,030,697
- -------------------------------------------------------------------------
Trustees' fees and retirement benefits 16,291
- -------------------------------------------------------------------------
Other 313,051
=========================================================================
Total expenses 5,429,517
=========================================================================
Less: Fees waived, expenses reimbursed and expense offset
arrangement (519,317)
=========================================================================
Net expenses 4,910,200
=========================================================================
Net investment income 196,294
=========================================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES AND FOREIGN CURRENCIES:
Net realized gain (loss) from:
Investment securities (net of tax on sale of foreign
investment of $384,223 -- Note 1G) 24,335,455
- -------------------------------------------------------------------------
Foreign currencies (456,059)
=========================================================================
23,879,396
=========================================================================
Change in net unrealized appreciation (depreciation) of:
Investment securities (net of change in estimated tax on
foreign investment held of $(111,468) -- Note 1G) 17,885,672
- -------------------------------------------------------------------------
Foreign currencies 86,913
=========================================================================
17,972,585
=========================================================================
Net gain from investment securities and foreign currencies 41,851,981
=========================================================================
Net increase in net assets resulting from operations $42,048,275
_________________________________________________________________________
=========================================================================
</Table>
* Dividends from affiliated money market funds are net of income rebate paid to
security lending counterparties.
See accompanying notes which are an integral part of the financial statements.
F-6
STATEMENT OF CHANGES IN NET ASSETS
For the years ended October 31, 2004 and 2003
<Table>
<Caption>
2004 2003
- ------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 196,294 $ 631,951
- ------------------------------------------------------------------------------------------
Net realized gain from investment securities and foreign
currencies 23,879,396 5,656,632
- ------------------------------------------------------------------------------------------
Change in net unrealized appreciation of investment
securities and foreign currencies 17,972,585 73,571,951
==========================================================================================
Net increase in net assets resulting from operations 42,048,275 79,860,534
==========================================================================================
Distributions to shareholders from net investment income:
Class A (387,540) --
==========================================================================================
Share transactions-net:
Class A (47,208,187) 18,123,053
- ------------------------------------------------------------------------------------------
Class B (8,761,469) (12,324,655)
- ------------------------------------------------------------------------------------------
Class C 1,131,796 200,503
==========================================================================================
Net increase (decrease) in net assets resulting from
share transactions (54,837,860) 5,998,901
==========================================================================================
Net increase (decrease) in net assets (13,177,125) 85,859,435
==========================================================================================
NET ASSETS:
Beginning of year 243,693,078 157,833,643
==========================================================================================
End of year (including undistributed net investment income
of $(15,136) and $375,049, respectively) $230,515,953 $243,693,078
__________________________________________________________________________________________
==========================================================================================
</Table>
NOTES TO FINANCIAL STATEMENTS
October 31, 2004
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Developing Markets Fund (the "Fund") is a separate series of AIM Investment
Funds (the "Trust"). The Trust is organized as a Delaware statutory trust and is
registered under the Investment Company Act of 1940, as amended (the "1940
Act"), as an open-end series management investment company consisting of six
separate series 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 long-term growth of capital with
a secondary objective of income. 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.
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.
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").
F-7
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.
Debt obligations (including convertible bonds) are fair valued using an
evaluated quote provided by an independent pricing service. Evaluated
quotes provided by the pricing service may be determined without exclusive
reliance on quoted prices, and may reflect appropriate factors such as
institution-size trading in similar groups of securities, developments
related to specific securities, dividend rate, yield, quality, type of
issue, coupon rate, maturity, individual trading characteristics and other
market data. Short-term obligations having 60 days or less to maturity and
commercial paper are valued at amortized cost which approximates market
value.
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.
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 the event is likely to have affected the closing price of the security,
the security will be valued at fair value in good faith using procedures
approved by the Board of Trustees. Adjustments to closing prices to reflect
fair value may also be based on a screening process of an independent
pricing service to indicate the degree of certainty, based on historical
data, that the closing price in the principal market where a foreign
security trades is not the current market value as of the close of the
NYSE. Foreign securities meeting the approved degree of certainty that the
price is not reflective of current market value will be priced at the
indication of fair value from the independent pricing service. Multiple
factors may be considered by the independent pricing service in determining
adjustments to reflect fair value and may include information relating to
sector indices, ADRs, domestic and foreign index futures and
exchange-traded funds.
Securities for which market quotations are not readily available or are
unreliable are valued at fair value as determined in good faith by or under
the supervision of the Trust's officers following procedures approved by
the Board of 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.
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.
F-8
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.
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 0.975% on the first
$500 million of the Fund's average daily net assets, plus 0.95% on the next $500
million of the Fund's average daily net assets, plus 0.925% on the next $500
million of the Fund's average daily net assets, plus 0.90% on the Fund's average
daily net assets in excess of $1.5 billion. AIM has contractually agreed to
waive advisory fees and/or reimburse expenses to the extent necessary to limit
Total Annual Operating Expenses (excluding certain items discussed below) of
Class A, Class B and Class C shares to 2.00%, 2.50% and 2.50% of average daily
net assets, respectively, through October 31, 2005. 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. 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 year ended October 31, 2004, AIM waived fees of $480,137.
For the year ended October 31, 2004, at the request of the Trustees of the
Trust, AMVESCAP PLC ("AMVESCAP") agreed to assume $35,206 of expenses incurred
by the Fund in connection with matters related to recently settled regulatory
actions and investigations concerning market timing activity in the AIM Funds,
including legal, audit, shareholder servicing, communication and trustee
expenses. These expenses along with the related expense reimbursement, are
included in the Statement of Operations.
The Fund, pursuant to a master administrative services agreement with AIM,
has agreed to pay AIM for certain administrative costs incurred in providing
accounting services to the Fund. For the year ended October 31, 2004, AIM was
paid $74,387 for such services.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay AIM Investment Services, Inc. ("AISI") a fee for providing transfer agency
and shareholder services to the Fund and reimburse AISI for certain expenses
incurred by AISI in the course of providing such services. For the year ended
October 31, 2004, the Fund paid AISI $1,030,697. AISI may make payments to
intermediaries to provide omnibus account services, sub-accounting services
and/or networking 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 0.50% of the
Fund's average daily net assets of Class A shares and 1.00% of the average daily
net assets of Class B and 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. Rule 12b-1 Plan fees on Class A shares
issued as a result of conversion of shares from G.T. Developing Markets Fund,
Inc. on October 31, 1997 and in connection with the AIM Eastern Europe Fund
reorganization on September 10, 1999 are limited to 0.25% of the average net
assets of the Fund's Class A shares issued in connection with such transactions.
Pursuant to the Plans, for the year ended October 31, 2004, the Class A, Class B
and Class C shares paid $976,226, $291,650 and $57,331 respectively.
Front-end sales commissions and contingent deferred sales charges ("CDSC")
(collectively the "sales charges") are not recorded as expenses of the Fund.
Front-end sales commissions are deducted from proceeds from the sales of Fund
shares prior to investment in Class A shares of the Fund. CDSC are deducted from
redemption proceeds prior to remittance to the shareholder. During the year
ended October 31, 2004, AIM Distributors advised the Fund that it retained
$27,772 in front-end sales commissions from the sale of Class A shares and
$119,828, $2,725, and $4,183 from Class A, Class B and Class C shares,
respectively, for CDSC imposed upon redemption by shareholders.
Certain officers and trustees of the Trust are officers and directors of
AIM, AISI and/or AIM Distributors.
F-9
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. The tables below show
the transactions in and earnings from investments in affiliated money market
funds for the year ended October 31, 2004.
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 10/31/03 AT COST FROM SALES (DEPRECIATION) 10/31/04 INCOME GAIN (LOSS)
- ----------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-Institutional
Class $2,260,107 $41,634,626 $(42,714,904) $ -- $1,179,829 $23,221 $ --
- ----------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-Institutional
Class 2,260,107 41,634,626 (42,714,904) -- 1,179,829 22,720 --
==================================================================================================================================
Subtotal $4,520,214 $83,269,252 $(85,429,808) $ -- $2,359,658 $45,941 $ --
__________________________________________________________________________________________________________________________________
==================================================================================================================================
</Table>
INVESTMENTS OF CASH COLLATERAL FROM SECURITIES LENDING TRANSACTIONS:
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 10/31/03 AT COST FROM SALES (DEPRECIATION) 10/31/04 INCOME* GAIN (LOSS)
- ----------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-Institutional
Class $ 6,672,818 $ 45,523,886 $ (45,698,089) $ -- $ 6,498,615 $ 36,911 $ --
- ----------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-Institutional
Class 6,672,817 45,523,887 (45,698,089) -- 6,498,615 36,210 --
==================================================================================================================================
Subtotal $13,345,635 $ 91,047,773 $ (91,396,178) $ -- $12,997,230 $ 73,121 $ --
==================================================================================================================================
Total $17,865,849 $174,317,025 $(176,825,986) $ -- $15,356,888 $119,062 $ --
__________________________________________________________________________________________________________________________________
==================================================================================================================================
</Table>
* Dividend income is net of income rebate paid to security lending
counterparties.
NOTE 4--SECURITY TRANSACTIONS WITH AFFILIATED FUNDS
The Fund is permitted to purchase or sell securities from or to certain other
AIM Funds under specified conditions outlined in procedures adopted by the Board
of Trustees of the Trust. The procedures have been designed to ensure that any
purchase or sale of securities by the Fund from or to another fund or portfolio
that is or could be considered an affiliate by virtue of having a common
investment advisor (or affiliated investment advisors), common Trustees and/or
common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined
under the procedures each transaction is effected at the current market price.
Pursuant to these procedures, during the year ended October 31, 2004, the Fund
engaged in purchases and sales of securities of $0 and $83,840, respectively.
NOTE 5--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 year ended October 31, 2004, the
Fund received credits in transfer agency fees of $3,974 under an expense offset
arrangement, which resulted in a reduction of the Fund's total expenses of
$3,974.
NOTE 6--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 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 year ended October 31, 2004, the Fund paid legal fees of $5,070
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 7--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. 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
F-10
available on investments in overnight repurchase agreements) is favorable to
both the lending fund and the borrowing fund. A loan will be secured by
collateral if the Fund's aggregate borrowings from all sources exceeds 10% of
the Fund's total assets. 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 year ended October 31, 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 at an amount equal to the Federal
Funds rate plus 100 basis points.
NOTE 8--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 October 31, 2004, securities with an aggregate value of $12,421,446 were
on loan to brokers. The loans were secured by cash collateral of $12,997,230
received by the Fund and subsequently invested in affiliated money market funds.
For the year ended October 31, 2004, the Fund received dividends on cash
collateral net of income rebate paid to counterparties of $73,121 for securities
lending transactions.
NOTE 9--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
DISTRIBUTIONS TO SHAREHOLDERS:
The tax character of distributions paid during the years ended October 31, 2004
and 2003 was as follows:
<Table>
<Caption>
2004 2003
- -------------------------------------------------------------------------------
Distributions paid from ordinary income $387,540 $ --
_______________________________________________________________________________
===============================================================================
</Table>
TAX COMPONENTS OF NET ASSETS:
As of October 31, 2004, the components of net assets on a tax basis were as
follows:
<Table>
<Caption>
2004
- ---------------------------------------------------------------------------
Unrealized appreciation -- investments $ 83,217,174
- ---------------------------------------------------------------------------
Temporary book/tax differences (15,136)
- ---------------------------------------------------------------------------
Capital loss carryforward (238,380,256)
- ---------------------------------------------------------------------------
Shares of beneficial interest 385,694,171
===========================================================================
Total net assets $ 230,515,953
___________________________________________________________________________
===========================================================================
</Table>
The difference between book-basis and tax-basis unrealized appreciation
(depreciation) is due to differences in the timing of recognition of gains and
losses on investments for tax and book purposes. The Fund's unrealized
appreciation (depreciation) difference is attributable primarily to losses the
tax deferral of on wash sales. The tax-basis unrealized appreciation on
investments amount includes appreciation on foreign currencies of $72,759.
The temporary book/tax differences are a result of timing differences
between book and tax recognition of income and/or expenses. The Fund's temporary
book/tax differences are the result of the trustee deferral of compensation and
retirement plan expenses.
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 utilize capital loss carryforward in the future may be limited under
the Internal Revenue Code and related regulations based on the results of future
transactions. Under these limitation rules, the Fund is limited as of October
31, 2004 to utilizing $200,504,228 of capital loss carryforward in the fiscal
year ended October 31, 2005.
F-11
The Fund utilized $24,445,479 of capital loss carryforward in the current
period to offset net realized capital gain for federal income tax purposes. The
Fund has a capital loss carryforward as of October 31, 2004 which expires as
follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD*
- -----------------------------------------------------------------------------
October 31, 2005 $ 70,744,735
- -----------------------------------------------------------------------------
October 31, 2006 76,692,697
- -----------------------------------------------------------------------------
October 31, 2007 9,273,499
- -----------------------------------------------------------------------------
October 31, 2008 15,085,807
- -----------------------------------------------------------------------------
October 31, 2009 59,191,538
- -----------------------------------------------------------------------------
October 31, 2010 7,382,000
- -----------------------------------------------------------------------------
October 31, 2012 9,980
=============================================================================
Total capital loss carryforward $238,380,256
_____________________________________________________________________________
=============================================================================
</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 year ended
October 31, 2004 was $111,099,377 and $161,728,801, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- -------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $86,623,654
- -------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (3,479,239)
===============================================================================
Net unrealized appreciation of investment securities $83,144,415
_______________________________________________________________________________
===============================================================================
Cost of investments for tax purposes is $155,021,028.
</Table>
NOTE 11--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of foreign currency
transactions, net operating losses and foreign capital gain tax, on October 31,
2004, undistributed net investment income was decreased by $198,939,
undistributed net realized gain (loss) was increased by $840,282 and shares of
beneficial interest decreased by $641,343. This reclassification had no effect
on the net assets of the Fund.
F-12
NOTE 12--SHARE INFORMATION
The Fund currently offers three different classes of shares: Class A shares,
Class B shares and Class C shares. Class A shares are sold with a front-end
sales charge. Class B shares and Class C shares are sold with a CDSC. Under
certain 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(a)
- ------------------------------------------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
----------------------------------------------------------
2004 2003
-------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
- ------------------------------------------------------------------------------------------------------------------------
Sold:
Class A 3,161,632 $ 37,179,879 21,378,062 $ 175,888,823
- ------------------------------------------------------------------------------------------------------------------------
Class B 642,088 7,399,135 687,629 5,832,379
- ------------------------------------------------------------------------------------------------------------------------
Class C 934,253 10,692,654 3,620,023 28,027,976
========================================================================================================================
Issued as reinvestment of dividends:
Class A 29,076 314,212 -- --
========================================================================================================================
Automatic conversion of Class B shares to Class A shares:
Class A 587,037 6,828,510 1,240,782 9,667,175
- ------------------------------------------------------------------------------------------------------------------------
Class B (596,411) (6,828,510) (1,256,198) (9,667,175)
========================================================================================================================
Reacquired:(b)
Class A (8,100,696) (91,530,788) (20,514,740) (167,432,945)
- ------------------------------------------------------------------------------------------------------------------------
Class B (832,457) (9,332,094) (1,090,836) (8,489,859)
- ------------------------------------------------------------------------------------------------------------------------
Class C (856,693) (9,560,858) (3,569,799) (27,827,473)
========================================================================================================================
(5,032,171) $(54,837,860) 494,923 $ 5,998,901
________________________________________________________________________________________________________________________
========================================================================================================================
</Table>
(a) There are two entities that are each record owners of more than 5% of the
outstanding shares of the Fund and in the aggregate they own 19% of the
outstanding shares of the Fund. AIM Distributors has an agreement with these
entities to sell Fund shares. The Fund, AIM, and/or AIM affiliates may make
payments to these entities, which are considered to be related to the Fund,
for providing services to the Fund, AIM and/or AIM affiliates including but
not limited to services such as, securities brokerage, distribution, third
party record keeping and account servicing. The trust has no knowledge as to
whether all or any portion of the shares owned of record by these
shareholders are also owned beneficially.
(b) Amount is net of redemption fees of $33,118, $4,843 and $957 for Class A,
Class B and Class C shares for 2004.
F-13
NOTE 13--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
CLASS A
--------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
--------------------------------------------------------------------
2004 2003 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 10.52 $ 6.96 $ 6.32 $ 8.89 $ 9.86
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.02(a) 0.04(a) (0.01)(a) 0.15(a) 0.01(a)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 2.19 3.52 0.74 (2.67) (0.95)
=================================================================================================================================
Total from investment operations 2.21 3.56 0.73 (2.52) (0.94)
=================================================================================================================================
Less distributions from net investment income (0.02) -- (0.09) (0.05) (0.04)
- ---------------------------------------------------------------------------------------------------------------------------------
Redemption fees added to shares of beneficial interest 0.00 -- -- -- 0.01
=================================================================================================================================
Net asset value, end of period $ 12.71 $ 10.52 $ 6.96 $ 6.32 $ 8.89
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) 21.05% 51.15% 11.37% (28.51)% (9.52)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $197,848 $209,221 $123,812 $110,756 $136,160
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 2.00%(c) 2.00% 1.84% 1.76% 1.87%
- ---------------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 2.22%(c) 2.33% 2.35% 2.26% 1.95%
=================================================================================================================================
Ratio of net investment income (loss) to average net assets 0.16%(c) 0.44% (0.07)% 1.95% 0.05%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate 49% 100% 109% 144% 192%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</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.
(c) Ratios are based on average daily net assets of $201,566,562.
<Table>
<Caption>
CLASS B
----------------------------------------------------------------
YEAR ENDED OCTOBER 31,
----------------------------------------------------------------
2004 2003 2002 2001 2000
- ------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 10.36 $ 6.89 $ 6.25 $ 8.79 $ 9.79
- ------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.04)(a) (0.01)(a) (0.05)(a) 0.11(a) (0.06)(a)
- ------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 2.16 3.48 0.73 (2.65) (0.94)
==============================================================================================================================
Total from investment operations 2.12 3.47 0.68 (2.54) (1.00)
==============================================================================================================================
Less distributions from net investment income -- -- (0.04) -- --
- ------------------------------------------------------------------------------------------------------------------------------
Redemption fees added to shares of beneficial interest 0.00 -- -- -- --
==============================================================================================================================
Net asset value, end of period $ 12.48 $ 10.36 $ 6.89 $ 6.25 $ 8.79
______________________________________________________________________________________________________________________________
==============================================================================================================================
Total return(b) 20.46% 50.36% 10.85% (28.90)% (10.21)%
______________________________________________________________________________________________________________________________
==============================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $26,447 $30,111 $31,465 $ 51,040 $79,754
______________________________________________________________________________________________________________________________
==============================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 2.52%(c) 2.53% 2.38% 2.35% 2.47%
- ------------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 2.74%(c) 2.86% 2.89% 2.85% 2.55%
==============================================================================================================================
Ratio of net investment income (loss) to average net assets (0.36)%(c) (0.08)% (0.61)% 1.36% (0.56)%
______________________________________________________________________________________________________________________________
==============================================================================================================================
Portfolio turnover rate 49% 100% 109% 144% 192%
______________________________________________________________________________________________________________________________
==============================================================================================================================
</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.
(c) Ratios are based on average daily net assets of $29,165,039.
F-14
NOTE 13--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS C
------------------------------------------------------------
YEAR ENDED OCTOBER 31,
------------------------------------------------------------
2004 2003 2002 2001 2000
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $10.34 $ 6.88 $ 6.25 $ 8.79 $ 9.79
- --------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.04)(a) (0.01)(a) (0.05)(a) 0.10(a) (0.06)(a)
- --------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 2.16 3.47 0.72 (2.64) (0.94)
==========================================================================================================================
Total from investment operations 2.12 3.46 0.67 (2.54) (1.00)
==========================================================================================================================
Less distributions from net investment income -- -- (0.04) -- --
- --------------------------------------------------------------------------------------------------------------------------
Redemption fees added to shares of beneficial interest 0.00 -- -- -- --
==========================================================================================================================
Net asset value, end of period $12.46 $10.34 $ 6.88 $ 6.25 $ 8.79
__________________________________________________________________________________________________________________________
==========================================================================================================================
Total return(b) 20.50% 50.29% 10.69% (28.90)% (10.21)%
__________________________________________________________________________________________________________________________
==========================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $6,222 $4,361 $2,557 $1,682 $1,618
__________________________________________________________________________________________________________________________
==========================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 2.52%(c) 2.53% 2.38% 2.35% 2.47%
- --------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 2.74%(c) 2.86% 2.89% 2.85% 2.55%
==========================================================================================================================
Ratio of net investment income (loss) to average net assets (0.36)%(c) (0.08)% (0.61)% 1.36% (0.56)%
__________________________________________________________________________________________________________________________
==========================================================================================================================
Portfolio turnover rate 49% 100% 109% 144% 192%
__________________________________________________________________________________________________________________________
==========================================================================================================================
</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.
(c) Ratios are based on average daily net assets of $5,733,151.
NOTE 14--LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
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, contractual plans, issues
related to Section 529 college savings plans and procedures for locating lost
securityholders.
As described more fully below, INVESCO Funds Group, Inc. ("IFG"), the former
investment advisor to certain AIM Funds, A I M Advisors, Inc. ("AIM"), the
Fund's investment advisor, and A I M Distributors, Inc. ("ADI"), the distributor
of the retail AIM Funds and a wholly owned subsidiary of AIM, reached final
settlements with the Securities and Exchange Commission ("SEC"), the New York
Attorney General ("NYAG"), the Colorado Attorney General ("COAG"), the Colorado
Division of Securities ("CODS") and the Secretary of State of the State of
Georgia to resolve civil enforcement actions and investigations related to
market timing activity and related issues in the AIM Funds, including those
formerly advised by IFG.
In addition, as described more fully below, IFG and AIM are the subject of a
number of ongoing regulatory inquiries and civil lawsuits related to one or more
of the issues currently being scrutinized by various Federal and state
regulators, including but not limited to those issues described above.
Additional regulatory actions and/or civil lawsuits related to the above or
other issues may be filed against the AIM Funds, 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 the AIM Funds, IFG, AIM
and/or related entities and individuals in the future.
As a result of the matters discussed below, investors in the AIM 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.
Settled Enforcement Actions and Investigations Related to Market Timing
On October 8, 2004, AMVESCAP PLC ("AMVESCAP"), the parent company of IFG and
AIM, announced that final settlements had been reached with the SEC, the NYAG,
the COAG and the Secretary of State of Georgia to resolve civil enforcement
actions and investigations related to market timing activity and related issues
in the AIM Funds, including those formerly advised by IFG. A final settlement
also has been reached with the Colorado Division of Securities ("CODS") with
respect to this matter. In their enforcement actions and investigations, these
regulators alleged, in substance, that IFG and AIM failed to disclose in the
prospectuses for the AIM Funds that they advised and to the independent
directors/trustees of such Funds that IFG and AIM had entered into certain
arrangements permitting market timing of such Funds, thereby breaching their
fiduciary duties to such Funds. As a result of the foregoing, the regulators
alleged that IFG, AIM and ADI breached various Federal and state securities,
business and consumer protection laws. Under the terms of the settlements, IFG,
AIM and ADI consent to the entry of settlement orders or assurances of
discontinuance, as applicable, by the regulators containing certain terms, some
of which are described below, without admitting or denying any wrongdoing.
F-15
NOTE 14--LEGAL PROCEEDINGS (CONTINUED)
Under the terms of the settlements, IFG agreed to pay a total of $325 million,
of which $110 million is civil penalties. Of the $325 million total payment,
half will be paid on or before December 31, 2004 and the remaining half will be
paid on or before December 31, 2005. AIM and ADI agreed to pay a total of $50
million, of which $30 million is civil penalties. The entire $50 million payment
by AIM and ADI has been paid.
The entire $325 million IFG settlement payment will be available for
distribution to the shareholders of those AIM Funds that IFG formerly advised
that were harmed by market timing activity, and the entire $50 million
settlement payment by AIM and ADI will be available for distribution to the
shareholders of those AIM Funds advised by AIM that were harmed by market timing
activity, all as to be determined by an independent distribution consultant to
be appointed under the settlements. The settlement payments will be distributed
in accordance with a methodology to be determined by the independent
distribution consultant, in consultation with AIM and the independent trustees
of the AIM Funds and acceptable to the staff of the SEC.
Under the settlements with the NYAG and COAG, AIM has agreed to reduce
management fees on the AIM Funds by $15 million per year for the next five
years, based upon effective fee rates and assets under management as of July 1,
2004, and not to increase certain management fees. IFG will also pay $1.5
million to the COAG to be used for investor education purposes and to reimburse
the COAG for actual costs. Finally, IFG and AIM will pay $175,000 to the
Secretary of State of Georgia to be used for investor education purposes and to
reimburse the Secretary of State for actual costs.
None of the costs of the settlements will be borne by the AIM Funds or by Fund
shareholders.
Under the terms of the settlements, AIM will make certain governance reforms,
including maintaining an internal controls committee and retaining an
independent compliance consultant, a corporate ombudsman and, as stated above,
an independent distribution consultant. Also, commencing in 2007 and at least
once every other year thereafter, AIM will undergo a compliance review by an
independent third party.
In addition, under the terms of the settlements, AIM has undertaken to cause
the AIM Funds to operate in accordance with certain governance policies and
practices, including retaining a full-time independent senior officer whose
duties will include monitoring compliance and managing the process by which
proposed management fees to be charged the AIM Funds are negotiated. Also,
commencing in 2008 and not less than every fifth calendar year thereafter, the
AIM Funds will hold shareholder meetings at which their Boards of Trustees will
be elected.
On October 8, 2004, the SEC announced that it had settled a market timing
enforcement action against Raymond R. Cunningham, the former president and chief
executive officer of IFG and a former member of the board of directors of the
AIM Funds formerly advised by IFG. As part of the settlement, the SEC ordered
Mr. Cunningham to pay $1 in restitution and civil penalties in the amount of
$500,000. In addition, the SEC prohibited Mr. Cunningham from associating with
an investment advisor, broker, dealer or investment company for a period of two
years and further prohibited him from serving as an officer or director of an
investment advisor, broker, dealer or investment company for a period of five
years.
On August 31, 2004, the SEC announced that it had settled market timing
enforcement actions against Timothy J. Miller, the former chief investment
officer and a former portfolio manager for IFG, Thomas A. Kolbe, the former
national sales manager of IFG, and Michael D. Legoski, a former assistant vice
president in IFG's sales department. As part of the settlements, the SEC ordered
Messrs. Miller, Kolbe and Legoski to pay $1 in restitution each and civil
penalties in the amounts of $150,000, $150,000 and $40,000, respectively. In
addition, the SEC prohibited each of them from associating with an investment
advisor or investment company for a period of one year, prohibited Messrs.
Miller and Kolbe from serving as an officer or director of an investment advisor
or investment company for three years and two years, respectively, and
prohibited Mr. Legoski from associating with a broker or dealer for a period of
one year.
As referenced by the SEC in the SEC's settlement order, one former officer of
ADI and one current officer of AIM (who has taken a voluntary leave of absence)
have received regulatory inquiries in the form of subpoenas or other oral or
written requests for information and/or documents related to market timing
activity in the AIM Funds.
At the request of the trustees of the AIM Funds, AMVESCAP has agreed to pay
all of the expenses incurred by such Funds related to the market timing
investigations, including expenses incurred in connection with the regulatory
complaints against IFG alleging market timing and the market timing
investigations with respect to IFG and AIM.
The payments made in connection with the above-referenced settlements by IFG,
AIM and ADI will total approximately $375 million (not including AIM's agreement
to reduce management fees on the AIM Funds by $15 million per year for the next
five years, based upon effective fee rates and assets under management as of
July 1, 2004). The manner in which the settlement payments will be distributed
is unknown at the present time and will be determined by an independent
distribution consultant to be appointed under the settlement agreements.
Therefore, management of AIM and the Fund are unable at the present time to
estimate the impact, if any, that the distribution of the settlement amounts may
have on the Fund or whether such distribution will have an impact on the Fund's
financial statements in the future.
At the present time, management of AIM and the Fund are unable to estimate the
impact, if any, that the outcome of the ongoing matters described below may have
on AIM, ADI or the Fund.
Ongoing Regulatory Inquiries Concerning IFG and AIM
IFG, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds formerly advised by IFG 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 such 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 SEC, the NASD,
Inc. ("NASD"), the Florida Department of Financial Services, 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. 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 of the AIM
Funds formerly advised by IFG. IFG is providing full cooperation with respect to
these inquiries.
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
F-16
NOTE 14--LEGAL PROCEEDINGS (CONTINUED)
practices, including revenue sharing and directed-brokerage arrangements,
investments in securities of other registered investment companies, contractual
plans, issues related to Section 529 college savings plans and procedures for
locating lost securityholders. These regulators include the SEC, the NASD, the
Department of Banking for the State of Connecticut, 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 SEC, the NASD, the DOL, the
Internal Revenue Service, the New York Stock Exchange, 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 AIM Funds, IFG, AIM, A I M Management Group Inc. ("AIM
Management"), AMVESCAP, certain related entities, certain of their current and
former officers and/or certain unrelated third parties) making allegations that
are similar in many respects to those in the settled regulatory actions brought
by the SEC, the NYAG and the COAG concerning market timing activity in the AIM
Funds. 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 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; injunctive relief; disgorgement of management fees; imposition of a
constructive trust; removal of certain directors and/or employees; various
corrective measures under ERISA; rescission of certain Funds' advisory
agreements; interest; and attorneys' and experts' fees.
All lawsuits based on allegations of market timing, late trading, and related
issues have been transferred to the United States District Court for the
District of Maryland (the "MDL Court") for consolidated or coordinated pre-trial
proceedings. Pursuant to an Order of the MDL Court, plaintiffs consolidated
their claims for pre-trial purposes into three amended complaints against
various AIM- and IFG-related parties: (i) a Consolidated Amended Class Action
Complaint purportedly brought on behalf of shareholders of the AIM Funds; (ii) a
Consolidated Amended Fund Derivative Complaint purportedly brought on behalf of
the AIM Funds and fund registrants; and (iii) an Amended Class Action Complaint
for Violations of the Employee Retirement Income Securities Act purportedly
brought on behalf of participants in AMVESCAP's 401(k) plan. Plaintiffs in one
of the underlying lawsuits transferred to the MDL Court continue to seek remand
of their action 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 AIM Funds, IFG and/or AIM)
alleging that certain AIM 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/or 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, INVESCO Institutional (N.A.), Inc., ADI and/or INVESCO
Distributors, Inc.) alleging that the defendants charged excessive advisory
and/or 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 Federal
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 Charging of Distribution Fees on Closed
Funds or Share Classes
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, IFG, AIM, ADI and/or certain of the trustees of the AIM 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 Federal 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. and/or
certain of the trustees of the AIM Funds) alleging that the defendants
improperly used the assets of the AIM Funds to pay brokers to aggressively
promote the sale of the AIM 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.
F-17
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees and Shareholders of
AIM Developing Markets Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the AIM Developing Markets Fund
(the "Fund") at October 31, 2004, the results of its operations for the year
then ended, the changes in its net assets for each of the two years in the
period then ended and the financial highlights for each of the five years in the
period then ended, in conformity with accounting principles generally accepted
in the United States of America. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at October 31, 2004 by correspondence with the
custodian and brokers, provide a reasonable basis for our opinion.
/s/ PRICEWATERHOUSECOOPERS LLP
December 20, 2004
Houston, Texas
F-18
OTHER INFORMATION
TRUSTEES AND OFFICERS
As of October 31, 2004
The address of each trustee and officer of AIM Investment Funds (the "Trust"),
is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee oversees 114
portfolios in the AIM Funds complex. The trustees serve for the life of the
Trust, subject to their earlier death, incapacitation, resignation, retirement
or removal as more specifically provided in the Trust's organizational
documents. Column two below includes length of time served with predecessor
entities, if any.
<Table>
<Caption>
NAME, YEAR OF BIRTH AND TRUSTEE AND/
POSITION(S) HELD WITH THE OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- -------------------------------------------------------------------------------------------------------------------------------
INTERESTED PERSONS
- -------------------------------------------------------------------------------------------------------------------------------
Robert H. Graham(1) -- 1946 1998 Director and Chairman, A I M Management Group Inc. None
Trustee and President (financial services holding company); Director and
Vice Chairman, AMVESCAP PLC and Chairman, AMVESCAP
PLC -- AIM Division (parent of AIM and a global
investment management firm)
Formerly: President and Chief Executive Officer,
A I M Management Group Inc.; Director, Chairman
and President, A I M Advisors, Inc. (registered
investment advisor); Director and Chairman, A I M
Capital Management, Inc. (registered investment
advisor), A I M Distributors, Inc. (registered
broker dealer), AIM Investment Services, Inc.,
(registered transfer agent), and Fund Management
Company (registered broker dealer); and Chief
Executive Officer, AMVESCAP PLC -- Managed
Products
- -------------------------------------------------------------------------------------------------------------------------------
Mark H. Williamson(2) -- 1951 2003 Director, President and Chief Executive Officer, None
Trustee and Executive Vice A I M Management Group Inc. (financial services
President holding company); Director, Chairman and
President, A I M Advisors, Inc. (registered
investment advisor); Director, A I M Capital
Management, Inc. (registered investment advisor)
and A I M Distributors, Inc. (registered broker
dealer); Director and Chairman, AIM Investment
Services, Inc. (registered transfer agent), Fund
Management Company (registered broker dealer) and
INVESCO Distributors, Inc. (registered broker
dealer); and Chief Executive Officer, AMVESCAP
PLC -- AIM Division (parent of AIM and a global
investment management firm)
Formerly: Director, Chairman, President and Chief
Executive Officer, INVESCO Funds Group, Inc.;
President and Chief Executive Officer, INVESCO
Distributors, Inc.; Chief Executive Officer,
AMVESCAP PLC -- Managed Products; Chairman and
Chief Executive Officer of NationsBanc Advisors,
Inc.; and Chairman of NationsBanc Investments,
Inc.
- -------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- -------------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett(3) -- 1944 2001 Chairman, Crockett Technology Associates ACE Limited (insurance
Trustee and Chair (technology consulting company) company); and
Captaris, Inc.
(unified messaging
provider)
- -------------------------------------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 2003 Retired None
Trustee
Formerly: President and Chief Executive Officer,
AMC Cancer Research Center; and Chairman and Chief
Executive Officer, First Columbia Financial
Corporation
- -------------------------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 1987 Retired Badgley Funds, Inc.
Trustee (registered investment
Formerly: Partner, law firm of Baker & McKenzie company)
- -------------------------------------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 2003 Co-President and Founder, Green, Manning & Bunch None
Trustee Ltd., (investment banking firm); and Director,
Policy Studies, Inc. and Van Gilder Insurance
Corporation
- -------------------------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2001 Director of a number of public and private Cortland Trust, Inc.
Trustee business corporations, including the Boss Group (Chairman) (registered
Ltd. (private investment and management) and investment company);
Magellan Insurance Company Annuity and Life Re
(Holdings), Ltd.
Formerly: Director, President and Chief Executive (insurance company)
Officer, Volvo Group North America, Inc.; Senior
Vice President, AB Volvo; and director of various
affiliated Volvo companies
- -------------------------------------------------------------------------------------------------------------------------------
Edward K. Dunn, Jr. -- 1935 2001 Retired None
Trustee
Formerly: Chairman, Mercantile Mortgage Corp.;
President and Chief Operating Officer,
Mercantile-Safe Deposit & Trust Co.; and
President, Mercantile Bankshares Corp.
- -------------------------------------------------------------------------------------------------------------------------------
Jack M. Fields -- 1952 2001 Chief Executive Officer, Twenty First Century Administaff, and
Trustee Group, Inc. (government affairs company) and Discovery Global
Texana Timber LP (sustainable forestry company) Education Fund (non-
profit)
- -------------------------------------------------------------------------------------------------------------------------------
</Table>
(1) Mr. Graham is considered an interested person of the Trust because he is a
director of AMVESCAP PLC, parent of the advisor to the Trust. Prior to
October 4, 2004, Mr. Graham served as Chairman of the Board of Trustees of
the Trust.
(2) Mr. Williamson is considered an interested person of the Trust because he is
an officer and a director of the advisor to, and a director of the principal
underwriter of, the Trust.
(3) Mr. Crockett was elected Chair of the Board of Trustees of the Trust
effective October 4, 2004.
Trustees and Officers (continued)
As of October 31, 2004
The address of each trustee and officer of AIM Investment Funds (the "Trust"),
is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee oversees 114
portfolios in the AIM Funds complex. The trustees serve for the life of the
Trust, subject to their earlier death, incapacitation, resignation, retirement
or removal as more specifically provided in the Trust's organizational
documents. Column two below includes length of time served with predecessor
entities, if any.
<Table>
<Caption>
NAME, YEAR OF BIRTH AND TRUSTEE AND/ PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST OR OFFICER SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- --------------------------------------------------------------------------------------------------------------
Carl Frischling -- 1937 2001 Partner, law firm of Kramer Cortland Trust, Inc.
Trustee Levin Naftalis and Frankel LLP (registered investment
company)
- --------------------------------------------------------------------------------------------------------------
Gerald J. Lewis -- 1933 2003 Chairman, Lawsuit Resolution General Chemical
Trustee Services (California) Group, Inc.
Formerly: Associate Justice of
the California Court of Appeals
- --------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 2001 Formerly: Chief Executive None
Trustee Officer, YWCA of the USA
- --------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 2001 Partner, law firm of Pennock & None
Trustee Cooper
- --------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 1987 Retired None
Trustee
- --------------------------------------------------------------------------------------------------------------
Louis S. Sklar -- 1939 2001 Executive Vice President, None
Trustee Development and Operations,
Hines Interests Limited
Partnership (real estate
development company)
- --------------------------------------------------------------------------------------------------------------
Larry Soll -- 1942 2003 Retired None
Trustee
- --------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- --------------------------------------------------------------------------------------------------------------
Lisa O. Brinkley(4) -- 1959 2004 Senior Vice President, A I M N/A
Senior Vice President and Management Group Inc. (financial
Chief Compliance Officer services holding company);
Senior Vice President and Chief
Compliance Officer, A I M
Advisors, Inc.; Vice President
and Chief Compliance Officer,
A I M Capital Management, Inc.
and A I M Distributors, Inc.;
and Vice President, AIM
Investment Services, Inc. and
Fund Management Company
Formerly: Senior Vice President
and Compliance Director,
Delaware Investments Family of
Funds
- --------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 2003 Director, Senior Vice President, N/A
Senior Vice President, Secretary and General Counsel,
Secretary and Chief Legal A I M Management Group Inc.
Officer (financial services holding
company) and A I M Advisors,
Inc.; Director and Vice
President, INVESCO Distributors,
Inc.; Vice President, A I M
Capital Management, Inc., and
AIM Investment Services, Inc.;
Director, Vice President and
General Counsel, Fund Management
Company and Senior Vice
President, A I M Distributors,
Inc.
Formerly: Senior Vice President
and General Counsel, Liberty
Financial Companies, Inc.;
Senior Vice President and
General Counsel, Liberty Funds
Group, LLC and Vice President,
A I M Distributors, Inc.
- --------------------------------------------------------------------------------------------------------------
Stuart W. Coco -- 1955 2002 Managing Director and Director N/A
Vice President of Money Market Research and
Special Projects, A I M Capital
Management, Inc.; and Vice
President, A I M Advisors, Inc.
- --------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund N/A
Vice President and Treasurer Treasurer, A I M Advisors, Inc.
Formerly: Senior Vice President,
AIM Investment Services, Inc.;
and Vice President, A I M
Distributors, Inc.
- --------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 2004 Director of Cash Management, N/A
Vice President Managing Director and Chief Cash
Management Officer, A I M
Capital Management, Inc;
Director and President, Fund
Management Company; and Vice
President, A I M Advisors, Inc.
- --------------------------------------------------------------------------------------------------------------
Edgar M. Larsen -- 1940 2002 Executive Vice President, A I M N/A
Vice President Management Group, Inc.; Senior
Vice President, A I M Advisors,
Inc., and President, Director of
Investments, Chief Executive
Officer and Chief Investment
Officer, A I M Capital
Management, Inc.
Formerly: Director of A I M
Advisors, Inc. and A I M
Management Group Inc., A I M
Advisors, Inc.; and Director and
Chairman, A I M Capital
Management, Inc.
- --------------------------------------------------------------------------------------------------------------
</Table>
(4) Ms. Brinkley was elected Senior Vice President and Chief Compliance Officer
of the Trust effective September 20, 2004.
The Statement of Additional Information of the Trust includes additional
information about the Fund's Trustees and is available upon request, without
charge, by calling 1.800.959.4246.
<Table>
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS
11 Greenway Plaza A I M Advisors, Inc. A I M Distributors, PricewaterhouseCoopers
Suite 100 11 Greenway Plaza Inc. LLP
Houston, TX 77046-1173 Suite 100 11 Greenway Plaza 1201 Louisiana
Houston, TX 77046-1173 Suite 100 Street
Houston, TX Suite 2900
77046-1173 Houston, Texas
77002-5678
COUNSEL TO THE FUND COUNSEL TO THE TRUSTEES TRANSFER AGENT CUSTODIAN
Ballard Spahr Kramer, Levin, Naftalis AIM Investment State Street Bank
Andrews & Ingersoll, & Frankel LLP Services, Inc. and Trust Company
LLP 919 Third Avenue P.O. Box 4739 225 Franklin Street
1735 Market Street New York, NY 10022-3852 Houston, TX Boston, MA
Philadelphia, PA 19103-7599 77210-4739 02110-2801
</Table>
REQUIRED FEDERAL INCOME TAX INFORMATION (UNAUDITED)
Of ordinary dividends paid to shareholders during the Fund's tax year ended
October 31, 2004, 0% is eligible for the dividends received deduction for
corporations. For its tax year ended October 31, 2004, the Fund designated
100.00%, or the maximum amount allowable of its dividend distributions as
qualified dividend income. Your actual amount of qualified dividend income for
the calendar year will be reported on Form 1099-DIV. You should consult your tax
advisor regarding treatment of these amounts.
<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(5) AIM High Yield Fund
AIM Blue Chip Fund AIM Global Aggressive Growth Fund AIM Income Fund
AIM Capital Development Fund AIM Global Equity Fund(6) 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 Core Stock Fund(1) AIM International Core Equity Fund(1) AIM Short Term Bond Fund
AIM Dent Demographic Trends Fund AIM International Emerging Growth Fund(7) AIM Total Return Bond Fund
AIM Diversified Dividend Fund AIM International Growth Fund Premier U.S. Government Money Portfolio(1)
AIM Dynamics Fund(1) AIM Trimark Fund
AIM Emerging Growth Fund TAX-FREE
AIM Large Cap Basic Value Fund
AIM Large Cap Growth Fund SECTOR EQUITY AIM High Income Municipal Fund
AIM Libra Fund AIM Municipal Bond Fund
AIM Mid Cap Basic Value Fund AIM Advantage Health Sciences Fund(1) AIM Tax-Exempt Cash Fund
AIM Mid Cap Core Equity Fund(2) AIM Energy Fund(1) AIM Tax-Free Intermediate Fund
AIM Mid Cap Growth Fund AIM Financial Services Fund(1)
AIM Mid Cap Stock Fund(1) AIM Global Health Care Fund
AIM Opportunities I Fund AIM Gold & Precious Metals Fund(1) AIM ALLOCATION SOLUTIONS
AIM Opportunities II Fund AIM Health Sciences Fund(1)
AIM Opportunities III Fund AIM Leisure Fund(1) AIM Aggressive Allocation Fund
AIM Premier Equity Fund AIM Multi-Sector Fund(1) AIM Conservative Allocation Fund
AIM S&P 500 Index Fund(1) AIM Real Estate Fund AIM Moderate Allocation Fund
AIM Select Equity Fund AIM Technology Fund(1)
AIM Small Cap Equity Fund(3) AIM Utilities Fund(1)
AIM Small Cap Growth Fund(4)
AIM Small Company Growth Fund(1) ===============================================================================
AIM Total Return Fund*(1) CONSIDER THE INVESTMENT OBJECTIVES, RISKS, AND CHARGES AND EXPENSES CAREFULLY.
AIM Trimark Endeavor Fund FOR THIS AND OTHER INFORMATION ABOUT AIM FUNDS, OBTAIN A PROSPECTUS FROM YOUR
AIM Trimark Small Companies Fund FINANCIAL ADVISOR AND READ IT THOROUGHLY BEFORE INVESTING.
AIM Weingarten Fund ===============================================================================
</Table>
* Domestic equity and income fund
(1) The following name changes became effective October 15, 2004: INVESCO
Advantage Health Sciences Fund to AIM Advantage Health Sciences Fund, INVESCO
Core Equity Fund to AIM Core Stock Fund, INVESCO Dynamics Fund to AIM Dynamics
Fund, INVESCO Energy Fund to AIM Energy Fund, INVESCO Financial Services Fund to
AIM Financial Services Fund, INVESCO Gold & Precious Metals Fund to AIM Gold &
Precious Metals Fund, INVESCO Health Sciences Fund to AIM Health Sciences Fund,
INVESCO International Core Equity Fund to AIM International Core Equity Fund,
INVESCO Leisure Fund to AIM Leisure Fund, INVESCO Mid-Cap Growth Fund to AIM Mid
Cap Stock Fund, INVESCO Multi-Sector Fund to AIM Multi-Sector Fund, INVESCO S&P
500 Index Fund to AIM S&P 500 Index Fund, INVESCO Small Company Growth Fund to
AIM Small Company Growth Fund, INVESCO Technology Fund to AIM Technology Fund,
INVESCO Total Return Fund to AIM Total Return Fund, INVESCO U.S. Government
Money Fund to Premier U.S. Government Money Portfolio, INVESCO Utilities Fund to
AIM Utilities Fund. (2) As of the close of business on February 27, 2004, AIM
Mid Cap Core Equity Fund is available to new investors on a limited basis. For
information on who may continue to invest in AIM Mid Cap Core Equity Fund,
please contact your financial advisor. (3) Effective December 13, 2004, AIM
Small Cap Equity Fund is open to all investors. (4) AIM Small Cap Growth Fund
was closed to most investors on March 18, 2002. For information on who may
continue to invest in AIM Small Cap Growth Fund, please contact your financial
advisor. (5) AIM European Small Company Fund will close to new investors when
net assets reach $500 million. (6) Effective March 31, 2004, AIM Global Trends
Fund was renamed AIM Global Equity Fund. (7) AIM International Emerging Growth
Fund will close to new investors when net assets reach $500 million.
If used after January 20, 2005, 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 $132 billion in assets. AIM is a subsidiary of
AMVESCAP PLC, one of the world's largest independent financial services
companies with $363 billion in assets under management. Data as of September 30,
2004.
AIMinvestments.com DVM-AR-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 GLOBAL HEALTH CARE FUND
Annual Report to Shareholders o October 31, 2004
[COVER IMAGE]
YOUR GOALS. OUR SOLUTIONS. [AIM INVESTMENTS LOGO APPEARS HERE]
--Registered Trademark-- --Registered Trademark--
<Table>
===================================================================================================================================
AIM GLOBAL HEALTH CARE FUND SEEKS LONG-TERM GROWTH OF CAPITAL.
o Unless otherwise stated, information presented in this report is as of 10/31/04 and is based on total net assets.
===================================================================================================================================
ABOUT SHARE CLASSES
o Effective 9/30/03, Class B shares are o The unmanaged Lipper Health/Biotech The fund files its complete schedule of
not available as an investment for Fund Index represents an average of the portfolio holdings with the Securities
retirement plans maintained pursuant to 30 largest health and biotechnology and Exchange Commission ("SEC") for the
Section 401 of the Internal Revenue funds tracked by Lipper, Inc., an 1st and 3rd quarters of each fiscal year
Code, including 401(k) plans, money independent mutual fund performance on Form N-Q. The fund's Form N-Q filings
purchase pension plans and profit monitor. are available on the SEC's Web site at
sharing plans. Plans that have existing http://www.sec.gov. Copies of the fund's
accounts invested in Class B shares will o The unmanaged Standards & Poor's Forms N-Q may be reviewed and copied at
continue to be allowed to make Composite Index of 500 Stocks (the S&P the SEC's Public Reference Room at 450
additional purchases. 500--Registered Trademark--) is an index Fifth Street, N.W., Washington, D.C.
of common stocks frequently used as a 20549-0102. You can obtain information
PRINCIPAL RISKS OF INVESTING IN THE FUND general measure of U.S. stock market on the operation of the Public Reference
performance. Room, including information about
o International investing presents duplicating fee charges, by calling
certain risks not associated with o The unmanaged MSCI Europe Index is a 1-202-942-8090 or by electronic request
investing solely in the United States. group of European securities tracked by at the following e-mail address:
These include risks relating to Morgan Stanley Capital International. publicinfo@sec.gov. The SEC file numbers
fluctuations in the value of the U.S. for the fund are 811-05426 and 33-39519.
dollar relative to the values of other o The fund is not managed to track the The fund's most recent portfolio
currencies, the custody arrangements performance of any particular index, holdings, as filed on Form N-Q, are also
made for the fund's foreign holdings, including the indexes defined here, and available at AIMinvestments.com.
differences in accounting, political consequently, the performance of the
risks and the lesser degree of public fund may deviate significantly from the A description of the policies and
information required to be provided by performance of the indexes. procedures that the fund uses to
non-U.S. companies. determine how to vote proxies relating
o A direct investment cannot be made in to portfolio securities is available
o By concentrating on a small number of an index. Unless otherwise indicated, without charge, upon request, from our
holdings, the fund carries greater risk index results include reinvested Client Services department at
because each investment has a greater dividends, and they do not reflect sales 800-959-4246 or on the AIM Web site,
effect on the fund's overall charges. Performance of an index of AIMinvestments.com. On the home page,
performance. funds reflects fund expenses; scroll down and click on AIM Funds Proxy
performance of a market index does not. Policy. The information is also
o Investing in a single-sector or available on the Securities and Exchange
single-region mutual fund involves OTHER INFORMATION Commission's Web site, sec.gov.
greater risk and potential reward than
investing in a more diversified fund. o Industry classifications used in this Information regarding how the fund voted
report are generally according to the proxies related to its portfolio
ABOUT INDEXES USED IN THIS REPORT Global Industry Classification Standard, securities during the 12 months ended
which was developed by and is the 6/30/04 is available at our Web site. Go
o The unmanaged MSCI World Index is a exclusive property and a service mark of to AIMinvestments.com, access the About
group of global securities tracked by Morgan Stanley Capital International Us tab, click on Required Notices and
Morgan Stanley Capital International. Inc. and Standard & Poor's. then click on Proxy Voting Activity.
Next, select your fund from the
o The MSCI World Health Care Index, a o The returns shown in the Management's drop-down menu.
subset of the MSCI World Index, includes Discussion of Fund Performance are based
health care securities from developed on net asset values calculated for
countries. shareholder transactions. Generally
accepted accounting principles require
o The unmanaged MSCI All Country (AC) adjustments to be made to the net assets
World Free Index tracks the performance of the fund at period end for financial
of approximately 50 developed and reporting purposes, and as such, the net
emerging countries covered by Morgan asset values for shareholder
Stanley Capital International. A "free" transactions and the returns based on
index represents investable those net asset values may differ from
opportunities for global investors, the net asset values and returns
taking into account the local market reported in the Financial Highlights.
restrictions on share ownership by
foreign investors.
</Table>
================================================================================
This report must be accompanied or preceded by a currently effective fund
prospectus, which contains more complete information, including sales charges
and expenses. Investors should read it carefully before investing.
================================================================================
=====================================================
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
=====================================================
AIMinvestments.com
TO OUR SHAREHOLDERS
DEAR FELLOW SHAREHOLDER OF THE AIM FAMILY OF
FUNDS--Registered Trademark--:
NEW BOARD CHAIRMAN
[PHOTO OF It is our pleasure to introduce you to Bruce Crockett, the
ROBERT H. new Chairman of the Board of Trustees of the AIM Funds. Bob
GRAHAM] Graham has served as Chairman of the Board of Trustees of
the AIM Funds ever since Ted Bauer retired from that
ROBERT H. GRAHAM position in 2000. However, as you may be aware, the U.S.
Securities and Exchange Commission recently adopted a rule
requiring that an independent fund trustee, meaning a
[PHOTO OF trustee who is not an officer of the fund's investment
MARK H. advisor, serve as chairman of the funds' Board. In addition,
WILLIAMSON] a similar provision was included in the terms of AIM
Advisors' recent settlements with certain regulators.
MARK H. WILLIAMSON Accordingly, the AIM Funds' Board recently elected Mr.
Crockett, one of the fourteen independent trustees on the
AIM Funds' Board, as Chairman. His appointment became
[PHOTO OF effective on October 4, 2004. Mr. Graham will remain on the
BRUCE L. funds' Board, as will Mark Williamson, President and Chief
CROCKETT] Executive Officer of AIM. Mr. Graham will also remain
Chairman of AIM Investments--Registered Trademark--.
BRUCE L. CROCKETT
Mr. Crockett has been a member of the AIM Funds' board
since 1992, when AIM acquired certain funds that had been advised by CIGNA. He
had been a member of the board of those funds since 1978. Mr. Crockett has more
than 30 years of experience in finance and general management and has been
Chairman of Crockett Technologies Associates since 1996. He is the first
independent chairman of the funds' board in AIM's history, as he is not
affiliated with AIM or AMVESCAP in any way. He is committed to ensuring that the
AIM Funds adhere to the highest standards of corporate governance for the
benefit of fund shareholders, and we at AIM share that commitment.
MARKET CONDITIONS DURING THE FISCAL YEAR
Virtually every equity index, domestic and foreign, produced positive returns
for the fiscal year ended October 31, 2004. Domestically, the S&P 500 Index was
up 9.41% for the year. Globally, the MSCI World Index advanced more than 13%.
However, a goodly portion of this positive performance was achieved during 2003.
Year to date as of October 31, the S&P 500 Index was up just over 3%, the MSCI
World Index just about 5%. In the pages that follow, you will find a more
detailed discussion of the market conditions that affected your fund during the
fiscal year.
While it is agreeable to report positive market performance for the year
covered by this report, as ever, we encourage our shareholders to look past
short-term performance and focus on their long-term investment goals. Over the
short term, the one sure thing about the investment markets is their
unpredictability. Over the long term, equities have produced very attractive
returns. For the 25-year period ended October 31, 2004, the S&P 500 Index
averaged 13.50% growth per year and the MSCI World Index averaged 11.16%. While
past performance cannot guarantee future results, we believe staying invested
for the long term offers the best opportunity for capital growth.
YOUR FUND
The following pages of this report provide an explanation of how your fund was
managed during the fiscal year, how it performed in comparison to various
benchmarks, and a presentation of its long-term performance. We hope you find
this information helpful. Current information about your fund and about the
markets in general is always available on our Web site, AIMinvestments.com.
As always, AIM remains committed to building solutions for your investment
goals, and we thank you for your continued participation in AIM Investments. If
you have any questions, please contact our Client Service representatives at
800-959-4246.
Sincerely,
/s/ ROBERT H. GRAHAM /s/ MARK H. WILLIAMSON
- ------------------------------------ ------------------------------------
Robert H. Graham Mark H. Williamson
Chairman, AIM Investments CEO & President, AIM Investments
President & Vice Chairman, AIM Funds Trustee, AIM Funds
December 16, 2004
AIM Investments is a registered service mark of A I M Management Group Inc.
A I M Advisors, Inc. and A I M Capital Management, Inc. are the investment
advisors, and A I M Distributors, Inc. is the distributor for the retail funds
represented by AIM Investments.
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
<Table>
FUND FOCUSED ON PHARMACEUTICAL COMPANY underperforming the MSCI World Health
STOCKS Care Index. The best-performing
industries within the health care sector
For the fiscal year ended October 31, year, to 1.75% at the close of the of the S&P 500 were health care
2004, AIM Global Health Care Fund, Class reporting period. In its report on the equipment and supplies and health care
A shares, returned 9.51% at net asset economy released in late October, the providers and services, which returned
value. PERFORMANCE SHOWN AT NAV DOES NOT Fed said economic activity continued to 17.32% and 9.01%, respectively, while
INCLUDE FRONT-END SALES CHARGES, WHICH expand in September and early October. the weakest performing industries were
WOULD HAVE REDUCED THE PERFORMANCE. For The Fed said that higher energy costs pharmaceuticals and biotechnology, which
the performance of other share classes, were constraining consumer and business returned -3.57% and -0.99%,
please see page 3. The fund spending but that capital spending and respectively, for the fiscal year.
underperformed the MSCI World Index, hiring were rising modestly.
which returned 13.25%, but outperformed We believe innovations such as
the MSCI World Health Care Index and the Foreign stocks generally outperformed drug-coated stents and implantable
Lipper Health/Biotech Fund Index, which their U.S. counterparts, with the MSCI cardiac pacemakers had a positive impact
returned 7.58% and 7.62%, respectively, World Index outgaining the S&P 500, on health care equipment stocks, while
over the same period. which returned 9.41% for the fiscal concerns about a proposal to re-import
year. Conditions varied, however, by less expensive prescription drugs from
Health care was one of the region and country. After rising with Canada adversely affected pharmaceutical
weaker-performing sectors in the MSCI little interruption since mid-2003, stocks.
World Index. We believe that the fund Japanese markets fell in the second
underperformed this index because quarter of 2004 amid concerns over the YOUR FUND
investors were concerned about the country's oil dependence and a slowing
fundamentals of health care companies. rate of economic expansion. All We continued to invest in the stocks of
The fund was underweight in countries and sectors in the MSCI Europe companies with sound fundamentals that
biotechnology stocks in comparison to Index posted positive returns for the were attractively priced. During the
the MSCI World Health Care Index and the fiscal year on a dollar-denominated fiscal year, we increased the fund's
Lipper Health/Biotech Fund Index, basis. Inflation rose above the European exposure to pharmaceutical stocks, as we
helping it to outperform these Central Bank's (ECB) target of 2%. found companies in this sub-sector that
benchmarks. Biotechnology stocks However, with wage increases still met our investment criteria. The
struggled for most of the fiscal year. modest, the ECB kept short-term interest pharmaceutical industry is facing a
rates at 2%. In the United Kingdom, the number of problems, including a general
MARKET CONDITIONS Bank of England raised interest rates lack of new products and patent
five times during the fiscal year in an expirations. However, we found many
In the United States, generally positive effort to contain inflation. The euro, companies in this sub-sector with
economic developments prompted the U.S. the British pound and the Japanese yen high-profit margins--firms that could
Federal Reserve (the Fed) to raise its all appreciated against the U.S. dollar potentially benefit from an aging
federal funds target rate from a during the fiscal year. population, new product development and
decades-low 1.00%, where it stood at the merger and acquisition activity.
beginning of the fiscal The health care sector of the S&P 500
Index returned 1.76% for the fiscal Moreover, we believed that
year, pharmaceutical stocks were attractively
priced relative to the rest of the
market. Finally, pharmaceutical stocks
</Table>
<Table>
===================================================================================================================================
PORTFOLIO COMPOSITION BY COUNTRY TOP 10 EQUITY HOLDINGS* TOP INDUSTRIES*
[PIE CHART] 1. Sanofi-Aventis (France) 8.6% 1. Pharmaceuticals 58.8%
Japan 23.2% 2. Pfizer, Inc. 7.0 2. Health Care Equipment 8.9
Money Market Funds plus 3. Fujisawa Pharmaceutical Co. 3. Biotechnology 7.6
Other Assets Less Liabilities 13.4% Ltd. (Japan) 6.7
4. Managed Health Care 3.8
France 8.6% 4. Amgen Inc. 5.5
5. Health Care Facilities 3.0
United Kingdom 4.5% 5. Yamanouchi Pharmaceutical Co.,
Ltd. (Japan) 5.1 6. Health Care Services 2.7
Other Countries 1.9%
6. Forest Laboratories, Inc. 4.9 7. Health Care Supplies 1.5
Switzerland 1.4%
7. Eisai Co., Ltd. (Japan) 4.7 8. Diversified Chemicals 0.3
U.S.A. 47.0%
8. Becton, Dickinson & Co. 4.5 9. Health Care Distributors 0.1
9. GlaxoSmithKline PLC-ADR
(United Kingdom) 4.5 TOTAL NUMBER OF HOLDINGS* 49
TOTAL NET ASSETS $761.7 MILLION
10. Wyeth 4.4
The fund's holdings are subject to change, and there is no assurance that the
fund will continue to hold any particular security.
*Excluding money market fund holdings.
===================================================================================================================================
</Table>
2
<Table>
have historically performed well during second largest drug company in terms of KIRK L. ANDERSON
rising interest-rate environments. Under sales in Japan. Mr. Anderson started at
these conditions, investors have tended [ANDERSON AIM in 1994 in the fund
to gravitate toward the stocks of Detracting from performance were PHOTO] services area. He then
companies perceived as being able to Amgen, a leading biotechnology company, moved to portfolio
realize profit growth in a slowing and Wyeth, a major pharmaceutical firm. administration in 1995,
economy. Amgen's stock declined because of became an analyst in 1997 and a
uncertainty surrounding potential portfolio manager in 2003. Mr. Anderson
Toward the end of the fiscal year, we changes to Medicare's reimbursement earned a B.A. in political science from
increased the total number of holdings policy for cancer treatments and its Texas A&M University and an M.S. in
in the fund. Our focus was on the stocks effect on two of the company's leading finance from the University of Houston.
of solid companies in the higher-growth products, Aranesp and Neulast. Wyeth's
industries such as biotechnology. We stock was adversely affected by lawsuits BRYAN A. UNTERHALTER
believe the sell-off in this sub-sector stemming from a diet drug and concerns Mr. Unterhalter began his
has resulted in more reasonable about possible risks associated with its [UNTERHALTER investment career in 1995
valuations for biotechnology stocks. hormone replacement products. PHOTO] as an equity trader. In
1997, he joined AIM as a
Pharmaceuticals was the sub-sector IN CLOSING domestic equity trader
that contributed the most to fund and later became an analyst on AIM's
performance followed by health care We continue to work diligently to International (Europe/Canada) investment
equipment and health care supplies. We achieve the fund's investment objective management team in 1998. He was promoted
believe our focus on reasonably priced of long-term growth of capital by to his current position in 2003. A
stocks of pharmaceutical companies with normally investing at least 80% of its native of Johannesburg, South Africa, he
strong distribution networks and fewer assets in the securities of health care received a B.A. from The University of
patent expiration issues enabled our industry companies. Texas at Austin and an M.B.A. from the
holdings in this sub-sector to University of St. Thomas.
outperform those of the S&P 500 Index.
Biotechnology generally detracted from THE VIEWS AND OPINIONS EXPRESSED IN MICHAEL YELLEN
performance. We observed that investors MANAGEMENT'S DISCUSSION OF FUND Mr. Yellen is lead
were concerned about a lack of new PERFORMANCE ARE THOSE OF A I M ADVISORS, [YELLEN portfolio manager of AIM
products from biotechnology companies. INC. THESE VIEWS AND OPINIONS ARE PHOTO] Global Health Care Fund.
SUBJECT TO CHANGE AT ANY TIME BASED ON He came to AIM in 1998
Stocks that contributed the most to FACTORS SUCH AS MARKET AND ECONOMIC from the Asset Management
fund performance were drug companies CONDITIONS. THESE VIEWS AND OPINIONS MAY Division of Liechtenstein Global Trust,
Sanofi-Aventis and Yamanouchi NOT BE RELIED UPON AS INVESTMENT ADVICE which he joined in 1994 as an investment
Pharmaceuticals. Sanofi-Aventis, the OR RECOMMENDATIONS, OR AS AN OFFER FOR A analyst for health care industries. He
world's third largest pharmaceutical PARTICULAR SECURITY. THE INFORMATION IS was promoted to portfolio manager in
company, was created from the merger of NOT A COMPLETE ANALYSIS OF EVERY ASPECT 1996 and had primary responsibility for
Aventis and Sanofi-Synthelabo. We OF ANY MARKET, COUNTRY, INDUSTRY, the GT Applied Science Fund and the GT
observed that investors reacted SECURITY OR THE FUND. STATEMENTS OF FACT Healthcare Fund, both offshore funds,
favorably to the merger because it could ARE FROM SOURCES CONSIDERED RELIABLE, until assuming his present
result in cost-cutting measures and a BUT A I M ADVISORS, INC. MAKES NO responsibilities with AIM. He began his
pooling of product lines. Yamanouchi REPRESENTATION OR WARRANTY AS TO THEIR career in 1991 as a senior securities
Pharmaceuticals benefited from its COMPLETENESS OR ACCURACY. ALTHOUGH analyst. Mr. Yellen holds a B.A. from
merger with Fujisawa, creating the HISTORICAL PERFORMANCE IS NO GUARANTEE Stanford University.
OF FUTURE RESULTS, THESE INSIGHTS MAY
HELP YOU UNDERSTAND OUR INVESTMENT
MANAGEMENT PHILOSOPHY.
See important fund and index
disclosures inside front cover.
=========================================================================================
FUND VS. INDEXES
TOTAL RETURNS, 10/31/03-10/31/04, EXCLUDING APPLICABLE SALES CHARGES. IF SALES
CHARGES WERE INCLUDED, RETURNS WOULD BE LOWER.
CLASS A SHARES 9.51%
CLASS B SHARES 9.01
CLASS C SHARES 9.00
MSCI WORLD INDEX (BROAD MARKET INDEX) 13.25
MSCI WORLD HEALTH CARE INDEX (STYLE-SPECIFIC INDEX) 7.58
LIPPER HEALTH/BIOTECHNOLOGY FUND INDEX (PEER GROUP INDEX) 7.62
Source: Lipper, Inc.
========================================================================================= [RIGHT ARROW GRAPHIC]
FOR A PRESENTATION OF YOUR FUND'S
LONG-TERM PERFORMANCE RECORD, PLEASE
TURN TO PAGE 5.
</Table>
3
INFORMATION ABOUT YOUR FUND'S EXPENSES
CALCULATING YOUR ONGOING FUND EXPENSES
<Table>
EXAMPLE to estimate the expenses that you paid To do so, compare this 5% hypothetical
over the period. Simply divide your example with the 5% hypothetical
As a shareholder of the fund, you incur account value by $1,000 (for example, an examples that appear in the shareholder
two types of costs: (1) transaction $8,600 account value divided by $1,000 = reports of the other funds.
costs, which may include sales charges 8.6), then multiply the result by the
(loads) on purchase payments; contingent number in the table under the heading Please note that the expenses shown
deferred sales charges on redemptions; entitled "Actual Expenses Paid During in the table are meant to highlight your
and redemption fees, if any; and (2) Period" to estimate the expenses you ongoing costs only and do not reflect
ongoing costs, including management paid on your account during this period. any transactional costs, such as sales
fees; distribution and/or service fees charges (loads) on purchase payments,
(12b-1); and other fund expenses. This HYPOTHETICAL EXAMPLE FOR COMPARISON contingent deferred sales charges on
example is intended to help you PURPOSES redemptions, and redemption fees, if
understand your ongoing costs (in any. Therefore, the hypothetical
dollars) of investing in the fund and to The table below also provides information is useful in comparing
compare these costs with ongoing costs information about hypothetical account ongoing costs only, and will not help
of investing in other mutual funds. The values and hypothetical expenses based you determine the relative total costs
example is based on an investment of on the fund's actual expense ratio and of owning different funds. In addition,
$1,000 invested at the beginning of the an assumed rate of return of 5% per year if these transactional costs were
period and held for the entire period, before expenses, which is not the fund's included, your costs would have been
May 1, 2004-October 31, 2004. actual return. The hypothetical account higher.
values and expenses may not be used to
ACTUAL EXPENSES estimate the actual ending account
balance or expenses you paid for the
The table below provides information period. You may use this information to
about actual account values and actual compare the ongoing costs of investing
expenses. You may use the information in in the fund and other funds.
this table, together with the amount you
invested,
===================================================================================================================================
ACTUAL HYPOTHETICAL
(5% annual return before expenses)
Beginning Account Ending Account Expenses Ending Account Expenses
Value Value Paid During Value Paid During
(05/01/04) (10/31/04)(1) Period(2) (10/31/04) Period(2)
Class A $ 1,000.00 $ 991.70 $ 9.41 $ 1,015.69 $ 9.53
Class B 1,000.00 989.30 11.90 1,013.17 12.04
Class C 1,000.00 989.70 11.90 1,013.17 12.04
(1) The actual ending account value is based on the actual total return of the
fund for the period May 1, 2004, to October 31, 2004, after actual expenses and
will differ from the hypothetical ending account value which is based on the
fund's expense ratio and a hypothetical annual return of 5% before expenses. The
actual cumulative return at net asset value for the period May 1, 2004, to
October 31, 2004, was -0.83%, -1.07%, and -1.03% for Classes A, B, and C shares,
respectively.
(2) Expenses are equal to the fund's annualized expense ratio (1.88%, 2.38%, and
2.38% for Classes A, B, and C shares, respectively) multiplied by the average
account value over the period, multiplied by 184/366 (to reflect the one-half
year period).
===================================================================================================================================
</Table>
[ARROW
BUTTON For More Information Visit
IMAGE] AIMinvestments.com
4
LONG-TERM PERFORMANCE
YOUR FUND'S LONG-TERM PERFORMANCE
<Table>
===================================================================================================================================
Past performance cannot guarantee RESULTS OF A $10,000 INVESTMENT
comparable future results. 8/7/89-10/31/04 (Index results from 7/31/89)
Your fund's total return includes [MOUNTAIN CHART]
reinvested distributions, fund expenses
management fees. Index results include AIM GLOBAL HEATH
reinvested dividends. Performance of an CARE FUND MSCI WORLD MSCI AC WORLD
index of funds reflects fund expenses and DATE CLASS A SHARES INDEX FREE INDEX
MANAGEMENT FEES; performance of a market
index does not. Performance shown in the 8/7/1989 $ 9525 $10000 $10000
chart does not reflect deduction of taxes a 10/89 9858 9692 9737
shareholder would pay on fund distributions 10/90 10717 8598 8691
or sale of fund shares. Performance of the 10/91 16528 9952 10183
indexes does not reflect the effects of 10/92 15057 9432 9769
taxes. 10/93 15409 11979 12529
10/94 16968 12895 13699
Since the last reporting period, the 10/95 20327 14118 14784
fund has elected to use the MSCI World 10/96 25033 16419 17128
Index as its broad-based market index since 10/97 32139 19173 19879
the MSCI World Index is such a widely 10/98 30630 22098 22469
recognized gauge of the stock market. The 10/99 36481 27604 28316
fund will no longer measure its performance 10/00 50520 27906 28541
against the MSCI All Country World Free 10/01 56017 20786 21362
Index, the index published in previous 10/02 48314 17699 18463
reports to shareholders. Because this is 10/03 51934 21895 23125
the first reporting period since we have 10/04 $56835 $24796 $26369
adopted the new index, SEC guidelines Source: Lipper, Inc.
require that we compare the fund's
performance to both the old and the new AVERAGE ANNUAL TOTAL RETURNS
index. As of 10/31/04, including applicable
sales charges
In evaluating this chart, please note
that the chart uses a logarithmic scale CLASS A SHARES
along the vertical axis (the value scale). Inception (8/7/89) 12.08% The performance data quoted represent
This means that each scale increment always 10 Years 12.30 past performance and cannot guarantee
represents the same percent change in 5 Years 8.22 comparable future results; current
price; in a linear chart each scale 1 Year 4.31 performance may be lower or higher.
increment always represents the same Please visit AIMinvestments.com for the
absolute change in price. In this example, CLASS B SHARES most recent month-end performance.
the scale increment between $5,000 and Inception (4/1/93) 12.85% Performance figures reflect reinvested
$10,000 is the same as that between $10,000 10 Years 12.40 distributions, changes in net asset
and $20,000. In a linear chart, the latter 5 Years 8.44 value and the effect of the maximum
scale increment would be twice as large. 1 Year 4.01 sales charge unless otherwise stated.
The benefit of using a logarithmic scale is Investment return and principal value
that it better illustrates performance CLASS C SHARES will fluctuate so that you may have a
during the fund's early years before Inception (3/1/99) 8.06% gain or loss when you sell shares.
reinvested distributions and compounding 5 Years 8.75
create the potential for the original 1 Year 8.00 Class A share performance reflects
investment to grow to very large numbers. the maximum 4.75% sales charge, and
Had the chart used a linear scale along its Class B and Class C share performance
vertical axis, you would not be able to see In addition to returns as of the close reflects the applicable contingent
as clearly the movements in the value of of the fiscal year, industry regulations deferred sales charge (CDSC) for the
the fund and the indexes during the fund's require us to provide average annual period involved. The CDSC on Class B
early years. We use a logarithmic scale in total returns as of 9/30/04, the most shares declines from 5% beginning at the
financial reports of funds that have more recent calendar quarter-end. time of purchase to 0% at the beginning
than five years of performance history. of the seventh year. The CDSC on Class C
AVERAGE ANNUAL TOTAL RETURNS shares is 1% for the first year after
As of 9/30/04, most recent calendar purchase.
quarter-end, including applicable sales
charges The performance of the fund's share
classes will differ due to different
CLASS A SHARES sales charge structures and class
Inception (8/7/89) 12.10% expenses.
10 Years 12.19
5 Years 8.73
1 Year 4.80
CLASS B SHARES
Inception (4/1/93) 12.89%
10 Years 12.29
5 Years 8.96
1 Year 4.47
CLASS C SHARES
Inception (3/1/99) 8.06%
5 Years 9.26
1 Year 8.52
===================================================================================================================================
</Table>
5
FINANCIALS
SCHEDULE OF INVESTMENTS
October 31, 2004
<Table>
<Caption>
MARKET
SHARES VALUE
- -------------------------------------------------------------------------
DOMESTIC COMMON STOCKS-47.00%
BIOTECHNOLOGY-6.81%
Amgen Inc.(a) 740,000 $ 42,032,000
- -------------------------------------------------------------------------
Genzyme Corp.(a)(b) 165,100 8,662,797
- -------------------------------------------------------------------------
Protein Design Labs, Inc.(a)(b) 60,000 1,149,000
=========================================================================
51,843,797
=========================================================================
HEALTH CARE DISTRIBUTORS-0.09%
Henry Schein, Inc.(a) 11,300 714,499
=========================================================================
HEALTH CARE EQUIPMENT-8.87%
ATS Medical, Inc.(a)(c) 1,500,000 5,160,000
- -------------------------------------------------------------------------
Bard (C.R.), Inc. 150,000 8,520,000
- -------------------------------------------------------------------------
Beckman Coulter, Inc. 40,000 2,380,000
- -------------------------------------------------------------------------
Becton, Dickinson & Co.(b) 650,000 34,125,000
- -------------------------------------------------------------------------
Fisher Scientific International Inc.(a) 19,600 1,124,256
- -------------------------------------------------------------------------
Foxhollow Technologies, Inc.(a) 96,350 1,982,883
- -------------------------------------------------------------------------
IDEXX Laboratories, Inc.(a) 80,600 4,017,104
- -------------------------------------------------------------------------
IntraLase Corp.(a) 117,500 2,259,525
- -------------------------------------------------------------------------
SonoSite, Inc.(a) 260,000 7,510,100
- -------------------------------------------------------------------------
Vnus Medical Technologies(a)(b) 32,100 482,463
=========================================================================
67,561,331
=========================================================================
HEALTH CARE FACILITIES-2.98%
Community Health Systems Inc.(a) 600,000 16,092,000
- -------------------------------------------------------------------------
HCA, Inc. 180,000 6,611,400
=========================================================================
22,703,400
=========================================================================
HEALTH CARE SERVICES-2.71%
Caremark Rx, Inc.(a) 129,500 3,881,115
- -------------------------------------------------------------------------
DaVita, Inc.(a) 142,000 4,206,040
- -------------------------------------------------------------------------
HMS Holdings Corp.(a)(c) 1,750,000 12,547,500
=========================================================================
20,634,655
=========================================================================
HEALTH CARE SUPPLIES-1.51%
Edwards Lifesciences Corp.(a)(b) 100,000 3,418,000
- -------------------------------------------------------------------------
Sola International Inc.(a) 422,500 8,103,550
=========================================================================
11,521,550
=========================================================================
MANAGED HEALTH CARE-3.84%
Aetna Inc. 120,000 11,400,000
- -------------------------------------------------------------------------
PacifiCare Health Systems, Inc.(a) 500,000 17,810,000
=========================================================================
29,210,000
=========================================================================
PHARMACEUTICALS-20.19%
Bristol-Myers Squibb Co.(b) 430,000 10,074,900
- -------------------------------------------------------------------------
Forest Laboratories, Inc.(a)(b) 830,000 37,018,000
- -------------------------------------------------------------------------
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- -------------------------------------------------------------------------
PHARMACEUTICALS-(CONTINUED)
Impax Laboratories, Inc.(a) 280,000 $ 4,132,800
- -------------------------------------------------------------------------
Johnson & Johnson 140,000 8,173,200
- -------------------------------------------------------------------------
Medicis Pharmaceutical Corp.-Class A 157,300 6,397,391
- -------------------------------------------------------------------------
Pfizer Inc. 1,850,000 53,557,500
- -------------------------------------------------------------------------
Theravance, Inc.(a) 67,200 1,140,384
- -------------------------------------------------------------------------
Wyeth(b) 839,000 33,266,350
=========================================================================
153,760,525
=========================================================================
Total Domestic Common Stocks (Cost
$290,915,919) 357,949,757
=========================================================================
FOREIGN STOCKS & OTHER EQUITY
INTERESTS-39.64%
CANADA-0.76%
QLT Inc. (Biotechnology)(a) 348,814 5,807,753
=========================================================================
DENMARK-0.13%
Novo Nordisk A.S.-Class B
(Pharmaceuticals)(b)(d) 20,000 1,000,271
=========================================================================
FRANCE-8.58%
Sanofi-Aventis (Pharmaceuticals)(b)(d) 890,800 65,354,299
=========================================================================
GERMANY-0.26%
Altana A.G. (Pharmaceuticals)(d) 20,000 1,014,722
- -------------------------------------------------------------------------
Bayer A.G. (Diversified Chemicals)(d) 20,000 570,221
- -------------------------------------------------------------------------
Schwarz Pharma A.G. (Pharmaceuticals)(d) 10,000 378,937
=========================================================================
1,963,880
=========================================================================
INDIA-0.04%
Wockhardt Ltd. (Pharmaceuticals)(d) 45,000 327,127
=========================================================================
ISRAEL-0.70%
Teva Pharmaceutical Industries Ltd.-ADR
(Pharmaceuticals) 204,700 5,322,200
=========================================================================
JAPAN-23.15%
Eisai Co., Ltd. (Pharmaceuticals)(d) 1,250,000 36,062,240
- -------------------------------------------------------------------------
Fujisawa Pharmaceutical Co. Ltd.
(Pharmaceuticals)(b)(d) 1,960,000 51,319,699
- -------------------------------------------------------------------------
Kyorin Pharmaceutical Co., Ltd.
(Pharmaceuticals)(b)(d)(e) 1,175,000 17,969,120
- -------------------------------------------------------------------------
Santen Pharmaceutical Co., Ltd.
(Pharmaceuticals)(b) 50,000 907,115
- -------------------------------------------------------------------------
Takeda Pharmaceutical Co. Ltd.
(Pharmaceuticals)(d) 650,000 31,439,710
- -------------------------------------------------------------------------
Yamanouchi Pharmaceutical Co., Ltd.
(Pharmaceuticals)(b)(d) 1,050,000 38,616,514
=========================================================================
176,314,398
=========================================================================
</Table>
F-1
<Table>
<Caption>
MARKET
SHARES VALUE
- -------------------------------------------------------------------------
NETHERLANDS-0.18%
Akzo Nobel N.V. (Diversified Chemicals)(b)(d) 35,000 $ 1,324,773
=========================================================================
SWITZERLAND-1.39%
Novartis A.G. (Pharmaceuticals)(d) 20,000 961,505
- -------------------------------------------------------------------------
Novartis A.G.-ADR (Pharmaceuticals)(b) 200,000 9,602,000
=========================================================================
10,563,505
=========================================================================
UNITED KINGDOM-4.45%
GlaxoSmithKline PLC-ADR (Pharmaceuticals)(b) 800,000 33,920,000
=========================================================================
Total Foreign Stocks & Other Equity
Interests (Cost $244,034,192) 301,898,206
=========================================================================
MONEY MARKET FUNDS-14.62%
Liquid Assets Portfolio-Institutional
Class(f) 55,677,436 55,677,436
- -------------------------------------------------------------------------
STIC Prime Portfolio-Institutional Class(f) 55,677,436 55,677,436
=========================================================================
Total Money Market Funds (Cost
$111,354,872) 111,354,872
=========================================================================
TOTAL INVESTMENTS-101.26% (excluding
investments purchased with cash collateral
from securities loaned) (Cost $646,304,983) 771,202,835
=========================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- -------------------------------------------------------------------------
INVESTMENTS PURCHASED WITH CASH COLLATERAL
FROM SECURITIES LOANED
MONEY MARKET FUNDS-15.33%
Liquid Assets Portfolio-Institutional
Class(f)(g) 58,403,007 $ 58,403,007
- -------------------------------------------------------------------------
STIC Prime Portfolio-Institutional
Class(f)(g) 58,403,007 58,403,007
=========================================================================
Total Money Market Funds (purchased with
cash collateral from securities loaned)
(Cost $116,806,014) 116,806,014
=========================================================================
TOTAL INVESTMENTS-116.59% (Cost $763,110,997) 888,008,849
=========================================================================
OTHER ASSETS LESS LIABILITIES-(16.59%) (126,358,232)
=========================================================================
NET ASSETS-100.00% $ 761,650,617
_________________________________________________________________________
=========================================================================
</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 October 31, 2004.
(c) The Investment Company Act of 1940 defines affiliates as those companies in
which a fund holds 5% or more of the outstanding voting securities. The Fund
has not owned enough of the outstanding voting securities of the issuer to
have control (as defined in the Investment Company Act of 1940) of that
issuer. The market value as of October 31, 2004 was $17,707,500 which
represented 2.32% of the Fund's net assets. See Note 3.
(d) In accordance with the procedures established by the Board of Trustees, the
foreign security is fair valued using adjusted closing market prices. The
aggregate market value of these securities at October 31, 2004 was
$246,339,138, which represented 27.74% of the Fund's Total Investments. See
Note 1A.
(e) Security considered to be illiquid. The market value of this security
considered illiquid at October 31, 2004 represented 2.36% 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 8.
See accompanying notes which are an integral part of the financial statements.
F-2
STATEMENT OF ASSETS AND LIABILITIES
October 31, 2004
<Table>
ASSETS:
Investments at market value (cost
$526,902,626)* $642,140,463
- -----------------------------------------------------------
Investments in affiliates (cost $236,208,371) 245,868,386
===========================================================
Total investments (cost $763,110,997) 888,008,849
===========================================================
Foreign currencies, at value (cost $134,863) 135,667
- -----------------------------------------------------------
Receivables for:
Investments sold 1,797,494
- -----------------------------------------------------------
Fund shares sold 318,223
- -----------------------------------------------------------
Dividends 1,140,421
- -----------------------------------------------------------
Investment for trustee deferred compensation
and retirement plans 26,522
- -----------------------------------------------------------
Other assets 24,107
===========================================================
Total assets 891,451,283
___________________________________________________________
===========================================================
LIABILITIES:
Payables for:
Investments purchased 10,622,353
- -----------------------------------------------------------
Fund shares reacquired 1,505,630
- -----------------------------------------------------------
Trustee deferred compensation and
retirement plans 44,987
- -----------------------------------------------------------
Collateral upon return of securities loaned 116,806,014
- -----------------------------------------------------------
Accrued distribution fees 402,909
- -----------------------------------------------------------
Accrued trustees' fees 1,546
- -----------------------------------------------------------
Accrued transfer agent fees 297,684
- -----------------------------------------------------------
Accrued operating expenses 119,543
===========================================================
Total liabilities 129,800,666
===========================================================
Net assets applicable to shares outstanding $761,650,617
___________________________________________________________
===========================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $639,632,105
- -----------------------------------------------------------
Undistributed net investment income (loss) (32,833)
- -----------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities, foreign currencies
and option contracts (2,886,893)
- -----------------------------------------------------------
Unrealized appreciation of investment
securities and foreign currencies 124,938,238
===========================================================
$761,650,617
___________________________________________________________
===========================================================
NET ASSETS:
Class A $550,319,461
___________________________________________________________
===========================================================
Class B $168,468,240
___________________________________________________________
===========================================================
Class C $ 42,862,916
___________________________________________________________
===========================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER
SHARE, UNLIMITED NUMBER OF SHARES
AUTHORIZED:
Class A 20,861,275
___________________________________________________________
===========================================================
Class B 6,996,792
___________________________________________________________
===========================================================
Class C 1,778,970
___________________________________________________________
===========================================================
Class A:
Net asset value per share $ 26.38
- -----------------------------------------------------------
Offering price per share:
(Net asset value of $26.38 divided by
95.25%) $ 27.70
___________________________________________________________
===========================================================
Class B:
Net asset value and offering price per
share $ 24.08
___________________________________________________________
===========================================================
Class C:
Net asset value and offering price per
share $ 24.09
___________________________________________________________
===========================================================
</Table>
* At October 31, 2004, securities with an aggregate market value of $113,934,954
were on loan to brokers.
See accompanying notes which are an integral part of the financial statements.
F-3
STATEMENT OF OPERATIONS
For the year ended October 31, 2004
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $437,521) $ 9,293,587
- -------------------------------------------------------------------------
Dividends from affiliated money market funds (including
security lending income of $165,924)* 802,009
=========================================================================
Total investment income 10,095,596
=========================================================================
EXPENSES:
Advisory fees 7,724,785
- -------------------------------------------------------------------------
Administrative services fees 203,995
- -------------------------------------------------------------------------
Custodian fees 222,907
- -------------------------------------------------------------------------
Distribution fees:
Class A 2,851,536
- -------------------------------------------------------------------------
Class B 1,843,216
- -------------------------------------------------------------------------
Class C 453,485
- -------------------------------------------------------------------------
Transfer agent fees 2,521,948
- -------------------------------------------------------------------------
Trustees' fees and retirement benefits 26,832
- -------------------------------------------------------------------------
Other 550,074
=========================================================================
Total expenses 16,398,778
=========================================================================
Less: Fees waived, expenses reimbursed and expense offset
arrangement (105,976)
=========================================================================
Net expenses 16,292,802
=========================================================================
Net investment income (loss) (6,197,206)
=========================================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES, FOREIGN CURRENCIES AND OPTION CONTRACTS:
Net realized gain (loss) from:
Investment securities 4,638,281
- -------------------------------------------------------------------------
Foreign currencies 498,807
- -------------------------------------------------------------------------
Option contracts written (2,910,195)
=========================================================================
2,226,893
=========================================================================
Change in net unrealized appreciation of:
Investment securities 74,275,774
- -------------------------------------------------------------------------
Foreign currencies 143,763
=========================================================================
74,419,537
=========================================================================
Net gain from investment securities, foreign currencies and
option contracts 76,646,430
=========================================================================
Net increase in net assets resulting from operations $70,449,224
_________________________________________________________________________
=========================================================================
</Table>
* Dividends from affiliated money market funds are net of income rebate paid to
security lending counterparties.
See accompanying notes which are an integral part of the financial statements.
F-4
STATEMENT OF CHANGES IN NET ASSETS
For the years ended October 31, 2004 and 2003
<Table>
<Caption>
2004 2003
- ------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (6,197,206) $ (5,121,252)
- ------------------------------------------------------------------------------------------
Net realized gain from investment securities, foreign
currencies and option contracts 2,226,893 22,726,315
- ------------------------------------------------------------------------------------------
Change in net unrealized appreciation of investment
securities and foreign currencies 74,419,537 33,367,108
==========================================================================================
Net increase in net assets resulting from operations 70,449,224 50,972,171
==========================================================================================
Share transactions-net:
Class A (36,913,672) (34,088,071)
- ------------------------------------------------------------------------------------------
Class B (27,292,117) (18,872,586)
- ------------------------------------------------------------------------------------------
Class C (4,466,634) (5,906,404)
==========================================================================================
Net increase (decrease) in net assets resulting from
share transactions (68,672,423) (58,867,061)
==========================================================================================
Net increase (decrease) in net assets 1,776,801 (7,894,890)
==========================================================================================
NET ASSETS:
Beginning of year 759,873,816 767,768,706
==========================================================================================
End of year (including undistributed net investment income
(loss) of $(32,833) and $(21,786), respectively) $761,650,617 $759,873,816
__________________________________________________________________________________________
==========================================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
F-5
NOTES TO FINANCIAL STATEMENTS
October 31, 2004
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Global Health Care Fund (the "Fund") is a separate series of AIM Investment
Funds (the "Trust"). The Trust is organized as a Delaware statutory trust and is
registered under the Investment Company Act of 1940, as amended (the "1940
Act"), as an open-end series management investment company consisting of six
separate series 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.
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.
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").
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.
Debt obligations (including convertible bonds) are fair valued using an
evaluated quote provided by an independent pricing service. Evaluated
quotes provided by the pricing service may be determined without exclusive
reliance on quoted prices, and may reflect appropriate factors such as
institution-size trading in similar groups of securities, developments
related to specific securities, dividend rate, yield, quality, type of
issue, coupon rate, maturity, individual trading characteristics and other
market data. Short-term obligations having 60 days or less to maturity and
commercial paper are valued at amortized cost which approximates market
value.
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.
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 the event is likely to have affected the closing price of the security,
the security will be valued at fair value in good faith using procedures
approved by the Board of Trustees. Adjustments to closing prices to reflect
fair value may also be based on a screening process of an independent
pricing service to indicate the degree of certainty, based on historical
data, that the closing price in the principal market where a foreign
security trades is not the current market value as of the close of the
NYSE. Foreign securities meeting the approved degree of certainty that the
price is not reflective of current market value will be priced at the
indication of fair value from the independent pricing service. Multiple
factors may be considered by the independent pricing service in determining
adjustments to reflect fair value and may include information relating to
sector indices, ADRs, domestic and foreign index futures and
exchange-traded funds.
Securities for which market quotations are not readily available or are
unreliable are valued at fair value as determined in good faith by or under
the supervision of the Trust's officers following procedures approved by
the Board of Trustees. Issuer specific events, market trends, bid/ask
quotes of
F-6
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.
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.
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.
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 0.975% on the first
$500 million of the Fund's average daily net assets, plus 0.95% on the next $500
million of the Fund's average daily net assets, plus 0.925% on the next $500
million of the Fund's average daily net assets, plus 0.90% on the Fund's average
daily net assets in excess of $1.5 billion. AIM has voluntarily agreed to waive
advisory fees and/or reimburse expenses to the extent necessary to limit Total
Annual Operating Expenses (excluding certain items discussed below) of Class A,
Class B and Class C shares to 2.00%, 2.50% and 2.50% of average daily net
assets, respectively. 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),
F-7
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. 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 year ended October 31, 2004, AIM waived fees of $14,503.
For the year ended October 31, 2004, at the request of the Trustees of the
Trust, AMVESCAP PLC ("AMVESCAP") agreed to assume $79,111 of expenses incurred
by the Fund in connection with matters related to recently settled regulatory
actions and investigations concerning market timing activity in the AIM Funds,
including legal, audit, shareholder servicing, communication and trustee
expenses. These expenses along with the related expense reimbursement, are
included in the Statement of Operations.
The Fund, pursuant to a master administrative services agreement with AIM,
has agreed to pay AIM for certain administrative costs incurred in providing
accounting services to the Fund. For the year ended October 31, 2004, AIM was
paid $203,995 for such services.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay AIM Investment Services, Inc. ("AISI") a fee for providing transfer agency
and shareholder services to the Fund and reimburse AISI for certain expenses
incurred by AISI in the course of providing such services. For the year ended
October 31, 2004, the Fund paid AISI $2,521,948. AISI may make payments to
intermediaries to provide omnibus account services, sub-accounting services
and/or networking 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 0.50% of the
Fund's average daily net assets of Class A shares and 1.00% of the average daily
net assets of Class B and Class C shares. Of these amounts, up to 0.25% of the
average daily net assets of the Class A, Class B or Class C shares may be paid
to furnish continuing personal shareholder services to customers who purchase
and own shares of such classes. Any amounts not paid as a service fee under the
Plans would constitute an asset-based sales charge. NASD Rules also impose a cap
on the total sales charges, including asset-based sales charges that may be paid
by any class of shares of the Fund. Pursuant to the Plans, for the year ended
October 31, 2004, the Class A, Class B and Class C shares paid $2,851,536,
$1,843,216 and $453,485, respectively.
Front-end sales commissions and contingent deferred sales charges ("CDSC")
(collectively "sales charges") are not recorded as expenses of the Fund.
Front-end sales commissions are deducted from proceeds from the sales of Fund
shares prior to investment in Class A shares of the Fund. CDSC are deducted from
redemption proceeds prior to remittance to the shareholder. During the year
ended October 31, 2004, AIM Distributors advised the Fund that it retained
$126,743 in front-end sales commissions from the sale of Class A shares and
$3,768, $18,675 and $3,995 from Class A, Class B and Class C shares,
respectively, for CDSC imposed upon redemptions by shareholders.
Certain officers and trustees of the Trust are officers and directors of
AIM, AISI and/or AIM Distributors.
F-8
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. The tables below show
the transactions in and earnings from investments in affiliated money market
funds for the year ended October 31, 2004.
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 10/31/03 AT COST FROM SALES (DEPRECIATION) 10/31/04 INCOME GAIN (LOSS)
- ---------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $25,532,691 $203,653,595 $(173,508,850) $ -- $55,677,436 $319,945 $ --
- ---------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-
Institutional
Class 25,532,691 203,653,595 (173,508,850) -- 55,677,436 316,140 --
===========================================================================================================================
Subtotal $51,065,382 $407,307,190 $(347,017,700) $ -- $111,354,872 $636,085 $ --
===========================================================================================================================
</Table>
INVESTMENTS OF CASH COLLATERAL FROM SECURITIES LENDING TRANSACTIONS:
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 10/31/03 AT COST FROM SALES (DEPRECIATION) 10/31/04 INCOME* GAIN (LOSS)
- ---------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $54,777,891 $343,897,679 $(340,272,563) $ -- $58,403,007 $83,426 $ --
- ---------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-
Institutional
Class 54,777,890 343,897,680 (340,272,563) -- 58,403,007 82,498 --
===========================================================================================================================
Subtotal $109,555,781 $687,795,359 $(680,545,126) $ -- $116,806,014 $165,924 $ --
===========================================================================================================================
</Table>
* Dividend income is net of income rebate paid to security lending
counterparties.
INVESTMENTS IN OTHER AFFILIATES:
The Investment Company Act of 1940 defines affiliates as those companies in
which a fund holds 5% or more of the outstanding voting securities. The Fund has
not owned enough of the outstanding voting securities of the issuer to have
control (as defined in the Investment Company Act of 1940) of that issuer. The
following is a summary of the transactions with affiliates for the year ended
October 31, 2004.
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
10/31/03 AT COST FROM SALES (DEPRECIATION) 10/31/04 INCOME GAIN (LOSS)
- -------------------------------------------------------------------------------------------------------------------------------
ATS Medical,
Inc. $ 6,214,600 $ -- $ (694,484) $ (360,116) $ 5,160,000 $ -- $494,098
- -------------------------------------------------------------------------------------------------------------------------------
HMS Holdings
Corp. 5,127,500 -- -- 7,420,000 12,547,500 -- --
===============================================================================================================================
Subtotal $11,342,100 -- $ (694,484) $7,059,884 $17,707,500 -- $494,098
===============================================================================================================================
Total $171,963,263 $1,095,102,549 $(1,028,257,310) $7,059,884 $245,868,386 $802,009 $494,098
_______________________________________________________________________________________________________________________________
===============================================================================================================================
</Table>
NOTE 4--SECURITY TRANSACTIONS WITH AFFILIATED FUNDS
The Fund is permitted to purchase or sell securities from or to certain other
AIM Funds under specified conditions outlined in procedures adopted by the Board
of Trustees of the Trust. The procedures have been designed to ensure that any
purchase or sale of securities by the Fund from or to another fund or portfolio
that is or could be considered an affiliate by virtue of having a common
investment advisor (or affiliated investment advisors), common Trustees and/or
common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined
under the procedures each transaction is effected at the current market price.
Pursuant to these procedures, during the year ended October 31, 2004, the Fund
engaged in purchases and sales of securities of $2,182,128 and $25,572,157,
respectively.
NOTE 5--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 year ended October 31, 2004, the
Fund received credits in transfer agency fees of $12,362 under an expense offset
arrangement, which resulted in a reduction of the Fund's total expenses of
$12,362.
F-9
NOTE 6--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 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 year ended October 31, 2004, the Fund paid legal fees of $7,052
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 7--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. 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. A loan will be secured by collateral if the
Fund's aggregate borrowings from all sources exceeds 10% of the Fund's total
assets. 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 year ended October 31, 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 at an amount equal to the Federal
Funds rate plus 100 basis points.
NOTE 8--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 October 31, 2004, securities with an aggregate value of $113,934,954 were
on loan to brokers. The loans were secured by cash collateral of $116,806,014
received by the Fund and subsequently invested in affiliated money market funds.
For the year ended October 31, 2004, the Fund received dividends on cash
collateral net of income rebate paid to counterparties of $165,924 for
securities lending transactions.
F-10
NOTE 9--OPTION CONTRACTS WRITTEN
<Table>
<Caption>
TRANSACTIONS DURING THE PERIOD
- --------------------------------------------------------------------------------------
CALL OPTION CONTRACTS
------------------------
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
- --------------------------------------------------------------------------------------
Beginning of year -- $ --
- --------------------------------------------------------------------------------------
Written 22,350 3,555,808
- --------------------------------------------------------------------------------------
Closed (15,000) (2,394,911)
- --------------------------------------------------------------------------------------
Exercised (6,243) (1,117,763)
- --------------------------------------------------------------------------------------
Expired (1,107) (43,134)
======================================================================================
End of year -- $ --
______________________________________________________________________________________
======================================================================================
</Table>
NOTE 10--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
DISTRIBUTIONS TO SHAREHOLDERS:
There were no ordinary income or long-term capital gain distributions paid
during the years ended October 31, 2004 and 2003.
TAX COMPONENTS OF NET ASSETS:
As of October 31, 2004, the components of net assets on a tax basis were as
follows:
<Table>
<Caption>
2004
- --------------------------------------------------------------------------
Unrealized appreciation -- investments $122,053,899
- --------------------------------------------------------------------------
Temporary book/tax differences (35,387)
- --------------------------------------------------------------------------
Shares of beneficial interest 639,632,105
==========================================================================
Total net assets $761,650,617
__________________________________________________________________________
==========================================================================
</Table>
The difference between book-basis and tax-basis unrealized appreciation
(depreciation) is due to differences in the timing of recognition of gains and
losses on investments for tax and book purposes. The Fund's unrealized
appreciation (depreciation) difference is attributable primarily to the tax
deferral of losses on wash sales, the tax deferral of losses on certain
straddles and the treatment of certain foreign tax expenses. The tax-basis
unrealized appreciation (depreciation) on investments amount includes
appreciation on foreign currencies of $40,386.
The temporary book/tax differences are a result of timing differences
between book and tax recognition of income and/or expenses. The Fund's temporary
book/tax differences are the result of the trustee deferral of compensation and
retirement plan expenses.
The Fund utilized $1,373,462 of capital loss carryforward in the current
period to offset net realized capital gain for federal income tax purposes. The
Fund did not have a capital loss carryforward as of October 31, 2004.
NOTE 11--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities
and money market funds) purchased and sold by the Fund during the year ended
October 31, 2004 was $469,598,552 and $567,076,978, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- ------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $122,592,053
- ------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (578,540)
==============================================================================
Net unrealized appreciation of investment securities $122,013,513
______________________________________________________________________________
==============================================================================
Cost of investments for tax purposes is $765,995,336.
</Table>
NOTE 12--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of foreign currency
transactions and net operating losses, on October 31, 2004, undistributed net
investment income was increased by $6,186,159, undistributed net realized gain
(loss) was decreased by $2,739,433 and shares of beneficial interest decreased
by $3,446,726. This reclassification had no effect on the net assets of the
Fund.
F-11
NOTE 13--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
certain 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(a)
- ------------------------------------------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
----------------------------------------------------------
2004 2003
--------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
- ------------------------------------------------------------------------------------------------------------------------
Sold:
Class A 2,842,327 $ 74,874,308 3,926,329 $ 86,888,575
- ------------------------------------------------------------------------------------------------------------------------
Class B 887,587 21,358,988 1,509,164 30,779,326
- ------------------------------------------------------------------------------------------------------------------------
Class C 351,636 8,481,257 408,103 8,332,961
========================================================================================================================
Automatic conversion of Class B shares to Class A shares:
Class A 526,423 13,918,611 572,274 12,498,133
- ------------------------------------------------------------------------------------------------------------------------
Class B (92,253) (13,918,611) (622,092) (12,498,133)
========================================================================================================================
Reacquired:
Class A (4,792,895) (125,706,591) (6,006,816) (133,474,779)
- ------------------------------------------------------------------------------------------------------------------------
Class B (1,929,658) (34,732,494) (1,845,284) (37,153,779)
- ------------------------------------------------------------------------------------------------------------------------
Class C (539,454) (12,947,891) (703,065) (14,239,365)
========================================================================================================================
(2,746,287) $ (68,672,423) (2,761,387) $ (58,867,061)
________________________________________________________________________________________________________________________
========================================================================================================================
</Table>
(a) There are two entities that are each record owners of more than 5% of the
outstanding shares of the Fund and in the aggregate they own 14% of the
outstanding shares of the Fund. AIM Distributors has an agreement with these
entities to sell Fund shares. The Fund, AIM and/or AIM affiliates may make
payments to these entities, which are considered to be related to the Fund
for providing services to the Fund, AIM and/or AIM affiliates including but
not limited to services such as, securities brokerage, distribution, third
party record keeping and account servicing. The Trust has no knowledge as to
whether all or any portion of the shares owned of record by these
shareholders are also owned beneficially.
NOTE 14--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
CLASS A
----------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
----------------------------------------------------------------------
2004 2003 2002 2001 2000
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 24.09 $ 22.41 $ 29.93 $ 30.12 $ 24.00
- -----------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.17)(a) (0.13) (0.29)(a) (0.39)(a) (0.22)(a)
- -----------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 2.46 1.81 (3.17) 3.44 8.62
=============================================================================================================================
Total from investment operations 2.29 1.68 (3.46) 3.05 8.40
=============================================================================================================================
Less distributions from net realized gains -- -- (4.06) (3.24) (2.28)
=============================================================================================================================
Net asset value, end of period $ 26.38 $ 24.09 $ 22.41 $ 29.93 $ 30.12
_____________________________________________________________________________________________________________________________
=============================================================================================================================
Total return(b) 9.51% 7.50% (13.76)% 10.85% 38.49%
_____________________________________________________________________________________________________________________________
=============================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $550,319 $536,746 $533,216 $588,072 $460,445
_____________________________________________________________________________________________________________________________
=============================================================================================================================
Ratio of expenses to average net assets 1.89%(c)(d) 1.94% 1.86% 1.75% 1.73%
=============================================================================================================================
Ratio of net investment income (loss) to average net
assets (0.63)%(c) (0.56)% (1.10)% (1.28)% (0.85)%
_____________________________________________________________________________________________________________________________
=============================================================================================================================
Portfolio turnover rate 64% 99% 153% 207% 242%
_____________________________________________________________________________________________________________________________
=============================================================================================================================
</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.
(c) Ratios are based on average daily net assets of $570,307,244.
(d) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 1.91%.
F-12
NOTE 14--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS B
-------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
-------------------------------------------------------------------
2004 2003 2002 2001 2000
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 22.09 $ 20.66 $ 28.03 $ 28.53 $ 22.96
- --------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.27)(a) (0.23) (0.38)(a) (0.51)(a) (0.34)(a)
- --------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 2.26 1.66 (2.93) 3.25 8.19
==========================================================================================================================
Total from investment operations 1.99 1.43 (3.31) 2.74 7.85
==========================================================================================================================
Less distributions from net realized gains -- -- (4.06) (3.24) (2.28)
==========================================================================================================================
Net asset value, end of period $ 24.08 $ 22.09 $ 20.66 $ 28.03 $ 28.53
__________________________________________________________________________________________________________________________
==========================================================================================================================
Total return(b) 9.01% 6.92% (14.21)% 10.32% 37.78%
__________________________________________________________________________________________________________________________
==========================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $168,468 $179,646 $187,793 $219,036 $144,861
__________________________________________________________________________________________________________________________
==========================================================================================================================
Ratio of expenses to average net assets 2.39%(c)(d) 2.44% 2.36% 2.25% 2.23%
==========================================================================================================================
Ratio of net investment income (loss) to average net
assets (1.13)%(c) (1.06)% (1.60)% (1.78)% (1.35)%
__________________________________________________________________________________________________________________________
==========================================================================================================================
Portfolio turnover rate 64% 99% 153% 207% 242%
__________________________________________________________________________________________________________________________
==========================================================================================================================
</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.
(c) Ratios are based on average daily net assets of $184,321,635.
(d) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 2.41%.
<Table>
<Caption>
CLASS C
--------------------------------------------------------------
YEAR ENDED OCTOBER 31,
--------------------------------------------------------------
2004 2003 2002 2001 2000
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 22.11 $ 20.67 $ 28.03 $ 28.53 $ 22.96
- ----------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.27)(a) (0.23) (0.38)(a) (0.51)(a) (0.34)(a)
- ----------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 2.25 1.67 (2.92) 3.25 8.19
============================================================================================================================
Total from investment operations 1.98 1.44 (3.30) 2.74 7.85
============================================================================================================================
Less distributions from net realized gains -- -- (4.06) (3.24) (2.28)
============================================================================================================================
Net asset value, end of period $ 24.09 $ 22.11 $ 20.67 $ 28.03 $ 28.53
____________________________________________________________________________________________________________________________
============================================================================================================================
Total return(b) 8.95% 6.97% (14.18)% 10.32% 37.77%
____________________________________________________________________________________________________________________________
============================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $42,863 $43,482 $46,759 $36,366 $12,339
____________________________________________________________________________________________________________________________
============================================================================================================================
Ratio of expenses to average net assets 2.39%(c)(d) 2.44% 2.36% 2.25% 2.23%
============================================================================================================================
Ratio of net investment income (loss) to average net assets (1.13)%(c) (1.06)% (1.60)% (1.78)% (1.35)%
____________________________________________________________________________________________________________________________
============================================================================================================================
Portfolio turnover rate 64% 99% 153% 207% 242%
____________________________________________________________________________________________________________________________
============================================================================================================================
</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.
(c) Ratios are based on average daily net assets of $45,348,453.
(d) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 2.41%.
F-13
NOTE 15--LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
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, contractual plans, issues
related to Section 529 college savings plans and procedures for locating lost
securityholders.
As described more fully below, INVESCO Funds Group, Inc. ("IFG"), the former
investment advisor to certain AIM Funds, A I M Advisors, Inc. ("AIM"), the
Fund's investment advisor, and A I M Distributors, Inc. ("ADI"), the distributor
of the retail AIM Funds and a wholly owned subsidiary of AIM, reached final
settlements with the Securities and Exchange Commission ("SEC"), the New York
Attorney General ("NYAG"), the Colorado Attorney General ("COAG"), the Colorado
Division of Securities ("CODS") and the Secretary of State of the State of
Georgia to resolve civil enforcement actions and investigations related to
market timing activity and related issues in the AIM Funds, including those
formerly advised by IFG.
In addition, as described more fully below, IFG and AIM are the subject of a
number of ongoing regulatory inquiries and civil lawsuits related to one or more
of the issues currently being scrutinized by various Federal and state
regulators, including but not limited to those issues described above.
Additional regulatory actions and/or civil lawsuits related to the above or
other issues may be filed against the AIM Funds, 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 the AIM Funds, IFG, AIM
and/or related entities and individuals in the future.
As a result of the matters discussed below, investors in the AIM 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.
Settled Enforcement Actions and Investigations Related to Market Timing
On October 8, 2004, AMVESCAP PLC ("AMVESCAP"), the parent company of IFG and
AIM, announced that final settlements had been reached with the SEC, the NYAG,
the COAG and the Secretary of State of Georgia to resolve civil enforcement
actions and investigations related to market timing activity and related issues
in the AIM Funds, including those formerly advised by IFG. A final settlement
also has been reached with the Colorado Division of Securities ("CODS") with
respect to this matter. In their enforcement actions and investigations, these
regulators alleged, in substance, that IFG and AIM failed to disclose in the
prospectuses for the AIM Funds that they advised and to the independent
directors/trustees of such Funds that IFG and AIM had entered into certain
arrangements permitting market timing of such Funds, thereby breaching their
fiduciary duties to such Funds. As a result of the foregoing, the regulators
alleged that IFG, AIM and ADI breached various Federal and state securities,
business and consumer protection laws. Under the terms of the settlements, IFG,
AIM and ADI consent to the entry of settlement orders or assurances of
discontinuance, as applicable, by the regulators containing certain terms, some
of which are described below, without admitting or denying any wrongdoing.
Under the terms of the settlements, IFG agreed to pay a total of $325
million, of which $110 million is civil penalties. Of the $325 million total
payment, half will be paid on or before December 31, 2004 and the remaining half
will be paid on or before December 31, 2005. AIM and ADI agreed to pay a total
of $50 million, of which $30 million is civil penalties. The entire $50 million
payment by AIM and ADI has been paid.
The entire $325 million IFG settlement payment will be available for
distribution to the shareholders of those AIM Funds that IFG formerly advised
that were harmed by market timing activity, and the entire $50 million
settlement payment by AIM and ADI will be available for distribution to the
shareholders of those AIM Funds advised by AIM that were harmed by market timing
activity, all as to be determined by an independent distribution consultant to
be appointed under the settlements. The settlement payments will be distributed
in accordance with a methodology to be determined by the independent
distribution consultant, in consultation with AIM and the independent trustees
of the AIM Funds and acceptable to the staff of the SEC.
Under the settlements with the NYAG and COAG, AIM has agreed to reduce
management fees on the AIM Funds by $15 million per year for the next five
years, based upon effective fee rates and assets under management as of July 1,
2004, and not to increase certain management fees. IFG will also pay $1.5
million to the COAG to be used for investor education purposes and to reimburse
the COAG for actual costs. Finally, IFG and AIM will pay $175,000 to the
Secretary of State of Georgia to be used for investor education purposes and to
reimburse the Secretary of State for actual costs.
None of the costs of the settlements will be borne by the AIM Funds or by
Fund shareholders.
Under the terms of the settlements, AIM will make certain governance
reforms, including maintaining an internal controls committee and retaining an
independent compliance consultant, a corporate ombudsman and, as stated above,
an independent distribution consultant. Also, commencing in 2007 and at least
once every other year thereafter, AIM will undergo a compliance review by an
independent third party.
In addition, under the terms of the settlements, AIM has undertaken to cause
the AIM Funds to operate in accordance with certain governance policies and
practices, including retaining a full-time independent senior officer whose
duties will include monitoring compliance and managing the process by which
proposed management fees to be charged the AIM Funds are negotiated. Also,
commencing in 2008 and not less than every fifth calendar year thereafter, the
AIM Funds will hold shareholder meetings at which their Boards of Trustees will
be elected.
On October 8, 2004, the SEC announced that it had settled a market timing
enforcement action against Raymond R. Cunningham, the former president and chief
executive officer of IFG and a former member of the board of directors of the
AIM Funds formerly advised by IFG. As part of the settlement, the SEC ordered
Mr. Cunningham to pay $1 in restitution and civil penalties in the amount of
$500,000. In addition, the SEC prohibited Mr. Cunningham from associating with
an investment advisor, broker, dealer or investment company for a period of two
years and further prohibited him from serving as an officer or director of an
investment advisor, broker, dealer or investment company for a period of five
years.
On August 31, 2004, the SEC announced that it had settled market timing
enforcement actions against Timothy J. Miller, the former chief investment
officer and a former portfolio manager for IFG, Thomas A. Kolbe, the former
national sales manager of IFG, and Michael D. Legoski, a former assistant
F-14
NOTE 15--LEGAL PROCEEDINGS (CONTINUED)
vice president in IFG's sales department. As part of the settlements, the SEC
ordered Messrs. Miller, Kolbe and Legoski to pay $1 in restitution each and
civil penalties in the amounts of $150,000, $150,000 and $40,000, respectively.
In addition, the SEC prohibited each of them from associating with an investment
advisor or investment company for a period of one year, prohibited Messrs.
Miller and Kolbe from serving as an officer or director of an investment advisor
or investment company for three years and two years, respectively, and
prohibited Mr. Legoski from associating with a broker or dealer for a period of
one year.
As referenced by the SEC in the SEC's settlement order, one former officer
of ADI and one current officer of AIM (who has taken a voluntary leave of
absence) have received regulatory inquiries in the form of subpoenas or other
oral or written requests for information and/or documents related to market
timing activity in the AIM Funds.
At the request of the trustees of the AIM Funds, AMVESCAP has agreed to pay
all of the expenses incurred by such Funds related to the market timing
investigations, including expenses incurred in connection with the regulatory
complaints against IFG alleging market timing and the market timing
investigations with respect to IFG and AIM.
The payments made in connection with the above-referenced settlements by
IFG, AIM and ADI will total approximately $375 million (not including AIM's
agreement to reduce management fees on the AIM Funds by $15 million per year for
the next five years, based upon effective fee rates and assets under management
as of July 1, 2004). The manner in which the settlement payments will be
distributed is unknown at the present time and will be determined by an
independent distribution consultant to be appointed under the settlement
agreements. Therefore, management of AIM and the Fund are unable at the present
time to estimate the impact, if any, that the distribution of the settlement
amounts may have on the Fund or whether such distribution will have an impact on
the Fund's financial statements in the future.
At the present time, management of AIM and the Fund are unable to estimate
the impact, if any, that the outcome of the ongoing matters described below may
have on AIM, ADI or the Fund.
Ongoing Regulatory Inquiries Concerning IFG and AIM
IFG, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds formerly advised by IFG 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 such 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 SEC, the NASD,
Inc. ("NASD"), the Florida Department of Financial Services, 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. 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 of the AIM
Funds formerly advised by IFG. IFG is providing full cooperation with respect to
these inquiries.
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, contractual
plans, issues related to Section 529 college savings plans and procedures for
locating lost securityholders. These regulators include the SEC, the NASD, the
Department of Banking for the State of Connecticut, 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 SEC, the NASD, the DOL, the
Internal Revenue Service, the New York Stock Exchange, 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 AIM Funds, IFG, AIM, A I M Management Group Inc. ("AIM
Management"), AMVESCAP, certain related entities, certain of their current and
former officers and/or certain unrelated third parties) making allegations that
are similar in many respects to those in the settled regulatory actions brought
by the SEC, the NYAG and the COAG concerning market timing activity in the AIM
Funds. 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 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; injunctive relief; disgorgement of management fees; imposition of a
constructive trust; removal of certain directors and/or employees; various
corrective measures under ERISA; rescission of certain Funds' advisory
agreements; interest; and attorneys' and experts' fees.
All lawsuits based on allegations of market timing, late trading, and
related issues have been transferred to the United States District Court for the
District of Maryland (the "MDL Court") for consolidated or coordinated pre-trial
proceedings. Pursuant to an Order of the MDL Court, plaintiffs consolidated
their claims for pre-trial purposes into three amended complaints against
various AIM- and IFG-related parties: (i) a Consolidated Amended Class Action
Complaint purportedly brought on behalf of shareholders of the AIM Funds; (ii) a
Consolidated Amended Fund Derivative Complaint purportedly brought on behalf of
the AIM Funds and fund registrants; and (iii) an Amended Class Action Complaint
for Violations of the Employee
F-15
NOTE 15--LEGAL PROCEEDINGS (CONTINUED)
Retirement Income Securities Act purportedly brought on behalf of participants
in AMVESCAP's 401(k) plan. Plaintiffs in one of the underlying lawsuits
transferred to the MDL Court continue to seek remand of their action 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 AIM Funds, IFG and/or AIM)
alleging that certain AIM 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/or 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, INVESCO Institutional (N.A.), Inc., ADI and/or INVESCO
Distributors, Inc.) alleging that the defendants charged excessive advisory
and/or 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 Federal
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 Charging of Distribution Fees on Closed
Funds or Share Classes
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, IFG, AIM, ADI and/or certain of the trustees of the AIM 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 Federal 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. and/or
certain of the trustees of the AIM Funds) alleging that the defendants
improperly used the assets of the AIM Funds to pay brokers to aggressively
promote the sale of the AIM 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.
F-16
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees and Shareholders of
AIM Global Healthcare Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the AIM Global Healthcare Fund (the
"Fund") at October 31, 2004, the results of its operations for the year then
ended, the changes in its net assets for each of the two years in the period
then ended and the financial highlights for each of the five years in the period
then ended, in conformity with accounting principles generally accepted in the
United States of America. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Fund's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at October
31, 2004 by correspondence with the custodian and brokers, provide a reasonable
basis for our opinion.
/S/ PRICEWATERHOUSECOOPERS LLP
December 20, 2004
Houston, Texas
F-17
OTHER INFORMATION
TRUSTEES AND OFFICERS
As of October 31, 2004
The address of each trustee and officer of AIM Investment Funds (the "Trust"),
is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee oversees 114
portfolios in the AIM Funds complex. The trustees serve for the life of the
Trust, subject to their earlier death, incapacitation, resignation, retirement
or removal as more specifically provided in the Trust's organizational
documents. Column two below includes length of time served with predecessor
entities, if any.
<Table>
<Caption>
TRUSTEE AND/
NAME, YEAR OF BIRTH AND OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- ---------------------------------------------------------------------------------------------------------------------------------
INTERESTED PERSONS
- ---------------------------------------------------------------------------------------------------------------------------------
Robert H. Graham(1) -- 1946 1998 Director and Chairman, A I M Management None
Trustee and President Group Inc. (financial services holding
company); Director and Vice Chairman,
AMVESCAP PLC and Chairman, AMVESCAP
PLC -- AIM Division (parent of AIM and a
global investment management firm)
Formerly: President and Chief Executive
Officer, A I M Management Group Inc.;
Director, Chairman and President, A I M
Advisors, Inc. (registered investment
advisor); Director and Chairman, A I M
Capital Management, Inc. (registered
investment advisor), A I M Distributors,
Inc. (registered broker dealer), AIM
Investment Services, Inc., (registered
transfer agent), and Fund Management
Company (registered broker dealer); and
Chief Executive Officer, AMVESCAP
PLC -- Managed Products
- ---------------------------------------------------------------------------------------------------------------------------------
Mark H. Williamson(2) -- 1951 2003 Director, President and Chief Executive None
Trustee and Executive Vice Officer, A I M Management Group Inc.
President (financial services holding company);
Director, Chairman and President, A I M
Advisors, Inc. (registered investment
advisor); Director, A I M Capital
Management, Inc. (registered investment
advisor) and A I M Distributors, Inc.
(registered broker dealer); Director and
Chairman, AIM Investment Services, Inc.
(registered transfer agent), Fund
Management Company (registered broker
dealer) and INVESCO Distributors, Inc.
(registered broker dealer); and Chief
Executive Officer, AMVESCAP PLC -- AIM
Division (parent of AIM and a global
investment management firm)
Formerly: Director, Chairman, President
and Chief Executive Officer, INVESCO
Funds Group, Inc.; President and Chief
Executive Officer, INVESCO Distributors,
Inc.; Chief Executive Officer, AMVESCAP
PLC -- Managed Products; Chairman and
Chief Executive Officer of NationsBanc
Advisors, Inc.; and Chairman of
NationsBanc Investments, Inc.
- ---------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- ---------------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett(3) -- 1944 2001 Chairman, Crockett Technology Associates ACE Limited (insurance company);
Trustee and Chair (technology consulting company) and Captaris, Inc. (unified
messaging provider)
- ---------------------------------------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 2003 Retired None
Trustee
Formerly: President and Chief Executive
Officer, AMC Cancer Research Center; and
Chairman and Chief Executive Officer,
First Columbia Financial Corporation
- ---------------------------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 1987 Retired Badgley Funds, Inc. (registered
Trustee investment company)
Formerly: Partner, law firm of Baker &
McKenzie
- ---------------------------------------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 2003 Co-President and Founder, Green, Manning None
Trustee & Bunch Ltd., (investment banking firm);
and Director, Policy Studies, Inc. and
Van Gilder Insurance Corporation
- ---------------------------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2001 Director of a number of public and Cortland Trust, Inc. (Chairman)
Trustee private business corporations, including (registered investment company);
the Boss Group Ltd. (private investment Annuity and Life Re (Holdings),
and management) and Magellan Insurance Ltd. (insurance company)
Company
Formerly: Director, President and Chief
Executive Officer, Volvo Group North
America, Inc.; Senior Vice President, AB
Volvo; and director of various
affiliated Volvo companies
- ---------------------------------------------------------------------------------------------------------------------------------
Edward K. Dunn, Jr. -- 1935 2001 Retired None
Trustee
Formerly: Chairman, Mercantile Mortgage
Corp.; President and Chief Operating
Officer, Mercantile-Safe Deposit & Trust
Co.; and President, Mercantile
Bankshares Corp.
- ---------------------------------------------------------------------------------------------------------------------------------
Jack M. Fields -- 1952 2001 Chief Executive Officer, Twenty First Administaff, and Discovery Global
Trustee Century Group, Inc. (government affairs Education Fund (non-profit)
company) and Texana Timber LP
(sustainable forestry company)
- ---------------------------------------------------------------------------------------------------------------------------------
</Table>
(1) Mr. Graham is considered an interested person of the Trust because he is a
director of AMVESCAP PLC, parent of the advisor to the Trust. Prior to
October 4, 2004, Mr. Graham served as Chairman of the Board of Trustees of
the Trust.
(2) Mr. Williamson is considered an interested person of the Trust because he is
an officer and a director of the advisor to, and a director of the principal
underwriter of, the Trust.
(3) Mr. Crockett was elected Chair of the Board of Trustees of the Trust
effective October 4, 2004.
Trustees and Officers (continued)
As of October 31, 2004
The address of each trustee and officer of AIM Investment Funds (the "Trust"),
is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee oversees 114
portfolios in the AIM Funds complex. The trustees serve for the life of the
Trust, subject to their earlier death, incapacitation, resignation, retirement
or removal as more specifically provided in the Trust's organizational
documents. Column two below includes length of time served with predecessor
entities, if any.
<Table>
<Caption>
TRUSTEE AND/
NAME, YEAR OF BIRTH AND OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- ---------------------------------------------------------------------------------------------------------------------------------
Carl Frischling -- 1937 2001 Partner, law firm of Kramer Levin Cortland Trust, Inc. (registered
Trustee Naftalis and Frankel LLP investment company)
- ---------------------------------------------------------------------------------------------------------------------------------
Gerald J. Lewis -- 1933 2003 Chairman, Lawsuit Resolution Services General Chemical Group, Inc.
Trustee (California)
Formerly: Associate Justice of the
California Court of Appeals
- ---------------------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 2001 Formerly: Chief Executive Officer, YWCA None
Trustee of the USA
- ---------------------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 2001 Partner, law firm of Pennock & Cooper None
Trustee
- ---------------------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 1987 Retired None
Trustee
- ---------------------------------------------------------------------------------------------------------------------------------
Louis S. Sklar -- 1939 2001 Executive Vice President, Development None
Trustee and Operations, Hines Interests Limited
Partnership (real estate development
company)
- ---------------------------------------------------------------------------------------------------------------------------------
Larry Soll -- 1942 2003 Retired None
Trustee
- ---------------------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- ---------------------------------------------------------------------------------------------------------------------------------
Lisa O. Brinkley(4) -- 1959 2004 Senior Vice President, A I M Management N/A
Senior Vice President and Group Inc. (financial services holding
Chief Compliance Officer company); Senior Vice President and
Chief Compliance Officer, A I M
Advisors, Inc.; Vice President and Chief
Compliance Officer, A I M Capital
Management, Inc. and A I M Distributors,
Inc.; and Vice President, AIM Investment
Services, Inc. and Fund Management
Company
Formerly: Senior Vice President and
Compliance Director, Delaware
Investments Family of Funds
- ---------------------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 2003 Director, Senior Vice President, N/A
Senior Vice President, Secretary and General Counsel, A I M
Secretary and Chief Legal Management Group Inc. (financial
Officer services holding company) and A I M
Advisors, Inc.; Director and Vice
President, INVESCO Distributors, Inc.;
Vice President, A I M Capital
Management, Inc., and AIM Investment
Services, Inc.; Director, Vice President
and General Counsel, Fund Management
Company and Senior Vice President, A I M
Distributors, Inc.
Formerly: Senior Vice President and
General Counsel, Liberty Financial
Companies, Inc.; Senior Vice President
and General Counsel, Liberty Funds
Group, LLC and Vice President, A I M
Distributors, Inc.
- ---------------------------------------------------------------------------------------------------------------------------------
Stuart W. Coco -- 1955 2002 Managing Director and Director of Money N/A
Vice President Market Research and Special Projects,
A I M Capital Management, Inc.; and Vice
President, A I M Advisors, Inc.
- ---------------------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, A I M N/A
Vice President and Treasurer Advisors, Inc.
Formerly: Senior Vice President, AIM
Investment Services, Inc.; and Vice
President, A I M Distributors, Inc.
- ---------------------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 2004 Director of Cash Management, Managing N/A
Vice President Director and Chief Cash Management
Officer, A I M Capital Management, Inc;
Director and President, Fund Management
Company; and Vice President, A I M
Advisors, Inc.
- ---------------------------------------------------------------------------------------------------------------------------------
Edgar M. Larsen -- 1940 2002 Executive Vice President, A I M N/A
Vice President Management Group, Inc.; Senior Vice
President, A I M Advisors, Inc., and
President, Director of Investments,
Chief Executive Officer and Chief
Investment Officer, A I M Capital
Management, Inc.
Formerly: Director of A I M Advisors,
Inc. and A I M Management Group Inc.,
A I M Advisors, Inc.; and Director and
Chairman, A I M Capital Management, Inc.
- ---------------------------------------------------------------------------------------------------------------------------------
</Table>
(4) Ms. Brinkley was elected Senior Vice President and Chief Compliance Officer
of the Trust effective September 20, 2004.
The Statement of Additional Information of the Trust includes additional
information about the Fund's Trustees and is available upon request, without
charge, by calling 1.800.959.4246.
<Table>
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS
11 Greenway Plaza A I M Advisors, Inc. A I M Distributors, Inc. PricewaterhouseCoopers LLP
Suite 100 11 Greenway Plaza 11 Greenway Plaza 1201 Louisiana Street
Houston, TX 77046-1173 Suite 100 Suite 100 Suite 2900
Houston, TX 77046-1173 Houston, TX 77046-1173 Houston, Texas 77002-5678
COUNSEL TO THE FUND COUNSEL TO THE TRUSTEES TRANSFER AGENT CUSTODIAN
Ballard Spahr Kramer, Levin, Naftalis AIM Investment Services, State Street Bank and Trust
Andrews & Ingersoll, LLP & Frankel LLP Inc. Company
1735 Market Street 919 Third Avenue P.O. Box 4739 225 Franklin Street
Philadelphia, PA 19103-7599 New York, NY 10022-3852 Houston, TX 77210-4739 Boston, MA 02110-2801
</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(5) AIM High Yield Fund
AIM Blue Chip Fund AIM Global Aggressive Growth Fund AIM Income Fund
AIM Capital Development Fund AIM Global Equity Fund(6) 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 Core Stock Fund(1) AIM International Core Equity Fund(1) AIM Short Term Bond Fund
AIM Dent Demographic Trends Fund AIM International Emerging Growth Fund(7) AIM Total Return Bond Fund
AIM Diversified Dividend Fund AIM International Growth Fund Premier U.S. Government Money Portfolio(1)
AIM Dynamics Fund(1) AIM Trimark Fund
AIM Emerging Growth Fund TAX-FREE
AIM Large Cap Basic Value Fund SECTOR EQUITY
AIM Large Cap Growth Fund AIM High Income Municipal Fund
AIM Libra Fund AIM Advantage Health Sciences Fund(1) AIM Municipal Bond Fund
AIM Mid Cap Basic Value Fund AIM Energy Fund(1) AIM Tax-Exempt Cash Fund
AIM Mid Cap Core Equity Fund(2) AIM Financial Services Fund(1) AIM Tax-Free Intermediate Fund
AIM Mid Cap Growth Fund AIM Global Health Care Fund Fixed Income
AIM Mid Cap Stock Fund(1) AIM Gold & Precious Metals Fund(1)
AIM Opportunities I Fund AIM Health Sciences Fund(1) AIM ALLOCATION SOLUTIONS
AIM Opportunities II Fund AIM Leisure Fund(1)
AIM Opportunities III Fund AIM Multi-Sector Fund(1) AIM Aggressive Allocation Fund
AIM Premier Equity Fund AIM Real Estate Fund AIM Conservative Allocation Fund
AIM S&P 500 Index Fund(1) AIM Technology Fund(1) AIM Moderate Allocation Fund
AIM Select Equity Fund AIM Utilities Fund(1)
AIM Small Cap Equity Fund(3)
AIM Small Cap Growth Fund(4) ===================================================================================
AIM Small Company Growth Fund(1) CONSIDER THE INVESTMENT OBJECTIVES, RISKS, AND CHARGES AND EXPENSES CAREFULLY.
AIM Total Return Fund*(1) FOR THIS AND OTHER INFORMATION ABOUT AIM FUNDS, OBTAIN A PROSPECTUS FROM YOUR
AIM Trimark Endeavor Fund FINANCIAL ADVISOR AND READ IT THOROUGHLY BEFORE INVESTING.
AIM Trimark Small Companies Fund ===================================================================================
AIM Weingarten Fund
</Table>
* Domestic equity and income fund
(1) The following name changes became effective October 15, 2004: INVESCO
Advantage Health Sciences Fund to AIM Advantage Health Sciences Fund, INVESCO
Core Equity Fund to AIM Core Stock Fund, INVESCO Dynamics Fund to AIM Dynamics
Fund, INVESCO Energy Fund to AIM Energy Fund, INVESCO Financial Services Fund to
AIM Financial Services Fund, INVESCO Gold & Precious Metals Fund to AIM Gold &
Precious Metals Fund, INVESCO Health Sciences Fund to AIM Health Sciences Fund,
INVESCO International Core Equity Fund to AIM International Core Equity Fund,
INVESCO Leisure Fund to AIM Leisure Fund, INVESCO Mid-Cap Growth Fund to AIM Mid
Cap Stock Fund, INVESCO Multi-Sector Fund to AIM Multi-Sector Fund, INVESCO S&P
500 Index Fund to AIM S&P 500 Index Fund, INVESCO Small Company Growth Fund to
AIM Small Company Growth Fund, INVESCO Technology Fund to AIM Technology Fund,
INVESCO Total Return Fund to AIM Total Return Fund, INVESCO U.S. Government
Money Fund to Premier U.S. Government Money Portfolio, INVESCO Utilities Fund to
AIM Utilities Fund. (2) As of the close of business on February 27, 2004, AIM
Mid Cap Core Equity Fund is available to new investors on a limited basis. For
information on who may continue to invest in AIM Mid Cap Core Equity Fund,
please contact your financial advisor. (3) Effective December 13, 2004, AIM
Small Cap Equity Fund is open to all investors. (4) AIM Small Cap Growth Fund
was closed to most investors on March 18, 2002. For information on who may
continue to invest in AIM Small Cap Growth Fund, please contact your financial
advisor. (5) AIM European Small Company Fund will close to new investors when
net assets reach $500 million. (6) Effective March 31, 2004, AIM Global Trends
Fund was renamed AIM Global Equity Fund. (7) AIM International Emerging Growth
Fund will close to new investors when net assets reach $500 million.
If used after January 20, 2005, 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 $132 billion in assets. AIM is a subsidiary of
AMVESCAP PLC, one of the world's largest independent financial services
companies with $363 billion in assets under management. Data as of September 30,
2004.
AIMinvestments.com GHC-AR-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 LIBRA FUND
Annual Report to Shareholders o October 31, 2004
[COVER IMAGE]
[YOUR GOALS. OUR SOLUTIONS.] [AIM INVESTMENTS LOGO APPEARS HERE]
--Registered Trademark-- --Registered Trademark--
<Table>
====================================================================================================================================
AIM LIBRA FUND SEEKS LONG-TERM GROWTH OF CAPITAL.
o Unless otherwise stated, information presented in this report is as of 10/31/04 and is based on total net assets.
====================================================================================================================================
ABOUT SHARE CLASSES ABOUT INDEXES USED IN THIS REPORT OTHER INFORMATION
o Effective 9/30/03, Class B shares are o The unmanaged Standard & Poor's o The Conference Board is a
not available as an investment for Composite Index of 500 Stocks (the S&P not-for-profit organization that
retirement plans maintained pursuant to 500--Registered Trademark-- Index) is an conducts research and publishes
Section 401 of the Internal Revenue index of common stocks frequently used information and analysis to help
Code, including 401(k) plans, money as a general measure of U.S. stock businesses strengthen their performance.
purchase pension plans and profit market performance.
sharing plans. Plans that have existing o The returns shown in the Management's
accounts invested in Class B shares will o The unmanaged MSCI World Index is a Discussion of Fund Performance are based
continue to be allowed to make group of global securities tracked by on net asset values calculated for
additional purchases. Morgan Stanley Capital International. shareholder transactions. Generally
accepted accounting principles require
PRINCIPAL RISKS OF INVESTING IN THE FUND o The unmanaged Russell adjustments to be made to the net assets
Midcap--Registered Trademark-- Growth of the fund at period end for financial
o Investing in small and mid-size Index is a subset of the Russell reporting purposes, and as such, the net
companies involves risks not associated Midcap--Registered Trademark-- Index, asset values for shareholder
with investing in more established which represents the performance of the transactions and the returns based on
companies. Also, small companies have stocks of domestic mid-capitalization those net asset values may differ from
business risk, significant stock price companies; the Growth subset measures the net asset values and returns
fluctuations and illiquidity. the performance of Russell Midcap reported in the Financial Highlights.
companies with higher price/book ratios
o International investing presents and higher forecasted growth values. o Industry classifications used in this
certain risks not associated with report are generally according to the
investing solely in the United States. o The unmanaged Lipper Multi-Cap Growth Global Industry Classification Standard,
These include risks relating to Fund Index represents an average of the which was developed by and is the
fluctuations in the value of the U.S. performance of the 30 largest exclusive property and a service mark of
dollar relative to the values of other multi-capitalization growth funds Morgan Stanley Capital International
currencies, the custody arrangements tracked by Lipper, Inc., an independent Inc. and Standard & Poor's.
made for the fund's foreign holdings, mutual fund performance monitor.
differences in accounting, political The fund files its complete schedule of
risks and the lesser degree of public o The fund is not managed to track the portfolio holdings with the Securities
information required to be provided by performance of any particular index, and Exchange Commission ("SEC") for the
non-U.S. companies. The fund may invest including the indexes defined here, and 1st and 3rd quarters of each fiscal year
up to 25% of its assets in the consequently, the performance of the on Form N-Q. The fund's Form N-Q filings
securities of non-U.S. issuers. fund may deviate significantly from the are available on the SEC's Web site at
performance of the indexes. http://www.sec.gov. Copies of the fund's
o The fund may participate in the Forms N-Q may be reviewed and copied at
initial public offering (IPO) market in o A direct investment cannot be made in the SEC's Public Reference Room at 450
some market cycles. Because of the an index. Unless otherwise indicated, Fifth Street, N.W., Washington, D.C.
fund's small asset base, any investment index results include reinvested 20549-0102. You can obtain information
the fund may make in IPOs may dividends, and they do not reflect sales on the operation of the Public Reference
significantly affect the fund's total charges. Performance of an index of Room, including information about
return. As the fund's assets grow, the funds reflects fund expenses; duplicating fee charges, by calling
impact of IPO investments will decline, performance of a market index does not. 1-202-942-8090 or by electronic request
which may reduce the effect of IPO at the following e-mail address:
investments on the fund's total return. publicinfo@sec.gov. The SEC file numbers
for the fund are 811-05426 and 33-19338.
o Because of the fund's relatively high The fund's most recent portfolio
degree of turnover and volatility, it is holdings, as filed on Form N-Q, are also
best suited for aggressive investors. available at www.AIMinvestments.com.
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, from our
Client Services department at
800-959-4246 or on the AIM Web site,
AIMinvestments.com. On the home page,
scroll down and click on AIM Funds Proxy
Policy. The information is also
available on the Securities and Exchange
Commission's Web site, sec.gov.
Information regarding how the fund voted
proxies related to its portfolio
securities during the 12 months ended
6/30/04 is available at our Web site. Go
to AIMinvestments.com, access the About
Us tab, click on Required Notices and
then click on Proxy Voting Activity.
Next, select your fund from the
drop-down menu.
</Table>
=============================================================================
THIS REPORT MUST BE ACCOMPANIED OR PRECEDED BY A CURRENTLY EFFECTIVE FUND
PROSPECTUS, WHICH CONTAINS MORE COMPLETE INFORMATION, INCLUDING SALES CHARGES
AND EXPENSES. INVESTORS SHOULD READ IT CAREFULLY BEFORE INVESTING.
=============================================================================
===================================================
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
===================================================
AIMinvestments.com
TO OUR SHAREHOLDERS
DEAR FELLOW SHAREHOLDER OF THE AIM FAMILY OF
FUNDS--Registered Trademark--:
NEW BOARD CHAIRMAN
[PHOTO OF It is our pleasure to introduce you to Bruce Crockett, the
ROBERT H. new Chairman of the Board of Trustees of the AIM Funds. Bob
GRAHAM] Graham has served as Chairman of the Board of Trustees of
the AIM Funds ever since Ted Bauer retired from that
ROBERT H. GRAHAM position in 2000. However, as you may be aware, the U.S.
Securities and Exchange Commission recently adopted a rule
requiring that an independent fund trustee, meaning a
[PHOTO OF trustee who is not an officer of the fund's investment
MARK H. advisor, serve as chairman of the funds' Board. In addition,
WILLIAMSON] a similar provision was included in the terms of AIM
Advisors' recent settlements with certain regulators.
MARK H. WILLIAMSON Accordingly, the AIM Funds' Board recently elected Mr.
Crockett, one of the fourteen independent trustees on the
AIM Funds' Board, as Chairman. His appointment became
[PHOTO OF effective on October 4, 2004. Mr. Graham will remain on the
BRUCE L. funds' Board, as will Mark Williamson, President and Chief
CROCKETT] Executive Officer of AIM. Mr. Graham will also remain
Chairman of AIM Investments--Registered Trademark--.
BRUCE L. CROCKETT
Mr. Crockett has been a member of the AIM Funds' board
since 1992, when AIM acquired certain funds that had been
advised by CIGNA. He had been a member of the board of those
funds since 1978. Mr. Crockett has more than 30 years of
experience in finance and general management and has been
Chairman of Crockett Technologies Associates since 1996. He
is the first independent chairman of the funds' board in
AIM's history, as he is not affiliated with AIM or AMVESCAP
in any way. He is committed to ensuring that the AIM Funds
adhere to the highest standards of corporate governance for
the benefit of fund shareholders, and we at AIM share that
commitment.
MARKET CONDITIONS DURING THE FISCAL YEAR
Virtually every equity index, domestic and foreign, produced
positive returns for the fiscal year ended October 31, 2004.
Domestically, the S&P 500 Index was up 9.41% for the year.
Globally, the MSCI World Index advanced more than 13%.
However, a goodly portion of this positive performance was
achieved during 2003. Year to date as of October 31, the S&P
500 Index was up just over 3%, the MSCI World Index just
about 5%. In the pages that follow, you will find a more
detailed discussion of the market conditions that affected
your fund during the fiscal year.
While it is agreeable to report positive market
performance for the year covered by this report, as ever, we
encourage our shareholders to look past short-term
performance and focus on their long-term investment goals.
Over the short term, the one sure thing about the investment
markets is their unpredictability. Over the long term,
equities have produced very attractive returns. For the
25-year period ended October 31, 2004, the S&P 500 Index
averaged 13.50% growth per year and the MSCI World Index
averaged 11.16%. While past performance cannot guarantee
future results, we believe staying invested for the long
term offers the best opportunity for capital growth.
AN IMPORTANT ANNOUNCEMENT ABOUT YOUR FUND'S MANAGEMENT
Jonathan Schoolar, who has been with AIM since 1986, will
retire from the company December 31, 2004. Jay Rushin, who
has been with the company for 10 years and manages
aggressive growth fund portfolios, will become manager of
AIM Libra Fund. The departure of Mr. Schoolar will not
change the objective, strategy, or management philosophy of
the fund.
All of us at AIM appreciate Mr. Schoolar's many years of
dedicated service to AIM Investments and to the shareholders
of the fund. He has played an important role in AIM's
success, and we wish him the best in his future endeavors.
The following pages of this report provide an explanation
of how your fund was managed during the fiscal year, how it
performed in comparison to various benchmarks, and a
presentation of its long-term performance. We hope you find
this information helpful. Current information about your
fund and about the markets in general is always available on
our Web site, AIMinvestments.com.
As always, AIM remains committed to building solutions
for your investment goals, and we thank you for your
continued participation in AIM Investments. If you have any
questions, please contact our Client Service representatives
at 800-959-4246.
Sincerely,
/s/ ROBERT H. GRAHAM /s/ MARK H. WILLIAMSON
-------------------------- -----------------------
Robert H. Graham Mark H. Williamson
Chairman, AIM Investments CEO & President, AIM
President & Vice Chairman, Investments Trustee,
AIM Funds AIM Funds
December 16, 2004
AIM Investments is a registered service mark of A I M
Management Group Inc. A I M Advisors, Inc. and A I M Capital
Management, Inc. are the investment advisors, and A I M
Distributors, Inc. is the distributor for the retail funds
represented by AIM Investments.
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
<Table>
INTEREST RATES AND UNCERTAINTIES GDP." The Conference Board reported that
AFFECTED AGGRESSIVE STOCKS consumer sentiment hit a two-year high
in July before declining in August,
For the fiscal year ended October 31, tapered off from an annualized rate of September and October. The Conference
2004, AIM Libra Fund's Class A shares 7.4% in the third quarter of 2003 to a Board also reported that its index of
returned -10.09% at net asset value more modest 3.9% in the third quarter of leading economic indicators declined in
(NAV). PERFORMANCE SHOWN AT NAV DOES NOT 2004. September, its fourth consecutive
INCLUDE FRONT-END SALES CHARGES, WHICH monthly decline.
WOULD HAVE REDUCED THE PERFORMANCE. The Generally positive economic
results for the other share classes of developments prompted the U.S. Federal YOUR FUND
the fund and its comparison indexes are Reserve (the Fed) to raise its federal
shown in the table on page 3. funds target rate from a decades-low Following the fund's strategy, we
1.00%, where it stood at the beginning invested in stocks showing positive
The fund underperformed the S&P 500 of the fiscal year, to 1.75% by the earnings revision in any sector of the
Index, which returned 9.41%, the Russell fiscal year's close. The first of these market. We looked for long-term
Midcap Growth Index, which returned increases occurred June 30, 2004, but performance by seeking stocks with high
8.77%, and the Lipper Multi-Cap Growth twice in April, Fed Chairman Alan growth potential in whatever sector or
Fund Index, which returned 5.75%. We Greenspan's remarks had forewarned capitalization size we might find them.
believe that the fund underperformed investors of rising rates. After his We bought stocks of companies that were
primarily because of the downturn in remarks, stock indexes fell, and for beating earnings expectations where we
expectations for rapid growth of the that month the Russell Midcap Growth believed the potential return was the
economy. The fund's strategy involves Index returned -2.82%. highest.
buying stocks with very high
expectations for growth, and if they Near the end of the period, in its We selected the most aggressive
live up to those expectations, they tend anecdotal report on the economy released stocks that fit our earnings growth
to be high-reward stocks. However, when in late October, the Fed said economic strategy. Aggressive stocks are often
investors' expectations for the economy activity continued to expand in the stocks of rapidly growing companies.
change significantly, these stocks may September and early October. The Fed Also, the price trends of aggressive
perform poorly. said that higher energy costs were stocks are likely to be more volatile
constraining consumer and business than those of other stocks. Our
MARKET CONDITIONS spending and capital spending and hiring selection of aggressive stocks and the
were rising modestly. rapidly expanding economy enabled the
The U.S. economy showed signs of fund to post strong returns throughout
strength during the fiscal year ended This generally positive economic news 2003. However, our choice of aggressive
October 31, 2004. Economic news was was offset by geopolitical uncertainty stocks was not successful in the market
generally positive, and it included and terrorism concerns, as well as climate of 2004. Market performance for
expansion of gross domestic product soaring oil prices. In mid-October, Mr. 2004 has been modest, as exemplified by
(GDP), the broadest measure of overall Greenspan said that "so far this year, the S&P 500 Index's
economic activity. While positive, GDP the rise in the value of imported calendar-year-to-date return of 3.06% as
growth oil--essentially a tax on U.S. of October 31, 2004.
residents--has amounted to about 3/4 [of
one] percent of In April and May of 2004, we saw a
rather significant change in market
expectations in a
</Table>
<Table>
====================================================================================================================================
PORTFOLIO COMPOSITION TOP 10 EQUITY HOLDINGS* TOP 10 INDUSTRIES*
By sector
1. Tekelec 1.7% 1. Oil & Gas Equipment & Services 7.2%
[PIE CHART]
2. F5 Networks, Inc. 1.6 2. Homebuilding 6.0
Industrials 13.3%
3. Cree, Inc. 1.5 3. Biotechnology 6.0
Information Technology 21.3%
4. Urban Outfitters, Inc. 1.5 4. Specialty Stores 4.8
Materials 7.0%
5. Microsoft Corp. 1.5 5. Communications Equipment 4.4
Telecommunication Services 1.4%
6. Cognizant Technology Solutions 6. IT Consulting & Other Services 4.1
Money Market Funds Plus Other Corp.-Class A 1.4
Assets Less Liabilities 0.7% 7. Oil & Gas Refining, Marketing
7. Tessera Technologies Inc. 1.4 & Transportation 3.8
Consumer Discretionary 22.3%
8. CACI International Inc.-Class A 1.4 8. Property & Casualty Insurance 3.8
Energy 13.4%
9. Western Wireless Corp.-Class A 1.4 9. Pharmaceuticals 3.7
Financials 6.1%
10. Hunt (J.B.) Transport Services, 10. Internet Software & Services 3.6
Health Care 14.5% Inc. 1.4
The fund's holdings are subject to change, and there is no assurance that
the fund will continue to hold any particular security.
*Excluding money market fund holdings.
====================================================================================================================================
</Table>
2
<Table>
relatively short period of time. At the a decline in orders made investors fear
end of April, the advance estimate for The fund's performance in the that supply would catch up with demand
first-quarter-2004 GDP came in at 4.2%, consumer staples, financials and by the end of the year, and the industry
which was even with GDP growth in information technology (IT) sectors as a whole suffered. Over the period, we
fourth-quarter 2003, but it was far detracted from fund performance. The significantly reduced the fund's
below expectations. Also in April, the fund's IT stocks were the largest exposure to semiconductor industry
Fed indicated that it would likely begin detractor to performance because of the stocks.
to raise rates, which it did in June. fund's overweight position and the
Whether the economy was slowing on its change in the sector's performance for IN CLOSING
own or whether the anticipated rise in 2004. For calendar-year 2003,
interest rates caused a slowdown, the information technology stocks turned in Historically, many factors may drive
result was that the stocks that we had the highest performance of any sector in stock performance over the short term,
expected to perform well did not. the S&P 500 Index. Because of reduced but we believe that over the long term,
corporate spending in the sector, as of earnings growth and its sustainability
In following our earnings growth October 31, 2004, the year-to-date dictate performance. Despite the fund's
strategy, we look for stocks that are return for the IT sector of the same recent lagging performance, we
experiencing positive earnings momentum. index was -4.93%. maintained our strategy of identifying
When fund holdings disappoint, as they companies exhibiting strong earnings
did in April, positive momentum is Two stocks that benefited fund momentum, which we believed could
halted, and we may replace those performance were Akami Technologies and position the fund to perform well over a
holdings with stocks exhibiting positive Nuevo Energy. Akami Technologies offers long-term investment horizon.
momentum. This enables the fund to e-business solutions for customers
remain true to the earnings momentum seeking to conduct business over the THE VIEWS AND OPINIONS EXPRESSED IN
theory, which we believe has been shown Internet. The company benefited from an MANAGEMENT'S DISCUSSION OF FUND
to be an effective long-term strategy, increase in monthly committed customer PERFORMANCE ARE THOSE OF A I M ADVISORS,
but it does not undo the short-term revenues. INC. THESE VIEWS AND OPINIONS ARE
damage of earnings disappointments. It SUBJECT TO CHANGE AT ANY TIME BASED ON
also increases portfolio turnover, which Nuevo Energy, an oil and gas FACTORS SUCH AS MARKET AND ECONOMIC
is a likely outcome of an aggressive exploration and production company, had CONDITIONS. THESE VIEWS AND OPINIONS MAY
investment strategy. In following an domestic operations in California and on NOT BE RELIED UPON AS INVESTMENT ADVICE
aggressive strategy, we look for the the Gulf Coast. It was purchased by OR RECOMMENDATIONS, OR AS AN OFFER FOR A
highest possible return and may often Plains Exploration and Production PARTICULAR SECURITY. THE INFORMATION IS
replace a holding when a more attractive Company. We sold the fund's holdings in NOT A COMPLETE ANALYSIS OF EVERY ASPECT
investment opportunity is identified. Akami and Nuevo and used profits to OF ANY MARKET, COUNTRY, INDUSTRY,
purchase new stocks. SECURITY OR THE FUND. STATEMENTS OF FACT
The best-performing sector for the ARE FROM SOURCES CONSIDERED RELIABLE,
fund was the energy sector. The fund Amkor, Fairchild and Silicon Storage BUT A I M ADVISORS, INC. MAKES NO
also posted positive returns in six Technology were among stocks that REPRESENTATION OR WARRANTY AS TO THEIR
other sectors: materials, detracted from fund performance. These COMPLETENESS OR ACCURACY. ALTHOUGH
telecommunications services, health are semiconductor and semiconductor HISTORICAL PERFORMANCE IS NO GUARANTEE
care, utilities, industrials and equipment stocks that the fund no longer OF FUTURE RESULTS, THESE INSIGHTS MAY
consumer discretionary. owned at the close of the period. The HELP YOU UNDERSTAND OUR INVESTMENT
semiconductor industry enjoyed a surge MANAGEMENT PHILOSOPHY.
in demand throughout 2003. In 2004,
See important fund and index
JONATHAN C. SCHOOLAR disclosures inside front cover.
Mr. Schoolar,
Chartered Financial
[SCHOOLAR Analyst, is the
PHOTO] portfolio manager of
AIM Libra Fund. He
has been in the
investment business
since 1983.
He joined AIM in 1986 as head of equity
trading. He then served as associate
portfolio manager until assuming his
current title in 1992. He has been
responsible for the fund since its
inception in 2002. Mr. Schoolar received
his B.B.A. in finance from the
University of Texas at Austin.
Assisted by the Large-Cap Growth Team.
Effective December 31, 2004, Jay
Rushin, AIM portfolio manager since 2001,
will manage AIM Libra Fund. He will be
assisted by the Aggressive Growth Team.
=================================================================================
FUND VS. INDEXES
TOTAL RETURNS, 10/31/03-10/31/04,
EXCLUDING APPLICABLE SALES CHARGES. IF SALES
CHARGES WERE INCLUDED, RETURNS WOULD BE
LOWER.
Class A Shares -10.09%
Class B Shares -10.62
Class C Shares -10.67
S&P 500 Index (Broad Market Index) 9.41
Russell Midcap Growth Index (Style-specific Index) 8.77
Lipper Multi-Cap Growth Fund Index (Peer Group Index) 5.75
Source: Lipper, Inc.
TOTAL NET ASSETS $49.8 MILLION
TOTAL NUMBER OF HOLDINGS* 80
================================================================================= [RIGHT ARROW GRAPHIC]
FOR A PRESENTATION OF YOUR FUND'S
LONG-TERM PERFORMANCE RECORD, PLEASE
TURN TO PAGE 5.
</Table>
3
INFORMATION ABOUT YOUR FUND'S EXPENSES
<Table>
CALCULATING YOUR ONGOING FUND EXPENSES
EXAMPLE together with the amount you invested, use this information to compare the
to estimate the expenses that you paid ongoing costs of investing in the fund
As a shareholder of the fund, you incur over the period. Simply divide your and other funds. To do so, compare this
two types of costs: (1) transaction account value by $1,000 (for example, an 5% hypothetical example with the 5%
costs, which may include sales charges $8,600 account value divided by $1,000 = hypothetical examples that appear in the
(loads) on purchase payments; contingent 8.6), then multiply the result by the shareholder reports of the other funds.
deferred sales charges on redemptions; number in the table under the heading
and redemption fees, if any; and (2) entitled "Actual Expenses Paid During Please note that the expenses shown
ongoing costs, including management Period" to estimate the expenses you in the table are meant to highlight your
fees; distribution and/or service fees paid on your account during this period. ongoing costs only and do not reflect
(12b-1); and other fund expenses. This any transactional costs, such as sales
example is intended to help you HYPOTHETICAL EXAMPLE FOR COMPARISON charges (loads) on purchase payments,
understand your ongoing costs (in PURPOSES contingent deferred sales charges on
dollars) of investing in the fund and to redemptions, and redemption fees, if
compare these costs with ongoing costs The table below also provides any. Therefore, the hypothetical
of investing in other mutual funds. The information about hypothetical account information is useful in comparing
example is based on an investment of values and hypothetical expenses based ongoing costs only, and will not help
$1,000 invested at the beginning of the on the fund's actual expense ratio and you determine the relative total costs
period and held for the entire period, an assumed rate of return of 5% per year of owning different funds. In addition,
May 1, 2004 - October 31, 2004. before expenses, which is not the fund's if these transactional costs were
actual return. The hypothetical account included, your costs would have been
ACTUAL EXPENSES values and expenses may not be used to higher.
estimate the actual ending account
The table below provides information balance or expenses you paid for the
about actual account values and actual period. You may
expenses. You may use the information in
this table,
====================================================================================================================================
ACTUAL HYPOTHETICAL
(5% ANNUAL RETURN BEFORE EXPENSES)
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES ENDING ACCOUNT EXPENSES
VALUE VALUE PAID DURING VALUE PAID DURING
(5/1/04) (10/31/04)(1) PERIOD(2) (10/31/04) PERIOD(2)
Class A $1,000.00 $978.40 $ 9.15 $1,015.89 $ 9.32
Class B 1,000.00 974.90 12.36 1,012.62 12.60
Class C 1,000.00 974.90 12.36 1,012.62 12.60
(1) The actual ending account value is based on the actual total return of the fund for the
period May 1, 2004, to October 31, 2004, after actual expenses and will differ from the
hypothetical ending account value which is based on the fund's expense ratio and a hypothetical
annual return of 5% before expenses. The actual cumulative return at net asset value for the
period May 1, 2004, to October 31, 2004, was -2.16%, -2.51%, and -2.51% for Classes A, B, and C
shares, respectively.
(2) Expenses are equal to the fund's annualized expense ratio (1.84%, 2.49%, and 2.49% for
Classes A, B, and C shares, respectively) multiplied by the average account value over the
period, multiplied by 184/366 (to reflect the one-half year period).
====================================================================================================================================
[ARROW
BUTTON For More Information Visit
IMAGE] AIMinvestments.com
</Table>
4
LONG-TERM PERFORMANCE
YOUR FUND'S LONG-TERM PERFORMANCE
<Table>
====================================================================================================================================
Past performance cannot guarantee RESULTS OF A $10,000 INVESTMENT
comparable future results. 11/1/02 (inception of Class A, B and C
shares) - 10/31/04 (Index results are
Your fund's total return includes from 10/31/02.)
reinvested distributions, fund expenses
and management fees. Results for Class B [MOUNTAIN CHART]
share are calculated as if a
hypothetical shareholder had liquidated Lipper
his entire investment in the fund at the AIM Libra AIM Libra AIM Libra Multi-Cap
close of the reporting period and paid Fund Class A Fund Class B Fund Class C Growth Fund Russell Midcap S&P 500
the applicable contingent deferred sales Date Shares Shares Shares Index Growth Index Index
charges. Index results include
reinvested dividends. Performance of an 8/30/02 $ 9450 $10000 $10000
index of funds reflects fund expenses 10/02 9450 10000 10000 $10000 $10000 $10000
and management fees; performance of a 11/02 9441 9980 9980 10626 10783 10588
market index does not. Performance shown 12/02 9016 9530 9530 9841 10131 9966
in the chart does not reflect deduction 1/03 8912 9420 9420 9679 10032 9706
of taxes a shareholder would pay on fund 2/03 8647 9121 9130 9613 9945 9560
distributions or sale of fund shares. 3/03 8780 9270 9270 9765 10130 9652
Performance of the indexes does not 4/03 9450 9960 9960 10479 10819 10447
reflect the effects of taxes. 5/03 10395 10960 10959 11249 11860 10997
6/03 10707 11280 11279 11380 12030 11138
AVERAGE ANNUAL TOTAL RETURNS 7/03 11416 12020 12030 11732 12460 11334
As of 10/31/04, including applicable 8/03 12021 12650 12660 12201 13146 11555
sales charges 9/03 11804 12410 12419 11966 12891 11432
10/03 12844 13479 13500 12814 13930 12079
CLASS A SHARES 11/03 13249 13909 13920 13048 14302 12185
Inception (11/1/02) 7.48% 12/03 12909 13539 13561 13323 14459 12823
1 Year -15.03 1/04 13296 13940 13951 13656 14936 13059
2/04 13135 13770 13781 13836 15186 13240
CLASS B SHARES 3/04 13041 13660 13680 13794 15157 13040
Inception (11/1/02) 7.94% 4/04 11802 12359 12370 13332 14730 12836
1 Year -15.08 5/04 12247 12820 12830 13646 15077 13012
6/04 12531 13101 13120 13938 15317 13265
CLASS C SHARES 7/04 11632 12160 12169 12955 14303 12826
Inception (11/1/02) 9.83% 8/04 11282 11791 11799 12772 14126 12877
1 Year -11.57 9/04 11755 12272 12290 13265 14654 13017
10/04 $11549 $11649 $12059 $13550 $15151 $13216
Source: Lipper,Inc.
In addition to returns as of the close The performance data quoted represent
of the fiscal year, industry regulations past performance and cannot guarantee
require us to provide average annual comparable future results; current
total returns as of 9/30/04, the most performance may be lower or higher.
recent calendar quarter-end. Please visit AIMinvestments.com for the
most recent month-end performance.
AVERAGE ANNUAL TOTAL RETURNS Performance figures reflect reinvested
As of 9/30/04, including applicable distributions, changes in net asset
sales charges value and the effect of the maximum
sales charge unless otherwise stated.
CLASS A SHARES Investment return and principal value
Inception (11/1/02) 8.83% will fluctuate so that you may have a
1 Year -5.91 gain or loss when you sell shares.
CLASS B SHARES Class A share performance reflects
Inception (11/1/02) 9.37% the maximum 5.50% sales charge, and
1 Year -6.07 Class B and Class C share performance
reflects the applicable contingent
CLASS C SHARES deferred sales charge (CDSC) for the
Inception (11/1/02) 11.38% period involved. The CDSC on Class B
1 Year -2.04 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
different sales charge structures and
class expenses.
Had the advisor not waived fees
and/or reimbursed expenses, returns
would have been lower.
====================================================================================================================================
</Table>
5
FINANCIALS
SCHEDULE OF INVESTMENTS
October 31, 2004
<Table>
<Caption>
MARKET
SHARES VALUE
- ---------------------------------------------------------------------
COMMON STOCKS-99.31%
AEROSPACE & DEFENSE-1.20%
DRS Technologies, Inc.(a) 16,500 $ 597,630
=====================================================================
APPAREL RETAIL-2.71%
Guess?, Inc.(a) 35,700 596,190
- ---------------------------------------------------------------------
Urban Outfitters, Inc.(a) 18,300 750,300
=====================================================================
1,346,490
=====================================================================
APPAREL, ACCESSORIES & LUXURY GOODS-1.23%
Fossil, Inc.(a) 20,500 610,080
=====================================================================
APPLICATION SOFTWARE-1.29%
RSA Security Inc.(a) 31,500 644,490
=====================================================================
BIOTECHNOLOGY-5.95%
Affymetrix, Inc.(a) 21,000 640,500
- ---------------------------------------------------------------------
Celgene Corp.(a) 21,400 633,868
- ---------------------------------------------------------------------
Gen-Probe Inc.(a) 15,600 546,624
- ---------------------------------------------------------------------
Gilead Sciences, Inc.(a) 16,800 581,784
- ---------------------------------------------------------------------
United Therapeutics Corp.(a) 17,900 559,554
=====================================================================
2,962,330
=====================================================================
CASINOS & GAMING-1.31%
Penn National Gaming, Inc.(a) 15,700 652,021
=====================================================================
COMMUNICATIONS EQUIPMENT-4.36%
F5 Networks, Inc.(a) 20,000 799,000
- ---------------------------------------------------------------------
Tekelec(a) 37,200 830,304
- ---------------------------------------------------------------------
Tellabs, Inc.(a) 67,700 541,600
=====================================================================
2,170,904
=====================================================================
COMPUTER & ELECTRONICS RETAIL-1.23%
Electronics Boutique Holdings Corp.(a) 18,000 614,520
=====================================================================
COMPUTER HARDWARE-1.14%
PalmOne, Inc.(a) 19,600 567,812
=====================================================================
CONSTRUCTION & FARM MACHINERY & HEAVY
TRUCKS-3.28%
AGCO Corp.(a) 25,900 502,978
- ---------------------------------------------------------------------
CNH Global N.V. (Netherlands) 31,800 542,190
- ---------------------------------------------------------------------
Cummins Inc. 8,400 588,672
=====================================================================
1,633,840
=====================================================================
CONSUMER FINANCE-1.17%
AmeriCredit Corp.(a) 30,100 583,940
=====================================================================
DEPARTMENT STORES-1.24%
J.C. Penney Co., Inc. 17,900 619,161
=====================================================================
DIVERSIFIED COMMERCIAL SERVICES-1.29%
United Rentals, Inc.(a) 41,600 642,720
=====================================================================
</Table>
<Table>
MARKET
SHARES VALUE
- ---------------------------------------------------------------------
<Caption>
ELECTRONIC EQUIPMENT MANUFACTURERS-1.15%
Tektronix, Inc. 18,900 $ 573,237
=====================================================================
EMPLOYMENT SERVICES-2.59%
Resources Connection, Inc.(a) 15,600 654,888
- ---------------------------------------------------------------------
Robert Half International Inc. 23,900 634,067
=====================================================================
1,288,955
=====================================================================
FERTILIZERS & AGRICULTURAL CHEMICALS-1.08%
Mosaic Co. (The)(a) 35,700 536,928
=====================================================================
FOREST PRODUCTS-1.20%
Weyerhaeuser Co. 9,500 595,080
=====================================================================
HEALTH CARE FACILITIES-1.24%
Kindred Healthcare, Inc.(a) 25,600 616,960
=====================================================================
HEALTH CARE SUPPLIES-1.28%
Dade Behring Holdings Inc.(a) 11,300 636,077
=====================================================================
HOMEBUILDING-6.04%
D.R. Horton, Inc. 19,200 576,000
- ---------------------------------------------------------------------
KB HOME 7,200 592,200
- ---------------------------------------------------------------------
M.D.C. Holdings, Inc. 8,400 644,700
- ---------------------------------------------------------------------
Pulte Homes, Inc. 10,300 565,264
- ---------------------------------------------------------------------
Standard Pacific Corp. 11,200 628,880
=====================================================================
3,007,044
=====================================================================
HOTELS, RESORTS & CRUISE LINES-1.29%
Starwood Hotels & Resorts Worldwide, Inc. 13,400 639,582
=====================================================================
INDUSTRIAL MACHINERY-1.08%
Reliance Steel & Aluminum Co. 15,700 538,824
=====================================================================
INTERNET SOFTWARE & SERVICES-3.56%
Ask Jeeves, Inc.(a) 18,900 487,242
- ---------------------------------------------------------------------
EarthLink, Inc.(a) 58,800 607,404
- ---------------------------------------------------------------------
InfoSpace, Inc.(a) 12,900 677,250
=====================================================================
1,771,896
=====================================================================
IT CONSULTING & OTHER SERVICES-4.13%
CACI International Inc.-Class A(a) 11,600 707,252
- ---------------------------------------------------------------------
Cognizant Technology Solutions Corp.-Class
A(a) 21,000 714,000
- ---------------------------------------------------------------------
Keane, Inc.(a) 40,100 633,981
=====================================================================
2,055,233
=====================================================================
MANAGED HEALTH CARE-2.34%
CIGNA Corp. 9,000 571,140
- ---------------------------------------------------------------------
Humana Inc.(a) 31,000 593,650
=====================================================================
1,164,790
=====================================================================
</Table>
F-1
<Table>
<Caption>
MARKET
SHARES VALUE
- ---------------------------------------------------------------------
MOVIES & ENTERTAINMENT-1.28%
Pixar(a) 7,900 $ 635,318
=====================================================================
OIL & GAS DRILLING-1.17%
ENSCO International Inc. 19,000 580,450
=====================================================================
OIL & GAS EQUIPMENT & SERVICES-7.16%
Cal Dive International, Inc.(a) 17,000 601,970
- ---------------------------------------------------------------------
Hydril(a) 14,500 637,855
- ---------------------------------------------------------------------
Maverick Tube Corp.(a) 20,100 530,037
- ---------------------------------------------------------------------
Offshore Logistics, Inc.(a) 18,100 654,496
- ---------------------------------------------------------------------
Oil States International, Inc.(a) 31,200 572,832
- ---------------------------------------------------------------------
Veritas DGC Inc.(a) 26,800 565,480
=====================================================================
3,562,670
=====================================================================
OIL & GAS EXPLORATION & PRODUCTION-1.24%
Ultra Petroleum Corp. (Canada)(a) 12,700 617,220
=====================================================================
OIL & GAS REFINING, MARKETING &
TRANSPORTATION-3.83%
Sunoco, Inc. 8,600 639,496
- ---------------------------------------------------------------------
Tesoro Petroleum Corp.(a) 21,000 635,880
- ---------------------------------------------------------------------
Williams Cos., Inc. (The) 50,600 633,006
=====================================================================
1,908,382
=====================================================================
PAPER PACKAGING-1.12%
Temple-Inland Inc. 9,400 555,728
=====================================================================
PAPER PRODUCTS-1.25%
MeadWestvaco Corp. 19,700 621,141
=====================================================================
PHARMACEUTICALS-3.71%
Connectics Corp.(a) 23,500 631,680
- ---------------------------------------------------------------------
IVAX Corp.(a) 32,500 588,250
- ---------------------------------------------------------------------
MGI Pharma, Inc.(a) 23,500 626,745
=====================================================================
1,846,675
=====================================================================
PHOTOGRAPHIC PRODUCTS-1.09%
Eastman Kodak Co. 17,900 542,012
=====================================================================
PROPERTY & CASUALTY INSURANCE-3.76%
Midland Co. (The) 22,400 618,912
- ---------------------------------------------------------------------
Ohio Casualty Corp.(a) 29,600 618,048
- ---------------------------------------------------------------------
SAFECO Corp. 13,700 633,488
=====================================================================
1,870,448
=====================================================================
</Table>
<Table>
MARKET
SHARES VALUE
- ---------------------------------------------------------------------
<Caption>
SEMICONDUCTOR EQUIPMENT-1.43%
Tessera Technologies Inc.(a) 25,400 $ 709,422
=====================================================================
SEMICONDUCTORS-2.73%
Cree, Inc.(a) 21,900 755,769
- ---------------------------------------------------------------------
Silicon Image, Inc.(a) 43,900 601,430
=====================================================================
1,357,199
=====================================================================
SPECIALTY STORES-4.83%
Barnes & Noble, Inc.(a) 17,000 565,590
- ---------------------------------------------------------------------
Borders Group, Inc. 25,400 578,866
- ---------------------------------------------------------------------
Guitar Center, Inc.(a) 13,900 620,357
- ---------------------------------------------------------------------
Williams-Sonoma, Inc.(a) 16,700 637,439
=====================================================================
2,402,252
=====================================================================
STEEL-2.39%
United States Steel Corp. 16,500 605,880
- ---------------------------------------------------------------------
Worthington Industries, Inc. 29,500 585,575
=====================================================================
1,191,455
=====================================================================
SYSTEMS SOFTWARE-1.50%
Microsoft Corp. 26,600 744,534
=====================================================================
THRIFTS & MORTGAGE FINANCE-1.13%
IndyMac Bancorp, Inc. 17,400 561,324
=====================================================================
TRADING COMPANIES & DISTRIBUTORS-1.23%
Fastenal Co. 11,100 613,053
=====================================================================
TRUCKING-2.67%
Arkansas Best Corp. 16,600 648,894
- ---------------------------------------------------------------------
Hunt (J.B.) Transport Services, Inc. 16,600 678,276
=====================================================================
1,327,170
=====================================================================
WIRELESS TELECOMMUNICATION SERVICES-1.41%
Western Wireless Corp.-Class A(a) 24,000 699,360
=====================================================================
Total Common Stocks (Cost $49,457,693) 49,416,357
=====================================================================
MONEY MARKET FUNDS-0.98%
Liquid Assets Portfolio-Institutional
Class(b) 245,255 245,255
- ---------------------------------------------------------------------
STIC Prime Portfolio-Institutional Class(b) 245,255 245,255
=====================================================================
Total Money Market Funds (Cost $490,510) 490,510
=====================================================================
TOTAL INVESTMENTS-100.29% (Cost $49,948,203) 49,906,867
=====================================================================
OTHER ASSETS LESS LIABILITIES-(0.29%) (146,111)
=====================================================================
NET ASSETS-100.00% $49,760,756
_____________________________________________________________________
=====================================================================
</Table>
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) The money market fund and the Fund are affiliated by having the same
investment advisor. See Note 3.
See accompanying notes which are an integral part of the financial statements.
F-2
STATEMENT OF ASSETS AND LIABILITIES
October 31, 2004
<Table>
ASSETS:
Investments, at market value (cost
$49,457,693) $49,416,357
- -----------------------------------------------------------
Investments in affiliated money market funds
(cost $490,510) 490,510
===========================================================
Total investments (cost $49,948,203) 49,906,867
___________________________________________________________
===========================================================
Receivables for:
Fund shares sold 7,145
- -----------------------------------------------------------
Dividends 15,658
- -----------------------------------------------------------
Amount due from advisor 9,829
- -----------------------------------------------------------
Investment for trustee deferred compensation
and retirement plans 5,722
- -----------------------------------------------------------
Other assets 24,075
===========================================================
Total assets 49,969,296
___________________________________________________________
===========================================================
LIABILITIES:
Payables for:
Fund shares reacquired 118,941
- -----------------------------------------------------------
Trustee deferred compensation and retirement
plans 6,163
- -----------------------------------------------------------
Accrued distribution fees 22,810
- -----------------------------------------------------------
Accrued trustees' fees 958
- -----------------------------------------------------------
Accrued transfer agent fees 12,489
- -----------------------------------------------------------
Accrued operating expenses 47,179
===========================================================
Total liabilities 208,540
===========================================================
Net assets applicable to shares outstanding $49,760,756
___________________________________________________________
===========================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $52,052,101
- -----------------------------------------------------------
Undistributed net investment income (loss) (5,558)
- -----------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities (2,244,451)
- -----------------------------------------------------------
Unrealized appreciation (depreciation) of
investment securities (41,336)
===========================================================
$49,760,756
___________________________________________________________
===========================================================
NET ASSETS:
Class A $34,322,587
___________________________________________________________
===========================================================
Class B $ 9,712,351
___________________________________________________________
===========================================================
Class C $ 5,725,818
___________________________________________________________
===========================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER SHARE,
UNLIMITED NUMBER OF SHARES AUTHORIZED:
Class A 2,812,173
___________________________________________________________
===========================================================
Class B 806,882
___________________________________________________________
===========================================================
Class C 475,142
___________________________________________________________
===========================================================
Class A:
Net asset value per share $ 12.21
- -----------------------------------------------------------
Offering price per share:
(Net asset value of $12.21 divided by
94.50%) $ 12.92
___________________________________________________________
===========================================================
Class B:
Net asset value and offering price per share $ 12.04
___________________________________________________________
===========================================================
Class C:
Net asset value and offering price per share $ 12.05
___________________________________________________________
===========================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
F-3
STATEMENT OF OPERATIONS
For the year ended October 31, 2004
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $663) $ 221,263
- -------------------------------------------------------------------------
Dividends from affiliated money market funds 27,016
=========================================================================
Total investment income 248,279
=========================================================================
EXPENSES:
Advisory fees 500,269
- -------------------------------------------------------------------------
Administrative services fees 50,000
- -------------------------------------------------------------------------
Custodian fees 26,245
- -------------------------------------------------------------------------
Distribution fees:
Class A 149,496
- -------------------------------------------------------------------------
Class B 100,989
- -------------------------------------------------------------------------
Class C 60,432
- -------------------------------------------------------------------------
Transfer agent fees 127,367
- -------------------------------------------------------------------------
Trustees' fees and retirement benefits 12,948
- -------------------------------------------------------------------------
Professional fees 62,776
- -------------------------------------------------------------------------
Other 103,755
=========================================================================
Total expenses 1,194,277
=========================================================================
Less: Fees waived, expenses reimbursed and expense offset
arrangements (31,798)
=========================================================================
Net expenses 1,162,479
=========================================================================
Net investment income (loss) (914,200)
=========================================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES:
Net realized gain (loss) from investment securities (2,082,570)
- -------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities (4,870,214)
=========================================================================
Net gain (loss) from investment securities (6,952,784)
=========================================================================
Net increase (decrease) in net assets resulting from
operations $(7,866,984)
_________________________________________________________________________
=========================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
F-4
STATEMENT OF CHANGES IN NET ASSETS
For the years ended October 31, 2004 and 2003
<Table>
<Caption>
2004 2003
- ----------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (914,200) $ (189,529)
- ----------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities and
future contracts (2,082,570) 53,689
- ----------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities (4,870,214) 4,828,878
========================================================================================
Net increase (decrease) in net assets resulting from
operations (7,866,984) 4,693,038
========================================================================================
Distributions to shareholders from net realized gains:
Class A (28,055) --
- ----------------------------------------------------------------------------------------
Class B (5,972) --
- ----------------------------------------------------------------------------------------
Class C (3,533) --
========================================================================================
Decrease in net assets resulting from distributions (37,560) --
========================================================================================
Share transactions-net:
Class A 7,617,531 28,645,977
- ----------------------------------------------------------------------------------------
Class B 4,606,564 5,959,059
- ----------------------------------------------------------------------------------------
Class C 3,008,051 3,135,080
========================================================================================
Net increase in net assets resulting from share
transactions 15,232,146 37,740,116
========================================================================================
Net increase in net assets 7,327,602 42,433,154
========================================================================================
NET ASSETS:
Beginning of year 42,433,154 --
========================================================================================
End of year (including undistributed net investment income
(loss) of $(5,558) and $(2,859), respectively) $49,760,756 $42,433,154
________________________________________________________________________________________
========================================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
F-5
NOTES TO FINANCIAL STATEMENTS
October 31, 2004
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Libra Fund (the "Fund") is a separate series of AIM Investment Funds (the
"Trust"). The Trust is organized as a Delaware statutory trust and is registered
under the Investment Company Act of 1940, as amended (the "1940 Act"), as an
open-end series management investment company consisting of six separate series
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 provide 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.
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.
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").
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.
Debt obligations (including convertible bonds) are fair valued using an
evaluated quote provided by an independent pricing service. Evaluated
quotes provided by the pricing service may be determined without exclusive
reliance on quoted prices, and may reflect appropriate factors such as
institution-size trading in similar groups of securities, developments
related to specific securities, dividend rate, yield, quality, type of
issue, coupon rate, maturity, individual trading characteristics and other
market data. Short-term obligations having 60 days or less to maturity and
commercial paper are valued at amortized cost which approximates market
value.
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.
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 the event is likely to have affected the closing price of the security,
the security will be valued at fair value in good faith using procedures
approved by the Board of Trustees. Adjustments to closing prices to reflect
fair value may also be based on a screening process of an independent
pricing service to indicate the degree of certainty, based on historical
data, that the closing price in the principal market where a foreign
security trades is not the current market value as of the close of the
NYSE. Foreign securities meeting the approved degree of certainty that the
price is not reflective of current market value will be priced at the
indication of fair value from the independent pricing service. Multiple
factors may be considered by the independent pricing service in determining
adjustments to reflect fair value and may include information relating to
sector indices, ADRs, domestic and foreign index futures and
exchange-traded funds.
Securities for which market quotations are not readily available or are
unreliable are valued at fair value as determined in good faith by or under
the supervision of the Trust's officers following procedures approved by
the Board of Trustees. Issuer specific events, market trends, bid/ask
quotes of
F-6
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.
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. 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 0.85% of the first $1
billion of the Fund's average daily net assets, plus 0.80% of the Fund's average
daily net assets in excess of $1 billion. AIM has voluntarily agreed to waive
advisory fees and/or reimburse expenses to the extent necessary to limit Total
Annual Operating Expenses (excluding certain items discussed below) of Class A,
Class B and Class C shares to 1.80%, 2.45% and 2.45% of average daily net
assets, respectively. 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. 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. 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 year ended October 31, 2004, AIM waived fees of $9,468.
For the year ended October 31, 2004, at the request of the Trustees of the
Trust, AMVESCAP PLC ("AMVESCAP") agreed to assume $20,978 of expenses incurred
by the Fund in connection with matters related to recently settled regulatory
actions and investigations concerning market timing activity in the AIM Funds,
including legal, audit, shareholder servicing, communication and trustee
expenses. These expenses along with the related expense reimbursement, are
included in the Statement of Operations.
The Fund, pursuant to a master administrative services agreement with AIM,
has agreed to pay AIM for certain administrative costs incurred in providing
accounting services to the Fund. For the year ended October 31, 2004, AIM was
paid $50,000 for such services.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay AIM Investment Services, Inc. ("AISI") a fee for providing transfer agency
and shareholder services to the Fund and reimburse AISI for certain expenses
incurred by AISI in the course of providing such services. For the year ended
October 31, 2004, the Fund paid AISI $127,367. AISI may make payments to
intermediaries to provide omnibus account services, sub-accounting services
and/or networking services.
F-7
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 year ended
October 31, 2004, the Class A, Class B and Class C shares paid $149,496,
$100,989 and $60,432, respectively.
Front-end sales commissions and contingent deferred sales charges ("CDSC")
(collectively the "sales charges") are not recorded as expenses of the Fund.
Front-end sales commissions are deducted from proceeds from the sales of Fund
shares prior to investment in Class A shares of the Fund. CDSC are deducted from
redemption proceeds prior to remittance to the shareholder. During the year
ended October 31, 2004, AIM Distributors advised the Fund that it retained
$58,000 in front-end sales commissions from the sale of Class A shares and $725,
$3,243, and $3,619 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. The table below shows the transactions in and
earnings from investments in affiliated money market funds for the year ended
October 31, 2004.
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS FROM APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 10/31/03 AT COST SALES (DEPRECIATION) 10/31/04 INCOME GAIN (LOSS)
- -----------------------------------------------------------------------------------------------------------------------------------
Liquid Assets Portfolio-
Institutional Class $1,671,878 $45,940,740 $(47,367,363) $ -- $245,255 $13,666 $ --
- -----------------------------------------------------------------------------------------------------------------------------------
STIC Prime Portfolio-
Institutional Class 1,671,878 45,940,740 (47,367,363) -- 245,255 13,350 --
===================================================================================================================================
Subtotal $3,343,756 $91,881,480 $(94,734,726) $ -- $490,510 $27,016 $ --
===================================================================================================================================
</Table>
NOTE 4--SECURITY TRANSACTIONS WITH AFFILIATED FUNDS
The Fund is permitted to purchase or sell securities from or to certain other
AIM Funds under specified conditions outlined in procedures adopted by the Board
of Trustees of the Trust. The procedures have been designed to ensure that any
purchase or sale of securities by the Fund from or to another fund or portfolio
that is or could be considered an affiliate by virtue of having a common
investment advisor (or affiliated investment advisors), common Trustees and/or
common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined
under the procedures each transaction is effected at the current market price.
Pursuant to these procedures, during the year ended October 31, 2004, the Fund
engaged in purchases and sales of securities of $4,045,424 and $949,506,
respectively.
NOTE 5--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 year
ended October 31, 2004, the Fund received credits in transfer agency fees of
$874 and credits in custodian fees of $478 under expense offset arrangements,
which resulted in a reduction of the Fund's total expenses of $1,352.
NOTE 6--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 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-8
During the year ended October 31, 2004, the Fund paid legal fees of $4,430
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 7--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. 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. A loan will be secured by collateral if the
Fund's aggregate borrowings from all sources exceeds 10% of the Fund's total
assets. 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 year ended October 31, 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 at an amount equal to the Federal
Funds rate plus 100 basis points.
NOTE 8--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
DISTRIBUTIONS TO SHAREHOLDERS:
The tax character of distributions paid during the years ended October 31, 2004
and 2003 was as follows:
<Table>
<Caption>
2004 2003
- ---------------------------------------------------------------------------------
Distributions paid from ordinary income $37,560 $ --
_________________________________________________________________________________
=================================================================================
</Table>
TAX COMPONENTS OF NET ASSETS:
As of October 31, 2004, the components of net assets on a tax basis were as
follows:
<Table>
<Caption>
2004
- ---------------------------------------------------------------------------
Unrealized appreciation (depreciation)-investments $ (176,252)
- ---------------------------------------------------------------------------
Temporary book/tax differences (5,558)
- ---------------------------------------------------------------------------
Capital loss carryforward (2,109,535)
- ---------------------------------------------------------------------------
Shares of beneficial interest 52,052,101
===========================================================================
Total net assets $49,760,756
___________________________________________________________________________
===========================================================================
</Table>
The difference between book-basis and tax-basis unrealized appreciation
(depreciation) is due to differences in the timing of recognition of gains and
losses on investments for tax and book purposes. The Fund's unrealized
appreciation (depreciation) difference is attributable primarily to losses on
wash sales.
The temporary book/tax differences are a result of timing differences
between book and tax recognition of income and/or expenses. The Fund's temporary
book/tax differences are the result of the trustee deferral of compensation and
retirement plan expenses.
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 utilize capital loss carryforward in the future may be limited under
the Internal Revenue Code and related regulations based on the results of future
transactions.
The Fund has a capital loss carryforward as of October 31, 2004 which
expires as follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD*
- -----------------------------------------------------------------------------
October 31, 2012 $2,109,535
_____________________________________________________________________________
=============================================================================
</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 the year ended
October 31, 2004 was $350,019,904 and $334,673,775, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- -------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $ 2,002,761
- -------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (2,179,013)
===============================================================================
Net unrealized appreciation (depreciation) of investment
securities $ (176,252)
_______________________________________________________________________________
===============================================================================
Cost of investments for tax purposes is $50,083,119.
</Table>
NOTE 10--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of net operating losses,
on October 31, 2004, undistributed net investment income (loss) was increased by
$911,501, undistributed net realized gain (loss) was increased by $477 and
shares of beneficial interest decreased by $911,978. This reclassification had
no effect on the net assets of the Fund.
NOTE 11--SHARE INFORMATION
The Fund currently offers three different classes of shares: Class A shares,
Class B shares and Class C shares. Class A shares are sold with a front-end
sales charge. Class B shares and Class C shares are sold with CDSC. Under
certain 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(a)
- --------------------------------------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
------------------------------------------------------
2004 2003
-------------------------- ------------------------
SHARES AMOUNT SHARES AMOUNT
- --------------------------------------------------------------------------------------------------------------------
Sold:
Class A 2,006,233 $ 27,519,955 2,569,911 $30,729,918
- --------------------------------------------------------------------------------------------------------------------
Class B 658,702 8,912,015 541,811 6,655,534
- --------------------------------------------------------------------------------------------------------------------
Class C 398,756 5,378,501 302,832 3,644,450
====================================================================================================================
Issued as reinvestment of dividends:
Class A 1,911 25,584 -- --
- --------------------------------------------------------------------------------------------------------------------
Class B 434 5,762 -- --
- --------------------------------------------------------------------------------------------------------------------
Class C 232 3,091 -- --
====================================================================================================================
Automatic conversion of Class B shares to Class A shares:
Class A 41,097 548,123 4,523 57,488
- --------------------------------------------------------------------------------------------------------------------
Class B (41,533) (548,123) (4,552) (57,488)
====================================================================================================================
Reacquired:
Class A (1,621,878) (20,476,131) (189,624) (2,141,429)
- --------------------------------------------------------------------------------------------------------------------
Class B (293,856) (3,763,090) (54,124) (638,987)
- --------------------------------------------------------------------------------------------------------------------
Class C (184,618) (2,373,541) (42,060) (509,370)
====================================================================================================================
965,480 $ 15,232,146 3,128,717 $37,740,116
____________________________________________________________________________________________________________________
====================================================================================================================
</Table>
(a) There is one entity that is a record owner of more than 5% of the
outstanding shares of the Fund and owns 27% of the outstanding shares of
the Fund. AIM Distributors has an agreement with this entity to sell
Fund shares. The Fund, AIM and/or AIM affiliates may make payments to
this entity, which is considered to be related to the Fund, for
providing services to the Fund, AIM and/or AIM affiliates including but
not limited to services such as, securities brokerage, distribution,
third party record keeping and account servicing. There is also one
individual that is a record owner of more than 5% of the outstanding
shares of the Fund and owns 5% of the outstanding shares of the Fund.
The Trust has no knowledge as to whether all or any portion of the
shares owned of record by these shareholders are also owned
beneficially.
F-10
NOTE 12--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
CLASS A
---------------------
YEAR ENDED
OCTOBER 31,
---------------------
2004 2003
- -----------------------------------------------------------------------------------
Net asset value, beginning of period $ 13.59 $ 10.00
- -----------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.18)(a) (0.18)(a)
- -----------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) (1.19) 3.77
===================================================================================
Total from investment operations (1.37) 3.59
===================================================================================
Less distributions from net realized gains (0.01) --
===================================================================================
Net asset value, end of period $ 12.21 $ 13.59
___________________________________________________________________________________
===================================================================================
Total return(b) (10.09)% 35.90%
___________________________________________________________________________________
===================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $34,323 $32,398
___________________________________________________________________________________
===================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.80%(c) 1.80%
- -----------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.85%(c) 3.24%
===================================================================================
Ratio of net investment income (loss) to average net assets (1.38)%(c) (1.54)%
___________________________________________________________________________________
===================================================================================
Portfolio turnover rate 600% 325%
___________________________________________________________________________________
===================================================================================
</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.
(c) Ratios are based on average daily net assets of $42,713,118.
<Table>
<Caption>
CLASS B
--------------------
YEAR ENDED
OCTOBER 31,
--------------------
2004 2003
- ----------------------------------------------------------------------------------
Net asset value, beginning of period $ 13.48 $10.00
- ----------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.26)(a) (0.26)(a)
- ----------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) (1.17) 3.74
==================================================================================
Total from investment operations (1.43) 3.48
==================================================================================
Less distributions from net realized gains (0.01) --
==================================================================================
Net asset value, end of period $ 12.04 $13.48
__________________________________________________________________________________
==================================================================================
Total return(b) (10.62)% 34.80%
__________________________________________________________________________________
==================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 9,712 $6,515
__________________________________________________________________________________
==================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 2.45%(c) 2.45%
- ----------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 2.50%(c) 3.89%
==================================================================================
Ratio of net investment income (loss) to average net assets (2.03)%(c) (2.19)%
__________________________________________________________________________________
==================================================================================
Portfolio turnover rate 600% 325%
__________________________________________________________________________________
==================================================================================
</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.
(c) Ratios are based on average daily net assets of $10,098,857.
F-11
NOTE 12--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS C
--------------------
YEAR ENDED
OCTOBER 31,
--------------------
2004 2003
- ----------------------------------------------------------------------------------
Net asset value, beginning of period $ 13.50 $10.00
- ----------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.26)(a) (0.26)(a)
- ----------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) (1.18) 3.76
==================================================================================
Total from investment operations (1.44) 3.50
==================================================================================
Less distributions from net realized gains (0.01) --
==================================================================================
Net asset value, end of period $ 12.05 $13.50
__________________________________________________________________________________
==================================================================================
Total return(b) (10.67)% 35.00%
__________________________________________________________________________________
==================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 5,726 $3,520
__________________________________________________________________________________
==================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 2.45%(c) 2.45%
- ----------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 2.50%(c) 3.89%
==================================================================================
Ratio of net investment income (loss) to average net assets (2.03)%(c) (2.19)%
__________________________________________________________________________________
==================================================================================
Portfolio turnover rate 600% 325%
__________________________________________________________________________________
==================================================================================
</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.
(c) Ratios are based on average daily net assets of $6,043,170.
NOTE 13--LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
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, contractual
plans, issues related to Section 529 college savings plans and procedures for
locating lost securityholders.
As described more fully below, INVESCO Funds Group, Inc. ("IFG"), the former
investment advisor to certain AIM Funds, A I M Advisors, Inc. ("AIM"), the
Fund's investment advisor, and A I M Distributors, Inc. ("ADI"), the distributor
of the retail AIM Funds and a wholly owned subsidiary of AIM, reached final
settlements with the Securities and Exchange Commission ("SEC"), the New York
Attorney General ("NYAG"), the Colorado Attorney General ("COAG"), the Colorado
Division of Securities ("CODS") and the Secretary of State of the State of
Georgia to resolve civil enforcement actions and investigations related to
market timing activity and related issues in the AIM Funds, including those
formerly advised by IFG.
In addition, as described more fully below, IFG and AIM are the subject of a
number of ongoing regulatory inquiries and civil lawsuits related to one or more
of the issues currently being scrutinized by various Federal and state
regulators, including but not limited to those issues described above.
Additional regulatory actions and/or civil lawsuits related to the above or
other issues may be filed against the AIM Funds, 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 the AIM Funds, IFG, AIM
and/or related entities and individuals in the future.
As a result of the matters discussed below, investors in the AIM 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.
F-12
NOTE 13--LEGAL PROCEEDINGS (CONTINUED)
Settled Enforcement Actions and Investigations Related to Market Timing
On October 8, 2004, AMVESCAP PLC ("AMVESCAP"), the parent company of IFG and
AIM, announced that final settlements had been reached with the SEC, the NYAG,
the COAG and the Secretary of State of Georgia to resolve civil enforcement
actions and investigations related to market timing activity and related issues
in the AIM Funds, including those formerly advised by IFG. A final settlement
also has been reached with the Colorado Division of Securities ("CODS") with
respect to this matter. In their enforcement actions and investigations, these
regulators alleged, in substance, that IFG and AIM failed to disclose in the
prospectuses for the AIM Funds that they advised and to the independent
directors/trustees of such Funds that IFG and AIM had entered into certain
arrangements permitting market timing of such Funds, thereby breaching their
fiduciary duties to such Funds. As a result of the foregoing, the regulators
alleged that IFG, AIM and ADI breached various Federal and state securities,
business and consumer protection laws. Under the terms of the settlements, IFG,
AIM and ADI consent to the entry of settlement orders or assurances of
discontinuance, as applicable, by the regulators containing certain terms, some
of which are described below, without admitting or denying any wrongdoing.
Under the terms of the settlements, IFG agreed to pay a total of $325 million,
of which $110 million is civil penalties. Of the $325 million total payment,
half will be paid on or before December 31, 2004 and the remaining half will be
paid on or before December 31, 2005. AIM and ADI agreed to pay a total of $50
million, of which $30 million is civil penalties. The entire $50 million payment
by AIM and ADI has been paid.
The entire $325 million IFG settlement payment will be available for
distribution to the shareholders of those AIM Funds that IFG formerly advised
that were harmed by market timing activity, and the entire $50 million
settlement payment by AIM and ADI will be available for distribution to the
shareholders of those AIM Funds advised by AIM that were harmed by market timing
activity, all as to be determined by an independent distribution consultant to
be appointed under the settlements. The settlement payments will be distributed
in accordance with a methodology to be determined by the independent
distribution consultant, in consultation with AIM and the independent trustees
of the AIM Funds and acceptable to the staff of the SEC.
Under the settlements with the NYAG and COAG, AIM has agreed to reduce
management fees on the AIM Funds by $15 million per year for the next five
years, based upon effective fee rates and assets under management as of July 1,
2004, and not to increase certain management fees. IFG will also pay $1.5
million to the COAG to be used for investor education purposes and to reimburse
the COAG for actual costs. Finally, IFG and AIM will pay $175,000 to the
Secretary of State of Georgia to be used for investor education purposes and to
reimburse the Secretary of State for actual costs.
None of the costs of the settlements will be borne by the AIM Funds or by Fund
shareholders.
Under the terms of the settlements, AIM will make certain governance reforms,
including maintaining an internal controls committee and retaining an
independent compliance consultant, a corporate ombudsman and, as stated above,
an independent distribution consultant. Also, commencing in 2007 and at least
once every other year thereafter, AIM will undergo a compliance review by an
independent third party.
In addition, under the terms of the settlements, AIM has undertaken to cause
the AIM Funds to operate in accordance with certain governance policies and
practices, including retaining a full-time independent senior officer whose
duties will include monitoring compliance and managing the process by which
proposed management fees to be charged the AIM Funds are negotiated. Also,
commencing in 2008 and not less than every fifth calendar year thereafter, the
AIM Funds will hold shareholder meetings at which their Boards of Trustees will
be elected.
On October 8, 2004, the SEC announced that it had settled a market timing
enforcement action against Raymond R. Cunningham, the former president and chief
executive officer of IFG and a former member of the board of directors of the
AIM Funds formerly advised by IFG. As part of the settlement, the SEC ordered
Mr. Cunningham to pay $1 in restitution and civil penalties in the amount of
$500,000. In addition, the SEC prohibited Mr. Cunningham from associating with
an investment advisor, broker, dealer or investment company for a period of two
years and further prohibited him from serving as an officer or director of an
investment advisor, broker, dealer or investment company for a period of five
years.
On August 31, 2004, the SEC announced that it had settled market timing
enforcement actions against Timothy J. Miller, the former chief investment
officer and a former portfolio manager for IFG, Thomas A. Kolbe, the former
national sales manager of IFG, and Michael D. Legoski, a former assistant vice
president in IFG's sales department. As part of the settlements, the SEC ordered
Messrs. Miller, Kolbe and Legoski to pay $1 in restitution each and civil
penalties in the amounts of $150,000, $150,000 and $40,000, respectively. In
addition, the SEC prohibited each of them from associating with an investment
advisor or investment company for a period of one year, prohibited Messrs.
Miller and Kolbe from serving as an officer or director of an investment advisor
or investment company for three years and two years, respectively, and
prohibited Mr. Legoski from associating with a broker or dealer for a period of
one year.
As referenced by the SEC in the SEC's settlement order, one former officer of
ADI and one current officer of AIM (who has taken a voluntary leave of absence)
have received regulatory inquiries in the form of subpoenas or other oral or
written requests for information and/or documents related to market timing
activity in the AIM Funds.
At the request of the trustees of the AIM Funds, AMVESCAP has agreed to pay
all of the expenses incurred by such Funds related to the market timing
investigations, including expenses incurred in connection with the regulatory
complaints against IFG alleging market timing and the market timing
investigations with respect to IFG and AIM.
The payments made in connection with the above-referenced settlements by IFG,
AIM and ADI will total approximately $375 million (not including AIM's agreement
to reduce management fees on the AIM Funds by $15 million per year for the next
five years, based upon effective fee rates and assets under management as of
July 1, 2004). The manner in which the settlement payments will be distributed
is unknown at the present time and will be determined by an independent
distribution consultant to be appointed under the settlement agreements.
Therefore, management of AIM and the Fund are unable at the present time to
estimate the impact, if any, that the distribution of the settlement amounts may
have on the Fund or whether such distribution will have an impact on the Fund's
financial statements in the future.
F-13
NOTE 13--LEGAL PROCEEDINGS (CONTINUED)
At the present time, management of AIM and the Fund are unable to estimate the
impact, if any, that the outcome of the ongoing matters described below may have
on AIM, ADI or the Fund.
Ongoing Regulatory Inquiries Concerning IFG and AIM
IFG, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds formerly advised by IFG 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 such 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 SEC, the NASD,
Inc. ("NASD"), the Florida Department of Financial Services, 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. 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 of the AIM
Funds formerly advised by IFG. IFG is providing full cooperation with respect to
these inquiries.
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, contractual
plans, issues related to Section 529 college savings plans and procedures for
locating lost securityholders. These regulators include the SEC, the NASD, the
Department of Banking for the State of Connecticut, 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 SEC, the NASD, the DOL, the
Internal Revenue Service, the New York Stock Exchange, 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 AIM Funds, IFG, AIM, A I M Management Group Inc. ("AIM
Management"), AMVESCAP, certain related entities, certain of their current and
former officers and/or certain unrelated third parties) making allegations that
are similar in many respects to those in the settled regulatory actions brought
by the SEC, the NYAG and the COAG concerning market timing activity in the AIM
Funds. 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 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; injunctive relief; disgorgement of management fees; imposition of a
constructive trust; removal of certain directors and/or employees; various
corrective measures under ERISA; rescission of certain Funds' advisory
agreements; interest; and attorneys' and experts' fees.
All lawsuits based on allegations of market timing, late trading, and related
issues have been transferred to the United States District Court for the
District of Maryland (the "MDL Court") for consolidated or coordinated pre-trial
proceedings. Pursuant to an Order of the MDL Court, plaintiffs consolidated
their claims for pre-trial purposes into three amended complaints against
various AIM- and IFG-related parties: (i) a Consolidated Amended Class Action
Complaint purportedly brought on behalf of shareholders of the AIM Funds; (ii) a
Consolidated Amended Fund Derivative Complaint purportedly brought on behalf of
the AIM Funds and fund registrants; and (iii) an Amended Class Action Complaint
for Violations of the Employee Retirement Income Securities Act purportedly
brought on behalf of participants in AMVESCAP's 401(k) plan. Plaintiffs in one
of the underlying lawsuits transferred to the MDL Court continue to seek remand
of their action 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 AIM Funds, IFG and/or AIM)
alleging that certain AIM 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/or 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, INVESCO Institutional (N.A.), Inc., ADI and/or INVESCO
Distributors, Inc.) alleging that the defendants charged excessive advisory
and/or 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 Federal
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.
F-14
NOTE 13--LEGAL PROCEEDINGS (CONTINUED)
Private Civil Actions Alleging Improper Charging of Distribution Fees on Closed
Funds or Share Classes
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, IFG, AIM, ADI and/or certain of the trustees of the AIM 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 Federal 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. and/or
certain of the trustees of the AIM Funds) alleging that the defendants
improperly used the assets of the AIM Funds to pay brokers to aggressively
promote the sale of the AIM 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.
F-15
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees and Shareholders of
AIM Libra Fund
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the AIM Libra Fund (the "Fund") at
October 31, 2004, the results of its operations for the year then ended and, the
changes in its net assets and the financial highlights for each of the two years
in the period then ended, in conformity with accounting principles generally
accepted in the United States of America. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at October 31, 2004 by correspondence with the
custodian and brokers, provide a reasonable basis for our opinion.
/s/ PRICEWATERHOUSECOOPERS LLP
December 20, 2004
Houston, Texas
F-16
OTHER INFORMATION
TRUSTEES AND OFFICERS
As of October 31, 2004
The address of each trustee and officer of AIM Investment Funds (the "Trust"),
is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee oversees 114
portfolios in the AIM Funds complex. The trustees serve for the life of the
Trust, subject to their earlier death, incapacitation, resignation, retirement
or removal as more specifically provided in the Trust's organizational
documents. Column two below includes length of time served with predecessor
entities, if any.
<Table>
<Caption>
NAME, YEAR OF BIRTH AND TRUSTEE AND/
POSITION(S) HELD WITH THE OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- -------------------------------------------------------------------------------------------------------------------------------
INTERESTED PERSONS
- -------------------------------------------------------------------------------------------------------------------------------
Robert H. Graham(1) -- 1946 1998 Director and Chairman, A I M Management Group Inc. None
Trustee and President (financial services holding company); Director and
Vice Chairman, AMVESCAP PLC and Chairman, AMVESCAP
PLC -- AIM Division (parent of AIM and a global
investment management firm)
Formerly: President and Chief Executive Officer,
A I M Management Group Inc.; Director, Chairman
and President, A I M Advisors, Inc. (registered
investment advisor); Director and Chairman, A I M
Capital Management, Inc. (registered investment
advisor), A I M Distributors, Inc. (registered
broker dealer), AIM Investment Services, Inc.,
(registered transfer agent), and Fund Management
Company (registered broker dealer); and Chief
Executive Officer, AMVESCAP PLC -- Managed
Products
- -------------------------------------------------------------------------------------------------------------------------------
Mark H. Williamson(2) -- 1951 2003 Director, President and Chief Executive Officer, None
Trustee and Executive Vice A I M Management Group Inc. (financial services
President holding company); Director, Chairman and
President, A I M Advisors, Inc. (registered
investment advisor); Director, A I M Capital
Management, Inc. (registered investment advisor)
and A I M Distributors, Inc. (registered broker
dealer); Director and Chairman, AIM Investment
Services, Inc. (registered transfer agent), Fund
Management Company (registered broker dealer) and
INVESCO Distributors, Inc. (registered broker
dealer); and Chief Executive Officer, AMVESCAP
PLC -- AIM Division (parent of AIM and a global
investment management firm)
Formerly: Director, Chairman, President and Chief
Executive Officer, INVESCO Funds Group, Inc.;
President and Chief Executive Officer, INVESCO
Distributors, Inc.; Chief Executive Officer,
AMVESCAP PLC -- Managed Products; Chairman and
Chief Executive Officer of NationsBanc Advisors,
Inc.; and Chairman of NationsBanc Investments,
Inc.
- -------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- -------------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett(3) -- 1944 2001 Chairman, Crockett Technology Associates ACE Limited (insurance
Trustee and Chair (technology consulting company) company); and
Captaris, Inc.
(unified messaging
provider)
- -------------------------------------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 2003 Retired None
Trustee
Formerly: President and Chief Executive Officer,
AMC Cancer Research Center; and Chairman and Chief
Executive Officer, First Columbia Financial
Corporation
- -------------------------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 1987 Retired Badgley Funds, Inc.
Trustee (registered investment
Formerly: Partner, law firm of Baker & McKenzie company)
- -------------------------------------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 2003 Co-President and Founder, Green, Manning & Bunch None
Trustee Ltd., (investment banking firm); and Director,
Policy Studies, Inc. and Van Gilder Insurance
Corporation
- -------------------------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2001 Director of a number of public and private Cortland Trust, Inc.
Trustee business corporations, including the Boss Group (Chairman) (registered
Ltd. (private investment and management) and investment company);
Magellan Insurance Company Annuity and Life Re
(Holdings), Ltd.
Formerly: Director, President and Chief Executive (insurance company)
Officer, Volvo Group North America, Inc.; Senior
Vice President, AB Volvo; and director of various
affiliated Volvo companies
- -------------------------------------------------------------------------------------------------------------------------------
Edward K. Dunn, Jr. -- 1935 2001 Retired None
Trustee
Formerly: Chairman, Mercantile Mortgage Corp.;
President and Chief Operating Officer,
Mercantile-Safe Deposit & Trust Co.; and
President, Mercantile Bankshares Corp.
- -------------------------------------------------------------------------------------------------------------------------------
Jack M. Fields -- 1952 2001 Chief Executive Officer, Twenty First Century Administaff, and
Trustee Group, Inc. (government affairs company) and Discovery Global
Texana Timber LP (sustainable forestry company) Education Fund (non-
profit)
- -------------------------------------------------------------------------------------------------------------------------------
</Table>
(1) Mr. Graham is considered an interested person of the Trust because he is a
director of AMVESCAP PLC, parent of the advisor to the Trust. Prior to
October 4, 2004, Mr. Graham served as Chairman of the Board of Trustees of
the Trust.
(2) Mr. Williamson is considered an interested person of the Trust because he is
an officer and a director of the advisor to, and a director of the principal
underwriter of, the Trust.
(3) Mr. Crockett was elected Chair of the Board of Trustees of the Trust
effective October 4, 2004.
TRUSTEES AND OFFICERS (CONTINUED)
As of October 31, 2004
The address of each trustee and officer of AIM Investment Funds (the "Trust"),
is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee oversees 114
portfolios in the AIM Funds complex. The trustees serve for the life of the
Trust, subject to their earlier death, incapacitation, resignation, retirement
or removal as more specifically provided in the Trust's organizational
documents. Column two below includes length of time served with predecessor
entities, if any.
<Table>
<Caption>
NAME, YEAR OF BIRTH AND TRUSTEE AND/ PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST OR OFFICER SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- -----------------------------------------------------------------------------------------------------------------
Carl Frischling -- 1937 2001 Partner, law firm of Kramer Levin Cortland Trust, Inc.
Trustee Naftalis and Frankel LLP (registered investment
company)
- -----------------------------------------------------------------------------------------------------------------
Gerald J. Lewis -- 1933 2003 Chairman, Lawsuit Resolution General Chemical
Trustee Services (California) Group, Inc.
Formerly: Associate Justice of
the California Court of Appeals
- -----------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 2001 Formerly: Chief Executive None
Trustee Officer, YWCA of the USA
- -----------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 2001 Partner, law firm of Pennock & None
Trustee Cooper
- -----------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 1987 Retired None
Trustee
- -----------------------------------------------------------------------------------------------------------------
Louis S. Sklar -- 1939 2001 Executive Vice President, None
Trustee Development and Operations, Hines
Interests Limited Partnership
(real estate development company)
- -----------------------------------------------------------------------------------------------------------------
Larry Soll -- 1942 2003 Retired None
Trustee
- -----------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- -----------------------------------------------------------------------------------------------------------------
Lisa O. Brinkley(4) -- 1959 2004 Senior Vice President, A I M N/A
Senior Vice President and Chief Management Group Inc. (financial
Compliance Officer services holding company); Senior
Vice President and Chief
Compliance Officer, A I M
Advisors, Inc.; Vice President
and Chief Compliance Officer,
A I M Capital Management, Inc.
and A I M Distributors, Inc.; and
Vice President, AIM Investment
Services, Inc. and Fund
Management Company
Formerly: Senior Vice President
and Compliance Director, Delaware
Investments Family of Funds
- -----------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 2003 Director, Senior Vice President, N/A
Senior Vice President, Secretary and General Counsel,
Secretary and Chief Legal A I M Management Group Inc.
Officer (financial services holding
company) and A I M Advisors,
Inc.; Director and Vice
President, INVESCO Distributors,
Inc.; Vice President, A I M
Capital Management, Inc., and AIM
Investment Services, Inc.;
Director, Vice President and
General Counsel, Fund Management
Company and Senior Vice
President, A I M Distributors,
Inc.
Formerly: Senior Vice President
and General Counsel, Liberty
Financial Companies, Inc.; Senior
Vice President and General
Counsel, Liberty Funds Group, LLC
and Vice President, A I M
Distributors, Inc.
- -----------------------------------------------------------------------------------------------------------------
Stuart W. Coco -- 1955 2002 Managing Director and Director of N/A
Vice President Money Market Research and Special
Projects, A I M Capital
Management, Inc.; and Vice
President, A I M Advisors, Inc.
- -----------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund N/A
Vice President and Treasurer Treasurer, A I M Advisors, Inc.
Formerly: Senior Vice President,
AIM Investment Services, Inc.;
and Vice President, A I M
Distributors, Inc.
- -----------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 2004 Director of Cash Management, N/A
Vice President Managing Director and Chief Cash
Management Officer, A I M Capital
Management, Inc; Director and
President, Fund Management
Company; and Vice President,
A I M Advisors, Inc.
- -----------------------------------------------------------------------------------------------------------------
Edgar M. Larsen -- 1940 2002 Executive Vice President, A I M N/A
Vice President Management Group, Inc.; Senior
Vice President, A I M Advisors,
Inc., and President, Director of
Investments, Chief Executive
Officer and Chief Investment
Officer, A I M Capital
Management, Inc.
Formerly: Director of A I M
Advisors, Inc. and A I M
Management Group Inc., A I M
Advisors, Inc.; and Director and
Chairman, A I M Capital
Management, Inc.
- -----------------------------------------------------------------------------------------------------------------
</Table>
(4) Ms. Brinkley was elected Senior Vice President and Chief Compliance Officer
of the Trust effective September 20, 2004.
The Statement of Additional Information of the Trust includes additional
information about the Fund's Trustees and is available upon request, without
charge, by calling 1.800.959.4246.
<Table>
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS
11 Greenway Plaza A I M Advisors, Inc. A I M Distributors, PricewaterhouseCoopers
Suite 100 11 Greenway Plaza Inc. LLP
Houston, TX 77046-1173 Suite 100 11 Greenway Plaza 1201 Louisiana
Houston, TX 77046-1173 Suite 100 Street
Houston, TX Suite 2900
77046-1173 Houston, Texas
77002-5678
COUNSEL TO THE FUND COUNSEL TO THE TRUSTEES TRANSFER AGENT CUSTODIAN
Ballard Spahr Kramer, Levin, Naftalis AIM Investment State Street Bank
Andrews & Ingersoll, & Frankel LLP Services, Inc. and Trust Company
LLP 919 Third Avenue P.O. Box 4739 225 Franklin Street
1735 Market Street New York, NY 10022-3852 Houston, TX Boston, MA
Philadelphia, PA 19103-7599 77210-4739 02110-2801
</Table>
REQUIRED FEDERAL INCOME TAX INFORMATION (UNAUDITED)
Of ordinary dividends paid to shareholders during the Fund's tax year ended
October 31, 2004, 35.59% is eligible for the dividends received deduction for
corporations.
For its tax year ended October 31, 2004, the Fund designates 33.53%, or the
maximum amount allowable of its dividend distributions as qualified dividend
income. The actual amount of qualified dividend income for the calendar year
will be reported on Form 1099-DIV. You should consult your tax advisor regarding
treatment of these amounts.
<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(5) AIM High Yield Fund
AIM Blue Chip Fund AIM Global Aggressive Growth Fund AIM Income Fund
AIM Capital Development Fund AIM Global Equity Fund(6) 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 Core Stock Fund(1) AIM International Core Equity Fund(1) AIM Short Term Bond Fund
AIM Dent Demographic Trends Fund AIM International Emerging Growth Fund(7) AIM Total Return Bond Fund
AIM Diversified Dividend Fund AIM International Growth Fund Premier U.S. Government Money Portfolio(1)
AIM Dynamics Fund(1) AIM Trimark Fund
AIM Emerging Growth Fund TAX-FREE
AIM Large Cap Basic Value Fund SECTOR EQUITY
AIM Large Cap Growth Fund AIM High Income Municipal Fund
AIM Libra Fund AIM Advantage Health Sciences Fund(1) AIM Municipal Bond Fund
AIM Mid Cap Basic Value Fund AIM Energy Fund(1) AIM Tax-Exempt Cash Fund
AIM Mid Cap Core Equity Fund(2) AIM Financial Services Fund(1) AIM Tax-Free Intermediate Fund
AIM Mid Cap Growth Fund AIM Global Health Care Fund
AIM Mid Cap Stock Fund(1) AIM Gold & Precious Metals Fund(1) AIM ALLOCATION SOLUTIONS
AIM Opportunities I Fund AIM Health Sciences Fund(1)
AIM Opportunities II Fund AIM Leisure Fund(1) AIM Aggressive Allocation Fund
AIM Opportunities III Fund AIM Multi-Sector Fund(1) AIM Conservative Allocation Fund
AIM Premier Equity Fund AIM Real Estate Fund AIM Moderate Allocation Fund
AIM S&P 500 Index Fund(1) AIM Technology Fund(1)
AIM Select Equity Fund AIM Utilities Fund(1)
AIM Small Cap Equity Fund(3)
AIM Small Cap Growth Fund(4) ===============================================================================
AIM Small Company Growth Fund(1) CONSIDER THE INVESTMENT OBJECTIVES, RISKS, AND CHARGES AND EXPENSES CAREFULLY.
AIM Total Return Fund*(1) FOR THIS AND OTHER INFORMATION ABOUT AIM FUNDS, OBTAIN A PROSPECTUS FROM YOUR
AIM Trimark Endeavor Fund FINANCIAL ADVISOR AND READ IT THOROUGHLY BEFORE INVESTING.
AIM Trimark Small Companies Fund ===============================================================================
AIM Weingarten Fund
</Table>
* Domestic equity and income fund
(1) The following name changes became effective October 15, 2004: INVESCO
Advantage Health Sciences Fund to AIM Advantage Health Sciences Fund, INVESCO
Core Equity Fund to AIM Core Stock Fund, INVESCO Dynamics Fund to AIM Dynamics
Fund, INVESCO Energy Fund to AIM Energy Fund, INVESCO Financial Services Fund to
AIM Financial Services Fund, INVESCO Gold & Precious Metals Fund to AIM Gold &
Precious Metals Fund, INVESCO Health Sciences Fund to AIM Health Sciences Fund,
INVESCO International Core Equity Fund to AIM International Core Equity Fund,
INVESCO Leisure Fund to AIM Leisure Fund, INVESCO Mid-Cap Growth Fund to AIM Mid
Cap Stock Fund, INVESCO Multi-Sector Fund to AIM Multi-Sector Fund, INVESCO S&P
500 Index Fund to AIM S&P 500 Index Fund, INVESCO Small Company Growth Fund to
AIM Small Company Growth Fund, INVESCO Technology Fund to AIM Technology Fund,
INVESCO Total Return Fund to AIM Total Return Fund, INVESCO U.S. Government
Money Fund to Premier U.S. Government Money Portfolio, INVESCO Utilities Fund to
AIM Utilities Fund. (2) As of the close of business on February 27, 2004, AIM
Mid Cap Core Equity Fund is available to new investors on a limited basis. For
information on who may continue to invest in AIM Mid Cap Core Equity Fund,
please contact your financial advisor. (3) Effective December 13, 2004, AIM
Small Cap Equity Fund is open to all investors. (4) AIM Small Cap Growth Fund
was closed to most investors on March 18, 2002. For information on who may
continue to invest in AIM Small Cap Growth Fund, please contact your financial
advisor. (5) AIM European Small Company Fund will close to new investors when
net assets reach $500 million. (6) Effective March 31, 2004, AIM Global Trends
Fund was renamed AIM Global Equity Fund. (7) AIM International Emerging Growth
Fund will close to new investors when net assets reach $500 million.
If used after January 20, 2005, 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 $132 billion in assets. AIM is a subsidiary of
AMVESCAP PLC, one of the world's largest independent financial services
companies with $363 billion in assets under management. Data as of September 30,
2004.
AIMinvestments.com LIB-AR-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 TRIMARK ENDEAVOR FUND
Annual Report to Shareholders o October 31, 2004
[COVER IMAGE]
YOUR GOALS. OUR SOLUTIONS. [AIM INVESTMENTS LOGO APPEARS HERE]
--Registered Trademark-- --Registered Trademark--
<Table>
====================================================================================================================================
AIM TRIMARK ENDEAVOR FUND SEEKS TO PROVIDE LONG-TERM GROWTH OF CAPITAL.
o Unless otherwise stated, information presented in this report is as of 10/31/04 and is based on total net assets.
====================================================================================================================================
ABOUT SHARE CLASSES o The unmanaged Lipper Mid-Cap Core Fund o Industry classifications used in this
Index represents an average of the report are generally according to the
o Class B shares are not available as an performance of the 30 largest Global Industry Classification Standard,
investment for retirement plans mid-capitalization core funds tracked by which was developed by and is the
maintained pursuant to Section 401 of Lipper, Inc., an independent mutual fund exclusive property and a service mark of
the Internal Revenue Code, including performance monitor. Morgan Stanley Capital International
401(k) plans, money purchase pension Inc. and Standard & Poor's.
plans and profit sharing plans. Plans o The unmanaged Russell
that have existing accounts invested in Midcap--Registered Trademark-- Index The fund's schedule of investments
Class B shares will continue to be represents the performance of the stocks appears in its semiannual and annual
allowed to make additional purchases. of domestic mid-capitalization reports. In addition, the fund files its
companies. complete schedule of investments for its
o Class R shares are available only to first and third fiscal quarters with the
certain retirement plans. Please see the o The unmanaged MSCI World Index is a Securities and Exchange Commission
prospectus for more information. group of global securities tracked by (SEC). The most recent quarterly
Morgan Stanley Capital International. schedule is available on AIM's Web site.
PRINCIPAL RISKS OF INVESTING IN THE FUND Go to AIMinvestments.com, click on
o The fund is not managed to track the Products & Performance, then Mutual
o International investing presents performance of any particular index, Funds, then Fund Overview. Select your
certain risks not associated with including the indexes defined here, and fund from the drop-down menu and click
investing solely in the United States. consequently, the performance of the on Quarterly Schedule of Portfolio
These include risks relating to fund may deviate significantly from the Holdings. A printed version of the
fluctuations in the value of the U.S. performance of the indexes. quarterly schedule is also available,
dollar relative to the values of other without charge, upon request, by calling
currencies, the custody arrangements o A direct investment cannot be made in 800-959-4246. The quarterly schedule of
made for the fund's foreign holdings, an index. Unless otherwise indicated, holdings may also be accessed through
differences in accounting, political index results include reinvested the SEC's Web site at sec.gov. It also
risks and the lesser degree of public dividends, and they do not reflect sales can be viewed at the SEC's Public
information required to be provided by charges. Performance of an index of Reference Room in Washington, DC, and
non-U.S. companies. The fund may invest funds reflects fund expenses, can be requested from the SEC at
up to 25% of its assets in the performance of a market index does not. 800-SEC-0330. The schedule is available
securities of non-U.S. issuers. approximately 60 days after the close of
OTHER INFORMATION the fiscal quarter.
o By concentrating on a small number of
holdings, the fund carries greater risk o The returns shown in the Management's A description of the policies and
because each investment has a greater Discussion of Fund Performance are based procedures that the fund uses to
effect on the fund's overall on net asset values calculated for determine how to vote proxies relating
performance. shareholder transactions. Generally to portfolio securities is available
accepted accounting principles require without charge, upon request, by calling
ABOUT INDEXES USED IN THIS REPORT adjustments to be made to the net assets 800-959-4246, or on the AIM Web site,
of the fund at period end for financial AIMinvestments.com. Scroll down on the
o The unmanaged Standard & Poor's reporting purposes, and as such, the net home page and click on AIM Funds or
Composite Index of 500 Stocks (the S&P asset values for shareholder INVESCO Funds Proxy Voting Policies.
500--Registered Trademark-- Index) is an transactions and the returns based on
index of common stocks frequently used those net asset values may differ from Information regarding how the fund voted
as a general measure of U.S. stock the net asset values and returns proxies related to its portfolio
market performance. reported in the Financial Highlights. securities during the 12 months ended
6/30/04 is available at our Web site. Go
to AIMinvestments.com, click on About
Us, then on Required Notices and then
select your fund from the drop-down
menu.
</Table>
================================================================================
THIS REPORT MUST BE ACCOMPANIED OR PRECEDED BY A CURRENTLY EFFECTIVE FUND
PROSPECTUS, WHICH CONTAINS MORE COMPLETE INFORMATION, INCLUDING SALES CHARGES
AND EXPENSES. INVESTORS SHOULD READ IT CAREFULLY BEFORE INVESTING.
================================================================================
===================================================
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
===================================================
AIMinvestments.com
TO OUR SHAREHOLDERS
DEAR FELLOW SHAREHOLDER OF THE AIM FAMILY OF
FUNDS--Registered Trademark--:
NEW BOARD CHAIRMAN
[PHOTO OF It is our pleasure to introduce you to Bruce Crockett, the
ROBERT H. new Chairman of the Board of Trustees of the AIM Funds. Bob
GRAHAM] Graham has served as Chairman of the Board of Trustees of
the AIM Funds ever since Ted Bauer retired from that
ROBERT H. GRAHAM position in 2000. However, as you may be aware, the U.S.
Securities and Exchange Commission recently adopted a rule
[PHOTO OF requiring that an independent fund trustee, meaning a
MARK H. trustee who is not an officer of the fund's investment
WILLIAMSON] advisor, serve as chairman of the funds' Board. In addition,
a similar provision was included in the terms of AIM
MARK H. WILLIAMSON Advisors' recent settlements with certain regulators.
Accordingly, the AIM Funds' Board recently elected Mr.
[PHOTO OF Crockett, one of the fourteen independent trustees on the
BRUCE L. AIM Funds' Board, as Chairman. His appointment became
CROCKETT] effective on October 4, 2004. Mr. Graham will remain on the
funds' Board, as will Mark Williamson, President and Chief
BRUCE L. CROCKETT Executive Officer of AIM. Mr. Graham will also remain
Chairman of AIM Investments--Registered Trademark--.
Mr. Crockett has been a member of the AIM Funds' board
since 1992, when AIM acquired certain funds that had been
advised by CIGNA. He had been a member of the board of those funds since 1978.
Mr. Crockett has more than 30 years of experience in finance and general
management and has been Chairman of Crockett Technologies Associates since 1996.
He is the first independent chairman of the funds' board in AIM's history, as he
is not affiliated with AIM or AMVESCAP in any way. He is committed to ensuring
that the AIM Funds adhere to the highest standards of corporate governance for
the benefit of fund shareholders, and we at AIM share that commitment.
MARKET CONDITIONS DURING THE FISCAL YEAR
Virtually every equity index, domestic and foreign, produced positive returns
for the fiscal year ended October 31, 2004. Domestically, the S&P 500 Index was
up 9.41% for the year. Globally, the MSCI World Index advanced more than 13%.
However, a goodly portion of this positive performance was achieved during 2003.
Year to date as of October 31, the S&P 500 Index was up just over 3%, the MSCI
World Index just about 5%. In the pages that follow, you will find a more
detailed discussion of the market conditions that affected your fund during the
fiscal year.
While it is agreeable to report positive market performance for the year
covered by this report, as ever, we encourage our shareholders to look past
short-term performance and focus on their long-term investment goals. Over the
short term, the one sure thing about the investment markets is their
unpredictability. Over the long term, equities have produced very attractive
returns. For the 25-year period ended October 31, 2004, the S&P 500 Index
averaged 13.50% growth per year and the MSCI World Index averaged 11.16%. While
past performance cannot guarantee future results, we believe staying invested
for the long term offers the best opportunity for capital growth.
YOUR FUND
The following pages of this report provide an explanation of how your fund was
managed during the fiscal year, how it performed in comparison to various
benchmarks, and a presentation of its long-term performance. We hope you find
this information helpful. Current information about your fund and about the
markets in general is always available on our Web site, AIMinvestments.com.
As always, AIM remains committed to building solutions for your investment
goals, and we thank you for your continued participation in AIM Investments. If
you have any questions, please contact our Client Service representatives at
800-959-4246.
Sincerely,
/s/ ROBERT H. GRAHAM /s/ MARK H. WILLIAMSON
- -------------------------- -----------------------
Robert H. Graham Mark H. Williamson
Chairman, AIM Investments CEO & President, AIM
President & Vice Chairman, Investments Trustee,
AIM Funds AIM Funds
December 16, 2004
AIM Investments is a registered service mark of A I M Management Group Inc. A I
M Advisors, Inc. and A I M Capital Management, Inc. are the investment advisors,
and A I M Distributors, Inc. is the distributor for the retail funds represented
by AIM Investments.
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
<Table>
STRONG STOCK SELECTION FUELED FUND'S own in-depth, independent research to
PERFORMANCE identify high-quality
small-capitalization businesses that
AIM Trimark Endeavor Fund launched on and manufacturing activity served to have understandable business models,
November 4, 2003. For the reporting validate growing investor concerns. strong management and leading industry
period ended October 31, 2004, AIM Given our stock-by-stock, fundamental positions that are very difficult for
Trimark Endeavor Class A shares returned approach to investing, the broad competitors to encroach upon. We then
15.30% at net asset value. PERFORMANCE performance in our holdings is use our research to develop a
SHOWN AT NAV DOES NOT INCLUDE FRONT-END consistent with a market environment proprietary view about why we believe
SALES CHARGES, WHICH WOULD HAVE REDUCED that was significantly more these businesses will grow their value
THE PERFORMANCE. Results for other share discriminating than the blanket rally over a period of several years.
classes are shown in the table on page that characterized the prior year.
3. Aided by strong stock selection and While the fund's strong performance
the market's preference for small-cap With the price of oil rising sharply over the past year is gratifying, we
and mid-cap stocks, the fund during the period, it came as no believe these short-term performance
outperformed its benchmarks, the S&P 500 surprise that energy was the periods should be of little importance
Index, the Russell Midcap Index and the best-performing sector of the S&P 500 to shareholders who share our long-term
Lipper Mid-Cap Core Fund Index, which Index for the year. Utilities and investment horizon. Our long-term
returned 9.41%, 15.09% and 10.56%, materials also had strong performances investment strategy entails a
respectively, for the one-year period during the period, while information willingness to wait as long as five
ended October 31, 2004. technology, health care and consumer years or more for our proprietary views
staples were the weakest-performing about a business to unfold. You should
MARKET CONDITIONS sectors. These themes also generally therefore reasonably expect similar
held true for the fund's short-term periods where the fund
The market environment during the period mid-capitalization style benchmark, the underperforms, as our independent spirit
was mixed yet positive overall for Russell Midcap Index, which outperformed frequently results in the purchase of
mid-capitalization companies. The first both large-cap and small-cap indexes businesses that may be out of favor with
half of the period was characterized by during the period, providing an investors in the short term.
an extension of the market rally that additional tailwind to fund performance.
predominated throughout most of 2003, In examining key drivers of fund
when investors embraced evidence of YOUR FUND performance during the period, it is
stronger economic growth. As the period important to note that our investment
progressed, this buoyancy gave way to At the close of our first year managing strategy has resulted in a relatively
some trepidation as investors began to the fund, we would like to comment on focused group of business holdings that
fret over the effect rising commodity our approach to investing. We describe has little in common with the
and energy prices might have on a the Trimark discipline as "business composition of the fund's benchmarks and
maturing economic recovery. In addition, people buying businesses." By viewing peers. As a result, it may sometimes
a moderation of what had been generally each company the fund holds as a appear that the fund's relative sector
strong levels of consumer confidence long-term business investment as opposed weights significantly influenced
to a short-term stock trade, we attempt performance during any short-term
to ignore much of the short-term news period. However, because we focus on
that has little impact on an businesses rather than sectors, we
investment's long-term return potential. believe the fund's long-term performance
Instead, we focus on conducting our is dictated by how successful we have or
have not been in investing in individual
businesses. If one were to broadly
categorize the individual businesses
that
</Table>
<Table>
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PORTFOLIO COMPOSITION TOP 10 EQUITY HOLDINGS* TOP 10 INDUSTRIES*
By sector
1. Ross Stores, Inc. 6.4% 1. Health Care Equipment 14.9%
[PIE CHART]
2. Liz Claiborne, Inc. 5.9 2. Apparel, Accessories &
Energy 2.1% Luxury Goods 8.2
3. North Fork Bancorp., Inc. 5.6
Information Technology 2.1% 3. Apparel Retail 6.4
4. Manpower Inc. 5.4
Materials 1.0% 4. Regional Banks 5.6
5. WellPoint Health Networks
U.S. Government Agency Inc. 5.1 5. Employment Services 5.4
Securities Plus Other Assets
Less Liabilities 15.2% 6. Polaris Industries Inc. 4.8 6. Managed Health Care 5.1
Financials 8.4% 7. DENTSPLY International Inc. 4.5 7. Leisure Products 4.8
Industrials 13.1% 8. Cytyc Corp. 4.1 8. Pharmaceuticals 3.8
Consumer Staples 4.5% 9. Fisher Scientific 9. Brewers 3.2
International Inc. 4.0
Health Care 23.7% 10. Auto Parts & Equipment 3.1
10. Endo Pharmaceuticals
Consumer Discretionary 29.2% Holdings Inc. 3.8
*Excluding U.S. Government Agency Securities.
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>
contributed most to performance during its proprietary technology to produce IN CLOSING
the period, many came from the health some of the highest-quality aluminum
care and industrials sectors. Select wheels available to automobile We remained focused on growing your
detractors from performance were spread manufacturers. We also believed Superior capital over the long-term by
across sectors, with the largest Industries' management team could extend consistently applying our investment
detractors coming from the consumer the company's technology and strong discipline regardless of the market
discretionary sector. profitability into the manufacture of environment. At the close of the period
other light-aluminum auto components. there were 28 equity holdings in your
Cytyc was one of the most But in recent months, Superior fund, and each one was purchased by
significant contributors to fund Industries' margins have declined as adhering to the five core principles of
performance during the period. Cytyc is auto manufacturers cut costs and the Trimark discipline: 1) Know the
the manufacturer and distributor of the increasingly imported cheaper, business inside and out, 2) Focus on the
ThinPrep--Registered Trademark-- Pap lower-quality Chinese auto parts. business' management, 3) Wait for the
Test, the most widely used method for Although we continued to hold Superior right price, 4) Form a proprietary view
screening cervical cancer in the United Industries at the close of the period, and 5) Maintain patience and long-term
States. Cytyc reported third-quarter we view this dynamic as a real threat to focus. We appreciate your continued
2004 revenue of $102.8 million, a 36% long-term business prospects and are investment in AIM Trimark Endeavor Fund.
increase over the same period in 2003. working diligently to determine whether
At the close of the period we continued the company can continue to present The views and opinions expressed in
to own Cytyc for several compelling effective barriers to competition. Management's Discussion of Fund
reasons. First, we believed the company Performance are those of A I M Advisors,
would benefit from its entrance into the Our long-term investment horizon Inc. These views and opinions are
European market, which is far less generally results in relatively low subject to change at any time based on
developed than that of the United turnover in the fund. However, during factors such as market and economic
States. In October 2004, the company the period we were able to find an conditions. These views and opinions may
announced that the London Region of the above-average number of what we viewed not be relied upon as investment advice
National Health Service intended to as quality business opportunities at or recommendations, or as an offer for a
convert all service screening to the compelling prices, primarily in particular security. The information is
ThinPrep--Registered Trademark-- Pap international markets. Of the eight new not a complete analysis of every aspect
Test. Second, the company is marketing a business purchases we made during the of any market, country, industry,
diagnostic machine that labs can use to period, five were headquartered outside security or the fund. Statements of fact
analyze the tests Cytyc distributes. the United States. These new businesses are from sources considered reliable,
This allows labs to mechanize the were Kingspan Group, Nintendo, RyanAir, but A I M Advisors, Inc. makes no
diagnostic process, thereby reducing Swedish Match and Molson. The purchases representation or warranty as to their
costs, while at the same time charging were funded in part by select sales in completeness or accuracy. Although
more for the procedure itself. Finally, U.S.-based companies such as Republic historical performance is no guarantee
the company has developed a screening Services, R.R. Donnelley & Sons, Omnicom of future results, these insights may
test for breast cancer, which has been and Orthodontic Centers of America. We help you understand our investment
very difficult to predict. have now fully utilized the fund's management philosophy.
allowable international exposure of 25%
Among the detractors to fund to capitalize on international business See important fund and index
performance during the period was ideas we believe possess many of the disclosures inside front cover.
Superior Industries. We first purchased business characteristics we look for,
the company, in part, because of its yet at significant discounts to their GEOFF MACDONALD
record of generating significantly wider U.S. counterparts. Mr. MacDonald, Chartered
profit margins than competitors by [MACDONALD Financial Analyst, is lead
relying on PHOTO] manager of AIM Trimark
Endeavor Fund. He joined
=========================================== ====================================== AIM Trimark Investments in
1998. Prior to that, Mr. MacDonald worked
FUND VS. INDEXES TOTAL NET ASSETS $39.2 MILLION as an investment analyst and portfolio
manager. He earned a B.B.A. from Bishop's
TOTAL RETURNS, 11/4/03-10/31/04, TOTAL NUMBER OF HOLDINGS* 28 University and a M.B.A. from the University
EXCLUDING APPLICABLE SALES CHARGES. IF ====================================== of Windsor.
SALES CHARGES WERE INCLUDED, RETURNS
WOULD BE LOWER. JEFF HYRICH
[HYRICH Mr. Hyrich, Chartered
Class A Shares 15.30% PHOTO] Financial Analyst, joined
AIM Trimark Investments in
Class B Shares 14.70 1999. Prior to coming to
AIM Trimark, he worked as
Class C Shares 14.70 an investment analyst and portfolio
manager. He earned his undergraduate degree
Class R Shares 15.01** majoring in finance and accounting from the
University of Manitoba.
S&P 500 Index (Broad Market Index) 9.41***
[RIGHT ARROW GRAPHIC]
Russell Midcap Index
(Style-specific Index) 15.09*** FOR A PRESENTATION OF YOUR FUND'S
PERFORMANCE RECORD, PLEASE
Lipper Mid-Cap Core Fund Index TURN TO PAGE 5.
(Peer Group Index) 10.56***
Source: Lipper, Inc.
** Inception date 4/30/04. Returns
prior to 4/30/04 are hypothetical
based on Class A Shares. See
explanation page 5.
*** Index data shows a one year
return as of 10/31/04.
===========================================
</Table>
3
INFORMATION ABOUT YOUR FUND'S EXPENSES
<Table>
CALCULATING YOUR ONGOING FUND EXPENSES
EXAMPLE together with the amount you invested, use this information to compare the
to estimate the expenses that you paid ongoing costs of investing in the fund
As a shareholder of the fund, you incur over the period. Simply divide your and other funds. To do so, compare this
two types of costs: (1) transaction account value by $1,000 (for example, an 5% hypothetical example with the 5%
costs, which may include sales charges $8,600 account value divided by $1,000 = hypothetical examples that appear in the
(loads) on purchase payments; contingent 8.6), then multiply the result by the shareholder reports of the other funds.
deferred sales charges on redemptions; number in the table under the heading
and redemption fees, if any; and (2) entitled "Actual Expenses Paid During Please note that the expenses shown
ongoing costs, including management Period" to estimate the expenses you in the table are meant to highlight your
fees; distribution and/or service fees paid on your account during this period. ongoing costs only and do not reflect
(12b-1); and other fund expenses. This any transactional costs, such as sales
example is intended to help you HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES charges (loads) on purchase payments,
understand your ongoing costs (in contingent deferred sales charges on
dollars) of investing in the fund and to redemptions, and redemption fees, if
compare these costs with ongoing costs The table below also provides any. Therefore, the hypothetical
of investing in other mutual funds. The information about hypothetical account information is useful in comparing
example is based on an investment of values and hypothetical expenses based ongoing costs only, and will not help
$1,000 invested at the beginning of the on the fund's actual expense ratio and you determine the relative total costs
period and held for the entire period, an assumed rate of return of 5% per year of owning different funds. In addition,
May 1, 2004 - October 31, 2004. before expenses, which is not the fund's if these transactional costs were
actual return. The hypothetical account included, your costs would have been
ACTUAL EXPENSES values and expenses may not be used to higher.
estimate the actual ending account
The table below provides information balance or expenses you paid for the
about actual account values and actual period. You may
expenses. You may use the information in
this table,
</Table>
<Table>
====================================================================================================================================
ACTUAL HYPOTHETICAL
(5% ANNUAL RETURN BEFORE EXPENSES)
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES ENDING ACCOUNT EXPENSES
VALUE VALUE PAID DURING VALUE PAID DURING
(5/1/04) (10/31/04)(1) PERIOD(2) (10/31/04) PERIOD(2)
Class A $1,000.00 $1,059.70 $10.35 $1,015.08 $10.13
Class B 1,000.00 1,056.20 13.70 1,011.81 13.40
Class C 1,000.00 1,056.20 13.70 1,011.81 13.40
Class R 1,000.00 1,057.90 11.12 1,014.33 10.89
(1)The actual ending account value is based on the actual total return of the fund for the period May 1, 2004, to October 31, 2004,
after actual expenses and will differ from the hypothetical ending account value which is based on the fund's expense ratio and a
hypothetical annual return of 5% before expenses. The actual cumulative return at net asset value for the period May 1, 2004, to
October 31, 2004, was 5.97%, 5.62%, 5.62% and 5.79% for Class A, B, C and R shares, respectively.
(2)Expenses are equal to the fund's annualized expense ratio (2.00%, 2.65%, 2.65% and 2.15% for Class A, B, C and R shares,
respectively) multiplied by the average account value over the period, multiplied by 184/366 (to reflect the one-half year period).
====================================================================================================================================
[ARROW
BUTTON For More Information Visit
IMAGE] AIMinvestments.com
</Table>
4
LONG-TERM PERFORMANCE
YOUR FUND'S PERFORMANCE
<Table>
====================================================================================================================================
Past performance cannot guarantee RESULTS OF A $10,000 INVESTMENT
comparable future results. 11/4/03-10/31/04 (Index data from 10/31/03)
Your fund's total return includes [MOUNTAIN CHART]
reinvested distributions, applicable LIPPER
sales charges, fund expenses and AIM TRIMARK AIM TRIMARK AIM TRIMARK MID-CAP RUSSELL
management fees. Results for Class B ENDEAVOR FUND ENDEAVOR FUND ENDEAVOR FUND CORE FUND MIDCAP S&P 500
shares are calculated as if a DATE CLASS A SHARES CLASS B SHARES CLASS C SHARES INDEX INDEX INDEX
hypothetical shareholder had liquidated
his entire investment in the fund at the 11/4/2003 $9450 $10000 $10000 $10000 $10000 $10000
close of the reporting period and paid 11/03 9648 10210 10210 10273 10281 10088
the applicable contingent deferred sales 12/03 9818 10379 10379 10533 10589 10617
charges. Index results include 01/04 10082 10649 10649 10818 10896 10811
reinvested dividends, but they do not 02/04 10271 10850 10850 11024 11131 10962
reflect sales charges. Performance of an 03/04 10441 11020 11020 10998 11133 10796
index of funds reflects fund expenses 04/04 10281 10860 10860 10652 10725 10627
and management fees; performance of a 05/04 10441 11020 11020 10819 10991 10773
market index does not. Performance shown 06/04 10810 11400 11400 11114 11295 10982
in the chart does not reflect deduction 07/04 10403 10970 10970 10548 10801 10619
of taxes a shareholder would pay on fund 08/04 10252 10800 10800 10509 10848 10661
distributions or sale of fund shares. 09/04 10828 11401 11401 10877 11200 10777
Performance of the indexes does not 10/04 $10898 $10970 $11370 $11056 $11509 $10941
reflect the effects of taxes.
Source: Lipper, Inc.
Class R shares' inception date is the time of purchase to 0% at the
CUMULATIVE TOTAL RETURNS* 4/30/04. Returns since that date are beginning of the seventh year. The CDSC
historical returns. All other returns are on Class C shares is 1% for the first
As of 10/31/04, including applicable sales blended returns of historical Class R year after purchase. Class R shares do
charges share performance and restated Class A not have a front-end sales charge;
share performance (for periods prior to returns shown are at net asset value and
CLASS A SHARES the inception date of Class R shares) at do not reflect a 0.75% CDSC that may be
Inception (11/4/03) 8.98% net asset value, adjusted to reflect the imposed on a total redemption of
higher Rule 12b-1 fees applicable to retirement plan assets within the first
CLASS B SHARES Class R shares. Class A shares' inception year.
Inception (11/4/03) 9.70% date is 11/4/03.
The performance of the fund's share
CLASS C SHARES The performance data quoted represent classes will differ due to different
Inception (11/4/03) 13.70% past performance and cannot guarantee sales charge structures and class
will differ due to different sales charge expenses.
CLASS R SHARES comparable future results; current
Inception 15.01% performance may be lower or higher. Had the advisor not waived fees
Please visit AIMinvestments.com for the and/or reimbursed expenses, performance
most recent month-end performance. would have been lower.
In addition to returns as of the close Performance figures reflect reinvested
of the reporting period, industry distributions, changes in net asset value
regulations require us to provide and the effect of the maximum sales
cumulative total returns as of 9/30/04, charge unless otherwise stated.
the most recent calendar quarter-end. Investment return and principal value
will fluctuate so that you may have a
CUMULATIVE TOTAL RETURNS* gain or loss when you sell shares.
As of 9/30/04, most recent calendar Class A share performance reflects
quarter-end, including applicable sales the maximum 5.50% sales charge, and
charges Class B and Class C share performance
reflects the applicable contingent
CLASS A SHARES deferred sales charge (CDSC) for the
Inception (11/4/03) 8.32% period involved. The CDSC on Class B
shares declines from 5% beginning at
CLASS B SHARES
Inception (11/4/03) 9.00%
CLASS C SHARES
Inception (11/4/03) 13.00%
CLASS R SHARES
Inception 14.32%
*Returns have not been annualized.
====================================================================================================================================
</Table>
5
SUPPLEMENT TO ANNUAL REPORT DATED 10/31/04
AIM TRIMARK ENDEAVOR FUND
<Table>
INSTITUTIONAL CLASS SHARES ========================================= Institutional Class shares have no sales
TOTAL RETURN charge; therefore, performance is at net
The following information has been For period ended 10/31/04 asset value. Performance of Institutional
prepared to provide Institutional Class Inception 15.50%* Class shares will differ from performance
shareholders with a performance overview * Cumulative total return that has not of other share classes due to differing
specific to their holdings. Institutional been annualized sales charges and class expenses.
Class shares are offered exclusively to
institutional investors, including ========================================= Please note that past performance is
defined contribution plans that meet TOTAL RETURN not indicative of future results. More
certain criteria. For period ended 9/30/04 recent returns may be more or less than
Inception 14.70%* those shown. All returns assume
* Cumulative total return that has not reinvestment of distributions at net
been annualized asset value. Investment return and
principal value will fluctuate so your
========================================= shares, when redeemed, may be worth more
or less than their original cost. See
Institutional Class shares' inception full report for information on
date is 4/30/04. Returns since that date comparative benchmarks. Please consult
are historical returns. All other returns your fund prospectus for more
are blended returns of historical information. For the most current
Institutional Class share performance and month-end performance, please call
restated Class A share performance (for 800-451-4246 or visit AIMinvestments.com.
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 11/4/03.
Institutional Class shares would have had
different returns due to differences in
the expense structure of the
Institutional Class.
Had the advisor not waived fees and/or
reimbursed expenses, performance would
have been lower.
</Table>
Over for information on your fund's expenses.
FOR INSTITUTIONAL INVESTOR USE ONLY
This material is for institutional investor use only and may not be quoted,
reproduced or shown to the public, nor used in written form as sales literature
for public use.
[YOUR GOALS. OUR SOLUTIONS.] [AIM INVESTMENTS LOGO APPEARS HERE]
--Registered Trademark-- --Registered Trademark--
AIMinvestments.com T-END-INS-1 10/04
INFORMATION ABOUT YOUR FUND'S EXPENSES
CALCULATING YOUR ONGOING FUND EXPENSES
<Table>
EXAMPLE estimate the expenses that you paid over or expenses you paid for the period. You
the period. Simply divide your account may use this information to compare the
As a shareholder of the fund, you incur value by $1,000 (for example, an $8,600 ongoing costs of investing in the fund
ongoing costs, including management fees; account value divided by $1,000 = 8.6), and other funds. To do so, compare this
and other fund expenses. This example is then multiply the result by the number in 5% hypothetical example with the 5%
intended to help you understand your the table under the heading entitled hypothetical examples that appear in the
ongoing costs (in dollars) of investing "Actual Expenses Paid During Period" to shareholder reports of the other funds.
in the fund and to compare these costs estimate the expenses you paid on your
with ongoing costs of investing in other account during this period. Please note that the expenses shown in
mutual funds. The example is based on an the table are meant to highlight your
investment of $1,000 invested at the HYPOTHETICAL EXAMPLE FOR ongoing costs only. Therefore, the
beginning of the period and held for the COMPARISON PURPOSES hypothetical information is useful in
entire period, May 1, 2004, to October comparing ongoing costs only, and will
31, 2004. The table below also provides information not help you determine the relative total
about hypothetical account values and costs of owning different funds.
ACTUAL EXPENSES hypothetical expenses based on the fund's
actual expense ratio and an assumed rate
The table below provides information of return of 5% per year before expenses,
about actual account values and actual which is not the fund's actual return.
expenses. You may use the information in The hypothetical account values and
this table, together with the amount you expenses may not be used to estimate the
invested, to actual ending account balance
</Table>
<Table>
<Caption>
====================================================================================================================================
ACTUAL HYPOTHETICAL
(5% ANNUAL RETURN BEFORE EXPENSES)
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES ENDING ACCOUNT EXPENSES
VALUE VALUE PAID DURING VALUE PAID DURING
(05/01/04) (10/31/04)(1) PERIOD(2) (10/31/04) PERIOD(2)
Institutional Class $1,000.00 $1,061.60 $8.40 $1,016.99 $8.21
(1) The actual ending account value is based on the actual total return of the fund for the period May 1, 2004, to October 31, 2004,
after actual expenses and will differ from the hypothetical ending account value which is based on the fund's expense ratio and
a hypothetical annual return of 5% before expenses. The actual cumulative return at net asset value for the period May 1, 2004,
to October 31, 2004, was 6.16% for Institutional Class shares.
(2) Expenses are equal to the fund's annualized expense ratio of 1.62% for the Institutional Class shares, multiplied by the average
account value over the period, multiplied by 184/366 (to reflect the one-half year period).
====================================================================================================================================
</Table>
AIMinvestments.com T-END-INS-1 10/04
FINANCIALS
SCHEDULE OF INVESTMENTS
October 31, 2004
<Table>
<Caption>
MARKET
SHARES VALUE
- -----------------------------------------------------------------------
DOMESTIC COMMON STOCKS-60.01%
APPAREL RETAIL-6.39%
Ross Stores, Inc. 95,300 $ 2,503,531
=======================================================================
APPAREL, ACCESSORIES & LUXURY GOODS-5.92%
Liz Claiborne, Inc. 56,700 2,317,896
=======================================================================
AUTO PARTS & EQUIPMENT-3.11%
Superior Industries International, Inc. 44,700 1,218,969
=======================================================================
EMPLOYMENT SERVICES-5.37%
Manpower Inc. 46,500 2,104,125
=======================================================================
HEALTH CARE EQUIPMENT-12.60%
Cytyc Corp.(a) 61,800 1,612,362
- -----------------------------------------------------------------------
DENTSPLY International Inc. 33,900 1,763,139
- -----------------------------------------------------------------------
Fisher Scientific International Inc.(a) 27,124 1,555,833
=======================================================================
4,931,334
=======================================================================
INSURANCE BROKERS-2.71%
Arthur J. Gallagher & Co. 37,800 1,062,180
=======================================================================
LEISURE PRODUCTS-4.82%
Polaris Industries Inc. 31,800 1,887,330
=======================================================================
MANAGED HEALTH CARE-5.06%
WellPoint Health Networks Inc.(a) 20,300 1,982,498
=======================================================================
PHARMACEUTICALS-3.81%
Endo Pharmaceuticals Holdings Inc.(a) 68,500 1,493,300
=======================================================================
REGIONAL BANKS-5.64%
North Fork Bancorp., Inc. 50,100 2,209,410
=======================================================================
RESTAURANTS-2.22%
Krispy Kreme Doughnuts, Inc.(a) 81,900 868,140
=======================================================================
SPECIALTY STORES-1.34%
AutoZone, Inc.(a) 6,400 523,584
=======================================================================
STEEL-1.02%
Nucor Corp. 9,400 396,962
=======================================================================
Total Domestic Common Stocks (Cost
$22,502,881) 23,499,259
=======================================================================
</Table>
<Table>
MARKET
SHARES VALUE
- -----------------------------------------------------------------------
<Caption>
FOREIGN STOCKS & OTHER EQUITY
INTERESTS-24.79%
AUSTRALIA-2.26%
Cochlear Ltd. (Health Care Equipment) 47,600 $ 883,884
=======================================================================
CANADA-1.12%
Molson Inc.-Class A (Brewers) 17,000 437,597
=======================================================================
FRANCE-1.45%
Zodiac S.A. (Aerospace & Defense)(b) 14,600 568,529
=======================================================================
GERMANY-3.74%
Hugo Boss A.G.-Pfd. (Apparel, Accessories &
Luxury Goods)(b) 33,300 889,098
- -----------------------------------------------------------------------
Medion A.G. (Distributors)(b) 33,000 573,649
=======================================================================
1,462,747
=======================================================================
IRELAND-4.29%
Kingspan Group PLC (Building Products)(b) 111,200 877,450
- -----------------------------------------------------------------------
Ryanair Holdings PLC-ADR (Airlines)(a) 27,900 802,962
=======================================================================
1,680,412
=======================================================================
JAPAN-2.05%
Nintendo Co., Ltd. (Home Entertainment
Software)(b) 7,100 801,230
=======================================================================
MEXICO-4.46%
Grupo Modelo, S.A. de C.V.-Series C (Brewers) 323,500 829,847
- -----------------------------------------------------------------------
Grupo Televisa S.A.-ADR (Broadcasting & Cable
TV) 16,700 918,500
=======================================================================
1,748,347
=======================================================================
NETHERLANDS-2.12%
Fugro N.V.-Dutch Ctfs. (Oil & Gas Equipment &
Services)(b) 10,616 829,178
=======================================================================
SWEDEN-3.30%
Munters A.B. (Industrial Machinery)(b) 31,400 783,176
- -----------------------------------------------------------------------
Swedish Match A.B. (Tobacco)(b) 46,000 509,608
=======================================================================
1,292,784
=======================================================================
Total Foreign Stocks & Other Equity
Interests (Cost $8,950,640) 9,704,708
=======================================================================
</Table>
F-1
<Table>
<Caption>
MARKET
SHARES VALUE
- -----------------------------------------------------------------------
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
- -----------------------------------------------------------------------
U.S. GOVERNMENT AGENCY SECURITIES-14.06%
FEDERAL HOME LOAN BANK (FHLB)-14.06%
Unsec. Disc. Notes,
1.69%, 11/01/04 (Cost $5,507,000)(c) $5,507,000 $ 5,507,000
=======================================================================
TOTAL INVESTMENTS-98.86% (Cost $36,960,521) 38,710,967
=======================================================================
OTHER ASSETS LESS LIABILITIES-1.14% 445,029
=======================================================================
NET ASSETS-100.00% $39,155,996
_______________________________________________________________________
=======================================================================
</Table>
Investment Abbreviations:
<Table>
ADR - American Depositary Receipt
Ctfs. - Certificates
Disc. - Discounted
Pfd. - Preferred
Unsec. - Unsecured
</Table>
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) In accordance with the procedures established by the Board of Trustees, the
foreign security is fair valued using adjusted closing market prices. The
aggregate market value of these securities at October 31, 2004 was
$5,831,918, which represented 15.07% of the Fund's Total Investments. See
Note 1A.
(c) Security is traded on a discount basis. The interest rate shown represents
the discount rate at the time of purchase by the Fund.
See accompanying notes which are an integral part of the financial statements.
F-2
STATEMENT OF ASSETS AND LIABILITIES
October 31, 2004
<Table>
ASSETS:
Investments, at market value (cost $36,960,521) $38,710,967
- ------------------------------------------------------------------------------
Cash 1,208
- ------------------------------------------------------------------------------
Receivables for:
Fund shares sold 472,703
- ------------------------------------------------------------------------------
Dividends 31,414
- ------------------------------------------------------------------------------
Amount due from advisor 35,214
- ------------------------------------------------------------------------------
Investment for trustee deferred compensation and retirement plans 1,882
- ------------------------------------------------------------------------------
Other assets 55,308
==============================================================================
Total assets 39,308,696
______________________________________________________________________________
==============================================================================
LIABILITIES:
Payables for:
Fund shares reacquired 37,371
- ------------------------------------------------------------------------------
Foreign currency contracts outstanding 34,968
- ------------------------------------------------------------------------------
Trustee deferred compensation and retirement plans 1,881
- ------------------------------------------------------------------------------
Accrued distribution fees 14,686
- ------------------------------------------------------------------------------
Accrued trustees' fees 1,091
- ------------------------------------------------------------------------------
Accrued transfer agent fees 7,943
- ------------------------------------------------------------------------------
Accrued operating expenses 54,760
==============================================================================
Total liabilities 152,700
==============================================================================
Net assets applicable to shares outstanding $39,155,996
______________________________________________________________________________
==============================================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $37,474,318
- ------------------------------------------------------------------------------
Undistributed net investment income 33,045
- ------------------------------------------------------------------------------
Undistributed net realized gain (loss) from investment
securities, foreign currencies and foreign currency contracts (67,136)
- ------------------------------------------------------------------------------
Unrealized appreciation of investment securities, foreign
currencies and foreign currency contracts 1,715,769
==============================================================================
$39,155,996
______________________________________________________________________________
==============================================================================
NET ASSETS:
Class A $24,995,705
______________________________________________________________________________
==============================================================================
Class B $ 6,403,234
______________________________________________________________________________
==============================================================================
Class C $ 5,943,642
______________________________________________________________________________
==============================================================================
Class R $ 34,463
______________________________________________________________________________
==============================================================================
Institutional Class $ 1,778,952
______________________________________________________________________________
==============================================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER SHARE, UNLIMITED NUMBER
OF SHARES AUTHORIZED:
Class A 2,168,034
______________________________________________________________________________
==============================================================================
Class B 558,488
______________________________________________________________________________
==============================================================================
Class C 518,407
______________________________________________________________________________
==============================================================================
Class R 2,994
______________________________________________________________________________
==============================================================================
Institutional Class 154,078
______________________________________________________________________________
==============================================================================
Class A:
Net asset value per share $ 11.53
- ------------------------------------------------------------------------------
Offering price per share:
(Net asset value of $11.53divided by 94.50%) $ 12.20
______________________________________________________________________________
==============================================================================
Class B:
Net asset value and offering price per share $ 11.47
______________________________________________________________________________
==============================================================================
Class C:
Net asset value and offering price per share $ 11.47
______________________________________________________________________________
==============================================================================
Class R:
Net asset value and offering price per share $ 11.51
______________________________________________________________________________
==============================================================================
Institutional Class:
Net asset value and offering price per share $ 11.55
______________________________________________________________________________
==============================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
F-3
STATEMENT OF OPERATIONS
For the period November 4, 2003 (date operations commenced) through October 31,
2004
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $5,137) $ 169,382
- ------------------------------------------------------------------------
Interest 28,712
========================================================================
Total investment income 198,094
========================================================================
EXPENSES:
Advisory fees 104,953
- ------------------------------------------------------------------------
Administrative services fees 50,000
- ------------------------------------------------------------------------
Custodian fees 32,625
- ------------------------------------------------------------------------
Distribution fees:
Class A 28,445
- ------------------------------------------------------------------------
Class B 26,731
- ------------------------------------------------------------------------
Class C 19,309
- ------------------------------------------------------------------------
Class R 38
- ------------------------------------------------------------------------
Transfer agent fees -- Class A, B, C and R 4,791
- ------------------------------------------------------------------------
Transfer agent fees -- Institutional Class 110
- ------------------------------------------------------------------------
Trustees' fees and retirement benefits 11,929
- ------------------------------------------------------------------------
Registration and filing fees 55,959
- ------------------------------------------------------------------------
Professional fees 58,177
- ------------------------------------------------------------------------
Other 31,843
========================================================================
Total expenses 424,910
========================================================================
Less: Fees waived, expenses reimbursed and expense offset
arrangements (133,777)
========================================================================
Net expenses 291,133
========================================================================
Net investment income (loss) (93,039)
========================================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES, FOREIGN CURRENCIES AND FOREIGN CURRENCY
CONTRACTS:
Net realized gain (loss) from:
Investment securities 34,618
- ------------------------------------------------------------------------
Foreign currencies (6,591)
========================================================================
28,027
========================================================================
Change in net unrealized appreciation (depreciation) of:
Investment securities 1,750,446
- ------------------------------------------------------------------------
Foreign currencies 291
- ------------------------------------------------------------------------
Foreign currency contracts (34,968)
========================================================================
1,715,769
========================================================================
Net gain from investment securities, foreign currencies and
foreign currency contracts 1,743,796
========================================================================
Net increase in net assets resulting from operations $1,650,757
________________________________________________________________________
========================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
F-4
STATEMENT OF CHANGES IN NET ASSETS
For the period November 4, 2003 (date operations commenced) through October 31,
2004
<Table>
<Caption>
OCTOBER 31,
2004
- ---------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (93,039)
- ---------------------------------------------------------------------------
Net realized gain from investment securities and foreign
currencies 28,027
- ---------------------------------------------------------------------------
Change in net unrealized appreciation of investment
securities, foreign currencies and foreign currency
contracts 1,715,769
===========================================================================
Net increase in net assets resulting from operations 1,650,757
===========================================================================
Share transactions-net:
Class A 23,942,293
- ---------------------------------------------------------------------------
Class B 6,102,509
- ---------------------------------------------------------------------------
Class C 5,729,384
- ---------------------------------------------------------------------------
Class R 33,159
- ---------------------------------------------------------------------------
Institutional Class 1,697,894
===========================================================================
Net increase in net assets resulting from share
transactions 37,505,239
===========================================================================
Net increase in net assets 39,155,996
===========================================================================
NET ASSETS:
Beginning of period --
===========================================================================
End of period (including undistributed net investment
income of $33,045) $39,155,996
___________________________________________________________________________
===========================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
F-5
NOTES TO FINANCIAL STATEMENTS
October 31, 2004
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Trimark Endeavor Fund (the "Fund") is a separate series of AIM Investment
Funds (the "Trust"). The Trust is organized as a Delaware statutory trust and is
registered under the Investment Company Act of 1940, as amended (the "1940
Act"), as an open-end series management investment company consisting of six
separate series 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 commenced
operations on November 4, 2003.
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.
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.
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").
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.
Debt obligations (including convertible bonds) are fair valued using an
evaluated quote provided by an independent pricing service. Evaluated
quotes provided by the pricing service may be determined without exclusive
reliance on quoted prices, and may reflect appropriate factors such as
institution-size trading in similar groups of securities, developments
related to specific securities, dividend rate, yield, quality, type of
issue, coupon rate, maturity, individual trading characteristics and other
market data. Short-term obligations having 60 days or less to maturity and
commercial paper are valued at amortized cost which approximates market
value.
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.
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 the event is likely to have affected the closing price of the security,
the security will be valued at fair value in good faith using procedures
approved by the Board of Trustees. Adjustments to closing prices to reflect
fair value may also be based on a screening process of an independent
pricing service to indicate the degree of certainty, based on historical
data, that the closing price in the principal market where a foreign
security trades is not the current market value as of the close of the
NYSE. Foreign securities meeting the approved degree of certainty that the
price is not reflective of current market value will be priced at the
indication of fair value from the independent pricing service. Multiple
factors may be considered by the independent pricing service in determining
adjustments to reflect fair value and may include information relating to
sector indices, ADRs, domestic and foreign index futures and
exchange-traded funds.
Securities for which market quotations are not readily available or are
unreliable are valued at fair value as determined in good faith by or under
the supervision of the Trust's officers following procedures approved by
the Board of Trustees. Issuer specific events, market trends, bid/ask
quotes of
F-6
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.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions
are accounted for on a trade date basis. Realized gains or losses on sales
are computed on the basis of specific identification of the securities
sold. Interest income is recorded on the accrual basis from settlement
date. Dividend income is recorded on the ex-dividend date. Bond premiums
and discounts are amortized and/or accreted for financial reporting
purposes.
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 and other shareholder recordkeeping 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.
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement,
the Fund pays an advisory fee to AIM at the annual rate of 0.80% of the first $1
billion of the Fund's average daily net assets, plus 0.75% of the Fund's average
daily net assets in excess of $1 billion. AIM has contractually agreed to waive
advisory fees and/or reimburse expenses to the extent necessary to limit Total
Annual Operating Expenses (excluding certain items discussed below) of Class A,
Class B, Class C, Class R and Institutional Class shares to 2.00%, 2.65%, 2.65%,
2.15% and 1.65% of average daily net assets, respectively, through October 31,
2005. 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. 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. 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
F-7
period November 4, 2003 (date operations commenced) through October 31, 2004,
AIM waived fees of $104,953 and reimbursed expenses of $26,327. Under the terms
of a master sub-advisory agreement between AIM and AIM Funds Management Inc.
("AIM Funds Management"), AIM pays AIM Funds Management 40% of the amount paid
by the Fund to AIM.
For the period November 4, 2003 (date operations commenced) through October
31, 2004, at the request of the Trustees of the Trust, AMVESCAP PLC ("AMVESCAP")
agreed to assume $2,155 of expenses incurred by the Fund in connection with
matters related to recently settled regulatory actions and investigations
concerning market timing activity in the AIM Funds, including legal, audit,
shareholder servicing, communication and trustee expenses. These expenses along
with the related expense reimbursement, are included in the Statement of
Operations.
The Fund, pursuant to a master administrative services agreement with AIM,
has agreed to pay AIM for certain administrative costs incurred in providing
accounting services to the Fund. For the period November 4, 2003 (date
operations commenced) through October 31, 2004, AIM was paid $50,000 for such
services.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay AIM Investment Services, Inc. ("AISI") a fee for providing transfer agency
and shareholder services to the Fund and reimburse AISI for certain expenses
incurred by AISI in the course of providing such services. For the Institutional
Class, the transfer agent has contractually agreed to reimburse class specific
transfer agent fees and expenses to the extent necessary to limit transfer agent
fees to 0.10% of the average net assets. For the period November 4, 2003 (date
operations commenced) through October 31, 2004, the Fund paid AISI $4,791 for
Class A, Class B, Class C and Class R shares and $110 for Institutional Class
shares. AISI may make payments to intermediaries to provide omnibus account
services, sub-accounting services and/or networking 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 period November 4, 2003 (date operations
commenced) through October 31, 2004, the Class A, Class B, Class C and Class R
shares paid $28,445, $26,731, $19,309 and $38, 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 period
November 4, 2003 (date operations commenced) through October 31, 2004, AIM
Distributors advised the Fund that it retained $26,908 in front-end sales
commissions from the sale of Class A shares and $215, $4,905, $532 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 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 period
November 4, 2003 (date operations commenced) through October 31, 2004, the Fund
received credits in transfer agency fees of $176 and credits in custodian fees
of $166 under expense offset arrangements, which resulted in a reduction of the
Fund's total expenses of $342.
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 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 period November 4, 2003 (date operations commenced) through
October 31, 2004, the Fund paid legal fees of $2,484 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. 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. A loan will be secured by
F-8
collateral if the Fund's aggregate borrowings from all sources exceeds 10% of
the Fund's total assets. 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 period November 4, 2003 (date operations commenced) through
October 31, 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 at an amount equal to the Federal
Funds rate plus 100 basis points.
NOTE 6--FOREIGN CURRENCY CONTRACTS
<Table>
<Caption>
OPEN FOREIGN CURRENCY CONTRACTS AT PERIOD END
- --------------------------------------------------------------------------------
CONTRACT TO UNREALIZED
SETTLEMENT -------------------- APPRECIATION
DATE CURRENCY DELIVER RECEIVE VALUE (DEPRECIATION)
- --------------------------------------------------------------------------------
01/12/05 EUR* $ 79,170 $100,000 $101,296 $ (1,296)
- --------------------------------------------------------------------------------
04/14/05 EUR* 416,910 500,000 533,672 (33,672)
================================================================================
$496,080 $600,000 $634,968 $(34,968)
________________________________________________________________________________
================================================================================
</Table>
* EUR -- Euro
NOTE 7--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
DISTRIBUTIONS TO SHAREHOLDERS:
There were no ordinary income or long-term capital gain distributions paid
during the period November 4, 2003 (date operations commenced) through October
31, 2004.
TAX COMPONENTS OF NET ASSETS:
As of October 31, 2004, the components of net assets on a tax basis were as
follows:
<Table>
Unrealized appreciation -- investments $ 1,683,600
- -------------------------------------------------------------------------------
Temporary book/tax differences (1,922)
- -------------------------------------------------------------------------------
Shares of beneficial interest 37,474,318
===============================================================================
Total net assets $ 39,155,996
_______________________________________________________________________________
===============================================================================
</Table>
The difference between book-basis and tax-basis unrealized appreciation
(depreciation) is due to differences in the timing of recognition of gains and
losses on investments for tax and book purposes. The Fund's unrealized
appreciation (depreciation) difference is attributable primarily to losses on
wash sales and the tax recognition of unrealized losses on certain forward
contracts. The tax-basis unrealized appreciation on investments amount includes
appreciation on foreign currencies of $291.
The temporary book/tax differences are a result of timing differences
between book and tax recognition of income and/or expenses. The Fund's temporary
book/tax differences are the result of the trustee deferral of compensation
expenses.
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 period
November 4, 2003 (date operations commenced) through October 31, 2004 was
$35,861,737 and $4,442,834, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- -------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $ 2,965,661
- -------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (1,282,352)
===============================================================================
Net unrealized appreciation of investment securities $ 1,683,309
_______________________________________________________________________________
===============================================================================
Cost of investments for tax purposes is $37,027,658.
</Table>
F-9
NOTE 9--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of organizational
expenses, foreign currency transactions and net operating losses, on October 31,
2004, undistributed net investment income (loss) was increased by $126,084,
undistributed net realized gains (losses) decreased by $95,163 and shares of
beneficial interest decreased by $30,921. This reclassification had no effect on
the net assets of the Fund.
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 certain 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(a)
- ------------------------------------------------------------------------------
NOVEMBER 4, 2003
(DATE OPERATIONS
COMMENCED)
THROUGH
OCTOBER 31, 2004
------------------------
SHARES AMOUNT
- ------------------------------------------------------------------------------
Sold:
Class A 2,289,460 $25,304,459
- ------------------------------------------------------------------------------
Class B 638,445 6,985,762
- ------------------------------------------------------------------------------
Class C 563,891 6,235,662
- ------------------------------------------------------------------------------
Class R(b) 3,090 34,259
- ------------------------------------------------------------------------------
Institutional Class(b) 159,465 1,758,356
==============================================================================
Automatic conversion of Class B shares to Class A
shares:
Class A 3,316 36,925
- ------------------------------------------------------------------------------
Class B (3,331) (36,925)
==============================================================================
Reacquired:
Class A (124,742) (1,399,091)
- ------------------------------------------------------------------------------
Class B (76,626) (846,328)
- ------------------------------------------------------------------------------
Class C (45,484) (506,278)
- ------------------------------------------------------------------------------
Class R(b) (96) (1,100)
- ------------------------------------------------------------------------------
Institutional Class(b) (5,387) (60,462)
==============================================================================
3,402,001 $37,505,239
______________________________________________________________________________
==============================================================================
</Table>
(a) There is one entity that is a record owner of more than 5% of the
outstanding shares of the Fund and owns 24% of the outstanding shares of
the Fund. AIM Distributors has an agreement with this entity to sell
Fund shares. The Fund, AIM and/or AIM affiliates may make payments to
this entity, which is considered to be related to the Fund, for
providing services to the Fund, AIM and/or AIM affiliates including but
not limited to services such as, securities brokerage, distribution,
third party record keeping and account servicing. The Trust has no
knowledge as to whether all or any portion of the shares owned of record
by this shareholder are also owned beneficially.
(b) 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
----------------
NOVEMBER 4, 2003
(DATE OPERATIONS
COMMENCED) TO
OCTOBER 31,
2004
- --------------------------------------------------------------------------------
Net asset value, beginning of period $ 10.00
- --------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.05)(a)
- --------------------------------------------------------------------------------
Net gains on securities (both realized and unrealized) 1.58
================================================================================
Total from investment operations 1.53
================================================================================
Net asset value, end of period $ 11.53
________________________________________________________________________________
================================================================================
Total return(b) 15.30%
________________________________________________________________________________
================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $24,996
________________________________________________________________________________
================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 2.00%(c)
- --------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 3.02%(c)
================================================================================
Ratio of net investment income (loss) to average net assets (0.49)%
________________________________________________________________________________
================================================================================
Portfolio turnover rate(d) 35%
________________________________________________________________________________
================================================================================
</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
$8,194,237.
(d) Not annualized for periods less than one year.
F-11
NOTE 11--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS B
----------------
NOVEMBER 4, 2003
(DATE OPERATIONS
COMMENCED) TO
OCTOBER 31,
2004
- --------------------------------------------------------------------------------
Net asset value, beginning of period $10.00
- --------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.13)(a)
- --------------------------------------------------------------------------------
Net gains on securities (both realized and unrealized) 1.60
================================================================================
Total from investment operations 1.47
================================================================================
Net asset value, end of period $11.47
________________________________________________________________________________
================================================================================
Total return(b) 14.70%
________________________________________________________________________________
================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $6,403
________________________________________________________________________________
================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 2.65%(c)
- --------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 3.67%(c)
================================================================================
Ratio of net investment income (loss) to average net assets (1.14)%(c)
________________________________________________________________________________
================================================================================
Portfolio turnover rate(d) 35%
________________________________________________________________________________
================================================================================
</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
$2,695,175.
(d) Not annualized for periods less than one year.
<Table>
<Caption>
CLASS C
----------------
NOVEMBER 4, 2003
(DATE OPERATIONS
COMMENCED) TO
OCTOBER 31,
2004
- ------------------------------------------------------------------------------
Net asset value, beginning of period $10.00
- ------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.13)(a)
- ------------------------------------------------------------------------------
Net gains on securities (both realized and unrealized) 1.60
==============================================================================
Total from investment operations 1.47
==============================================================================
Net asset value, end of period $11.47
______________________________________________________________________________
==============================================================================
Total return(b) 14.70%
______________________________________________________________________________
==============================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $5,944
______________________________________________________________________________
==============================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 2.65%(c)
- ------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 3.67%(c)
==============================================================================
Ratio of net investment income (loss) to average net assets (1.14)%(c)
______________________________________________________________________________
==============================================================================
Portfolio turnover rate(d) 35%
______________________________________________________________________________
==============================================================================
</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
$1,946,841.
(d) Not annualized for periods less than one year.
F-12
NOTE 11--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS R
--------------
APRIL 30, 2004
(DATE SALES
COMMENCED) TO
OCTOBER 31,
2004
- ------------------------------------------------------------------------------
Net asset value, beginning of period $10.88
- ------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.04)(a)
- ------------------------------------------------------------------------------
Net gains on securities (both realized and unrealized) 0.67
==============================================================================
Total from investment operations 0.63
==============================================================================
Net asset value, end of period $11.51
______________________________________________________________________________
==============================================================================
Total return(b) 5.79%
______________________________________________________________________________
==============================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 34
______________________________________________________________________________
==============================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 2.15%(c)
- ------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 3.17%(c)
==============================================================================
Ratio of net investment income (loss) to average net assets (0.64)%(c)
______________________________________________________________________________
==============================================================================
Portfolio turnover rate(d) 35%
______________________________________________________________________________
==============================================================================
</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 $14,900.
(d) Not annualized for periods less than one year.
<Table>
<Caption>
INSTITUTIONAL CLASS
-------------------
APRIL 30, 2004
(DATE SALES
COMMENCED) TO
OCTOBER 31, 2004
- -----------------------------------------------------------------------------------
Net asset value, beginning of period $10.88
- -----------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.01)(a)
- -----------------------------------------------------------------------------------
Net gains on securities (both realized and unrealized) 0.68
===================================================================================
Total from investment operations 0.67
===================================================================================
Net asset value, end of period $11.55
___________________________________________________________________________________
===================================================================================
Total return(b) 6.16%
___________________________________________________________________________________
===================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $1,779
___________________________________________________________________________________
===================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.62%(c)
- -----------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 2.64%(c)
===================================================================================
Ratio of net investment income (loss) to average net assets (0.11)%(c)
___________________________________________________________________________________
===================================================================================
Portfolio turnover rate(d) 35%
___________________________________________________________________________________
===================================================================================
</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 $752,987.
(d) Not annualized for periods less than one year.
F-13
NOTE 12--LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
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, contractual plans, issues
related to Section 529 college savings plans and procedures for locating lost
securityholders.
As described more fully below, INVESCO Funds Group, Inc. ("IFG"), the former
investment advisor to certain AIM Funds, A I M Advisors, Inc. ("AIM"), the
Fund's investment advisor, and A I M Distributors, Inc. ("ADI"), the distributor
of the retail AIM Funds and a wholly owned subsidiary of AIM, reached final
settlements with the Securities and Exchange Commission ("SEC"), the New York
Attorney General ("NYAG"), the Colorado Attorney General ("COAG"), the Colorado
Division of Securities ("CODS") and the Secretary of State of the State of
Georgia to resolve civil enforcement actions and investigations related to
market timing activity and related issues in the AIM Funds, including those
formerly advised by IFG.
In addition, as described more fully below, IFG and AIM are the subject of a
number of ongoing regulatory inquiries and civil lawsuits related to one or more
of the issues currently being scrutinized by various Federal and state
regulators, including but not limited to those issues described above.
Additional regulatory actions and/or civil lawsuits related to the above or
other issues may be filed against the AIM Funds, 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 the AIM Funds, IFG, AIM
and/or related entities and individuals in the future.
As a result of the matters discussed below, investors in the AIM 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.
Settled Enforcement Actions and Investigations Related to Market Timing
On October 8, 2004, AMVESCAP PLC ("AMVESCAP"), the parent company of IFG and
AIM, announced that final settlements had been reached with the SEC, the NYAG,
the COAG and the Secretary of State of Georgia to resolve civil enforcement
actions and investigations related to market timing activity and related issues
in the AIM Funds, including those formerly advised by IFG. A final settlement
also has been reached with the Colorado Division of Securities ("CODS") with
respect to this matter. In their enforcement actions and investigations, these
regulators alleged, in substance, that IFG and AIM failed to disclose in the
prospectuses for the AIM Funds that they advised and to the independent
directors/trustees of such Funds that IFG and AIM had entered into certain
arrangements permitting market timing of such Funds, thereby breaching their
fiduciary duties to such Funds. As a result of the foregoing, the regulators
alleged that IFG, AIM and ADI breached various Federal and state securities,
business and consumer protection laws. Under the terms of the settlements, IFG,
AIM and ADI consent to the entry of settlement orders or assurances of
discontinuance, as applicable, by the regulators containing certain terms, some
of which are described below, without admitting or denying any wrongdoing.
Under the terms of the settlements, IFG agreed to pay a total of $325 million,
of which $110 million is civil penalties. Of the $325 million total payment,
half will be paid on or before December 31, 2004 and the remaining half will be
paid on or before December 31, 2005. AIM and ADI agreed to pay a total of $50
million, of which $30 million is civil penalties. The entire $50 million payment
by AIM and ADI has been paid.
The entire $325 million IFG settlement payment will be available for
distribution to the shareholders of those AIM Funds that IFG formerly advised
that were harmed by market timing activity, and the entire $50 million
settlement payment by AIM and ADI will be available for distribution to the
shareholders of those AIM Funds advised by AIM that were harmed by market timing
activity, all as to be determined by an independent distribution consultant to
be appointed under the settlements. The settlement payments will be distributed
in accordance with a methodology to be determined by the independent
distribution consultant, in consultation with AIM and the independent trustees
of the AIM Funds and acceptable to the staff of the SEC.
Under the settlements with the NYAG and COAG, AIM has agreed to reduce
management fees on the AIM Funds by $15 million per year for the next five
years, based upon effective fee rates and assets under management as of July 1,
2004, and not to increase certain management fees. IFG will also pay $1.5
million to the COAG to be used for investor education purposes and to reimburse
the COAG for actual costs. Finally, IFG and AIM will pay $175,000 to the
Secretary of State of Georgia to be used for investor education purposes and to
reimburse the Secretary of State for actual costs.
None of the costs of the settlements will be borne by the AIM Funds or by Fund
shareholders.
Under the terms of the settlements, AIM will make certain governance reforms,
including maintaining an internal controls committee and retaining an
independent compliance consultant, a corporate ombudsman and, as stated above,
an independent distribution consultant. Also, commencing in 2007 and at least
once every other year thereafter, AIM will undergo a compliance review by an
independent third party.
In addition, under the terms of the settlements, AIM has undertaken to cause
the AIM Funds to operate in accordance with certain governance policies and
practices, including retaining a full-time independent senior officer whose
duties will include monitoring compliance and managing the process by which
proposed management fees to be charged the AIM Funds are negotiated. Also,
commencing in 2008 and not less than every fifth calendar year thereafter, the
AIM Funds will hold shareholder meetings at which their Boards of Trustees will
be elected.
On October 8, 2004, the SEC announced that it had settled a market timing
enforcement action against Raymond R. Cunningham, the former president and chief
executive officer of IFG and a former member of the board of directors of the
AIM Funds formerly advised by IFG. As part of the settlement, the SEC ordered
Mr. Cunningham to pay $1 in restitution and civil penalties in the amount of
$500,000. In addition, the SEC prohibited Mr. Cunningham from associating with
an investment advisor, broker, dealer or investment company for a period of two
years and further prohibited him from serving as an officer or director of an
investment advisor, broker, dealer or investment company for a period of five
years.
On August 31, 2004, the SEC announced that it had settled market timing
enforcement actions against Timothy J. Miller, the former chief investment
officer and a former portfolio manager for IFG, Thomas A. Kolbe, the former
national sales manager of IFG, and Michael D. Legoski, a former assistant
F-14
NOTE 12--LEGAL PROCEEDINGS (CONTINUED)
vice president in IFG's sales department. As part of the settlements, the SEC
ordered Messrs. Miller, Kolbe and Legoski to pay $1 in restitution each and
civil penalties in the amounts of $150,000, $150,000 and $40,000, respectively.
In addition, the SEC prohibited each of them from associating with an investment
advisor or investment company for a period of one year, prohibited Messrs.
Miller and Kolbe from serving as an officer or director of an investment advisor
or investment company for three years and two years, respectively, and
prohibited Mr. Legoski from associating with a broker or dealer for a period of
one year.
As referenced by the SEC in the SEC's settlement order, one former officer of
ADI and one current officer of AIM (who has taken a voluntary leave of absence)
have received regulatory inquiries in the form of subpoenas or other oral or
written requests for information and/or documents related to market timing
activity in the AIM Funds.
At the request of the trustees of the AIM Funds, AMVESCAP has agreed to pay
all of the expenses incurred by such Funds related to the market timing
investigations, including expenses incurred in connection with the regulatory
complaints against IFG alleging market timing and the market timing
investigations with respect to IFG and AIM.
The payments made in connection with the above-referenced settlements by IFG,
AIM and ADI will total approximately $375 million (not including AIM's agreement
to reduce management fees on the AIM Funds by $15 million per year for the next
five years, based upon effective fee rates and assets under management as of
July 1, 2004). The manner in which the settlement payments will be distributed
is unknown at the present time and will be determined by an independent
distribution consultant to be appointed under the settlement agreements.
Therefore, management of AIM and the Fund are unable at the present time to
estimate the impact, if any, that the distribution of the settlement amounts may
have on the Fund or whether such distribution will have an impact on the Fund's
financial statements in the future.
At the present time, management of AIM and the Fund are unable to estimate the
impact, if any, that the outcome of the ongoing matters described below may have
on AIM, ADI or the Fund.
Ongoing Regulatory Inquiries Concerning IFG and AIM
IFG, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds formerly advised by IFG 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 such 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 SEC, the NASD,
Inc. ("NASD"), the Florida Department of Financial Services, 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. 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 of the AIM
Funds formerly advised by IFG. IFG is providing full cooperation with respect to
these inquiries.
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, contractual
plans, issues related to Section 529 college savings plans and procedures for
locating lost securityholders. These regulators include the SEC, the NASD, the
Department of Banking for the State of Connecticut, 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 SEC, the NASD, the DOL, the
Internal Revenue Service, the New York Stock Exchange, 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 AIM Funds, IFG, AIM, A I M Management Group Inc. ("AIM
Management"), AMVESCAP, certain related entities, certain of their current and
former officers and/or certain unrelated third parties) making allegations that
are similar in many respects to those in the settled regulatory actions brought
by the SEC, the NYAG and the COAG concerning market timing activity in the AIM
Funds. 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 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; injunctive relief; disgorgement of management fees; imposition of a
constructive trust; removal of certain directors and/or employees; various
corrective measures under ERISA; rescission of certain Funds' advisory
agreements; interest; and attorneys' and experts' fees.
All lawsuits based on allegations of market timing, late trading, and related
issues have been transferred to the United States District Court for the
District of Maryland (the "MDL Court") for consolidated or coordinated pre-trial
proceedings. Pursuant to an Order of the MDL Court, plaintiffs consolidated
their claims for pre-trial purposes into three amended complaints against
various AIM- and IFG-related parties: (i) a Consolidated Amended Class Action
Complaint purportedly brought on behalf of shareholders of the AIM Funds; (ii) a
Consolidated Amended Fund Derivative Complaint purportedly brought on behalf of
the AIM Funds and fund registrants; and (iii) an Amended Class Action Complaint
for Violations of the Employee
F-15
NOTE 12--LEGAL PROCEEDINGS (CONTINUED)
Retirement Income Securities Act purportedly brought on behalf of participants
in AMVESCAP's 401(k) plan. Plaintiffs in one of the underlying lawsuits
transferred to the MDL Court continue to seek remand of their action 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 AIM Funds, IFG and/or AIM)
alleging that certain AIM 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/or 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, INVESCO Institutional (N.A.), Inc., ADI and/or INVESCO
Distributors, Inc.) alleging that the defendants charged excessive advisory
and/or 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 Federal
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 Charging of Distribution Fees on Closed
Funds or Share Classes
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, IFG, AIM, ADI and/or certain of the trustees of the AIM 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 Federal 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. and/or
certain of the trustees of the AIM Funds) alleging that the defendants
improperly used the assets of the AIM Funds to pay brokers to aggressively
promote the sale of the AIM 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.
F-16
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees and Shareholders of
AIM Trimark Endeavor Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the AIM Trimark Endeavor Fund (the
"Fund") at October 31, 2004, the results of its operations, the changes in its
net assets and the financial highlights for the period November 4, 2003 (date
operations commenced) through October 31, 2004, in conformity with accounting
principles generally accepted in the United States of America. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Fund's management; our responsibility
is to express an opinion on these financial statements based on our audit. We
conducted our audit of these financial statements in accordance with the
standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit, which included confirmation of securities at October 31, 2004 by
correspondence with the custodian and brokers, provides a reasonable basis for
our opinion.
/s/ PRICEWATERHOUSECOOPERS LLP
December 20, 2004
Houston, Texas
F-17
OTHER INFORMATION
TRUSTEES AND OFFICERS
As of October 31, 2004
The address of each trustee and officer of AIM Investment Funds (the "Trust"),
is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee oversees 114
portfolios in the AIM Funds complex. The trustees serve for the life of the
Trust, subject to their earlier death, incapacitation, resignation, retirement
or removal as more specifically provided in the Trust's organizational
documents. Column two below includes length of time served with predecessor
entities, if any.
<Table>
<Caption>
NAME, YEAR OF BIRTH AND TRUSTEE AND/
POSITION(S) HELD WITH THE OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- -------------------------------------------------------------------------------------------------------------------------------
INTERESTED PERSONS
- -------------------------------------------------------------------------------------------------------------------------------
Robert H. Graham(1) -- 1946 1998 Director and Chairman, A I M Management Group Inc. None
Trustee and President (financial services holding company); Director and
Vice Chairman, AMVESCAP PLC and Chairman, AMVESCAP
PLC -- AIM Division (parent of AIM and a global
investment management firm)
Formerly: President and Chief Executive Officer,
A I M Management Group Inc.; Director, Chairman
and President, A I M Advisors, Inc. (registered
investment advisor); Director and Chairman, A I M
Capital Management, Inc. (registered investment
advisor), A I M Distributors, Inc. (registered
broker dealer), AIM Investment Services, Inc.,
(registered transfer agent), and Fund Management
Company (registered broker dealer); and Chief
Executive Officer, AMVESCAP PLC -- Managed
Products
- -------------------------------------------------------------------------------------------------------------------------------
Mark H. Williamson(2) -- 1951 2003 Director, President and Chief Executive Officer, None
Trustee and Executive Vice A I M Management Group Inc. (financial services
President holding company); Director, Chairman and
President, A I M Advisors, Inc. (registered
investment advisor); Director, A I M Capital
Management, Inc. (registered investment advisor)
and A I M Distributors, Inc. (registered broker
dealer); Director and Chairman, AIM Investment
Services, Inc. (registered transfer agent), Fund
Management Company (registered broker dealer) and
INVESCO Distributors, Inc. (registered broker
dealer); and Chief Executive Officer, AMVESCAP
PLC -- AIM Division (parent of AIM and a global
investment management firm)
Formerly: Director, Chairman, President and Chief
Executive Officer, INVESCO Funds Group, Inc.;
President and Chief Executive Officer, INVESCO
Distributors, Inc.; Chief Executive Officer,
AMVESCAP PLC -- Managed Products; Chairman and
Chief Executive Officer of NationsBanc Advisors,
Inc.; and Chairman of NationsBanc Investments,
Inc.
- -------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- -------------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett(3) -- 1944 2001 Chairman, Crockett Technology Associates ACE Limited (insurance
Trustee and Chair (technology consulting company) company); and
Captaris, Inc.
(unified messaging
provider)
- -------------------------------------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 2003 Retired None
Trustee
Formerly: President and Chief Executive Officer,
AMC Cancer Research Center; and Chairman and Chief
Executive Officer, First Columbia Financial
Corporation
- -------------------------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 1987 Retired Badgley Funds, Inc.
Trustee (registered investment
Formerly: Partner, law firm of Baker & McKenzie company)
- -------------------------------------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 2003 Co-President and Founder, Green, Manning & Bunch None
Trustee Ltd., (investment banking firm); and Director,
Policy Studies, Inc. and Van Gilder Insurance
Corporation
- -------------------------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2001 Director of a number of public and private Cortland Trust, Inc.
Trustee business corporations, including the Boss Group (Chairman) (registered
Ltd. (private investment and management) and investment company);
Magellan Insurance Company Annuity and Life Re
(Holdings), Ltd.
Formerly: Director, President and Chief Executive (insurance company)
Officer, Volvo Group North America, Inc.; Senior
Vice President, AB Volvo; and director of various
affiliated Volvo companies
- -------------------------------------------------------------------------------------------------------------------------------
Edward K. Dunn, Jr. -- 1935 2001 Retired None
Trustee
Formerly: Chairman, Mercantile Mortgage Corp.;
President and Chief Operating Officer,
Mercantile-Safe Deposit & Trust Co.; and
President, Mercantile Bankshares Corp.
- -------------------------------------------------------------------------------------------------------------------------------
Jack M. Fields -- 1952 2001 Chief Executive Officer, Twenty First Century Administaff, and
Trustee Group, Inc. (government affairs company) and Discovery Global
Texana Timber LP (sustainable forestry company) Education Fund (non-
profit)
- -------------------------------------------------------------------------------------------------------------------------------
</Table>
(1) Mr. Graham is considered an interested person of the Trust because he is a
director of AMVESCAP PLC, parent of the advisor to the Trust. Prior to
October 4, 2004, Mr. Graham served as Chairman of the Board of Trustees of
the Trust.
(2) Mr. Williamson is considered an interested person of the Trust because he is
an officer and a director of the advisor to, and a director of the principal
underwriter of, the Trust.
(3) Mr. Crockett was elected Chair of the Board of Trustees of the Trust
effective October 4, 2004.
Trustees and Officers (continued)
As of October 31, 2004
The address of each trustee and officer of AIM Investment Funds (the "Trust"),
is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee oversees 114
portfolios in the AIM Funds complex. The trustees serve for the life of the
Trust, subject to their earlier death, incapacitation, resignation, retirement
or removal as more specifically provided in the Trust's organizational
documents. Column two below includes length of time served with predecessor
entities, if any.
<Table>
<Caption>
NAME, YEAR OF BIRTH AND TRUSTEE AND/ PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST OR OFFICER SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- ---------------------------------------------------------------------------------------------------------------------------------
Carl Frischling -- 1937 2001 Partner, law firm of Kramer Levin Naftalis and Cortland Trust, Inc.
Trustee Frankel LLP (registered investment
company)
- ---------------------------------------------------------------------------------------------------------------------------------
Gerald J. Lewis -- 1933 2003 Chairman, Lawsuit Resolution Services (California) General Chemical
Trustee Group, Inc.
Formerly: Associate Justice of the California
Court of Appeals
- ---------------------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 2001 Formerly: Chief Executive Officer, YWCA of the USA None
Trustee
- ---------------------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 2001 Partner, law firm of Pennock & Cooper None
Trustee
- ---------------------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 1987 Retired None
Trustee
- ---------------------------------------------------------------------------------------------------------------------------------
Louis S. Sklar -- 1939 2001 Executive Vice President, Development and None
Trustee Operations, Hines Interests Limited Partnership
(real estate development company)
- ---------------------------------------------------------------------------------------------------------------------------------
Larry Soll -- 1942 2003 Retired None
Trustee
- ---------------------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- ---------------------------------------------------------------------------------------------------------------------------------
Lisa O. Brinkley(4) -- 1959 2004 Senior Vice President, A I M Management Group Inc. N/A
Senior Vice President and (financial services holding company); Senior Vice
Chief Compliance Officer President and Chief Compliance Officer, A I M
Advisors, Inc.; Vice President and Chief
Compliance Officer, A I M Capital Management, Inc.
and A I M Distributors, Inc.; and Vice President,
AIM Investment Services, Inc. and Fund Management
Company
Formerly: Senior Vice President and Compliance
Director, Delaware Investments Family of Funds
- ---------------------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 2003 Director, Senior Vice President, Secretary and N/A
Senior Vice President, General Counsel, A I M Management Group Inc.
Secretary and Chief Legal (financial services holding company) and A I M
Officer Advisors, Inc.; Director and Vice President,
INVESCO Distributors, Inc.; Vice President, A I M
Capital Management, Inc., and AIM Investment
Services, Inc.; Director, Vice President and
General Counsel, Fund Management Company and
Senior Vice President, A I M Distributions, Inc.
Formerly: Senior Vice President and General
Counsel, Liberty Financial Companies, Inc.; Senior
Vice President and General Counsel, Liberty Funds
Group, LLC and Vice President, A I M Distributors,
Inc.
- ---------------------------------------------------------------------------------------------------------------------------------
Stuart W. Coco -- 1955 2002 Managing Director and Director of Money Market N/A
Vice President Research and Special Projects, A I M Capital
Management, Inc.; and Vice President, A I M
Advisors, Inc.
- ---------------------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, A I M Advisors, N/A
Vice President and Treasurer Inc.
Formerly: Senior Vice President, AIM Investment
Services, Inc.; and Vice President, A I M
Distributors, Inc.
- ---------------------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 2004 Director of Cash Management, Managing Director and N/A
Vice President Chief Cash Management Officer, A I M Capital
Management, Inc; Director and President, Fund
Management Company; and Vice President, A I M
Advisors, Inc.
- ---------------------------------------------------------------------------------------------------------------------------------
Edgar M. Larsen -- 1940 2002 Executive Vice President, A I M Management Group, N/A
Vice President Inc.; Senior Vice President, A I M Advisors, Inc.,
and President, Director of Investments, Chief
Executive Officer and Chief Investment Officer,
A I M Capital Management, Inc.
Formerly: Director of A I M Advisors, Inc. and
A I M Management Group Inc., A I M Advisors, Inc.;
and Director and Chairman, A I M Capital
Management, Inc.
- ---------------------------------------------------------------------------------------------------------------------------------
</Table>
(4) Ms. Brinkley was elected Senior Vice President and Chief Compliance Officer
of the Trust effective September 20, 2004.
The Statement of Additional Information of the Trust includes additional
information about the Fund's Trustees and is available upon request, without
charge, by calling 1.800.959.4246.
<Table>
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS SUB-ADVISOR
11 Greenway Plaza A I M Advisors, Inc. A I M Distributors, PricewaterhouseCoopers AIM Funds
Suite 100 11 Greenway Plaza Inc. LLP Management, Inc.
Houston, TX 77046-1173 Suite 100 11 Greenway Plaza 1201 Louisiana 5140 Yonge Street
Houston, TX 77046-1173 Suite 100 Street Suite 900
Houston, TX Suite 2900 Toronto, Ontario M2N
77046-1173 Houston, Texas 6X7
77002-5678
COUNSEL TO THE FUND COUNSEL TO THE TRUSTEES TRANSFER AGENT CUSTODIAN
Ballard Spahr Kramer, Levin, Naftalis AIM Investment State Street Bank
Andrews & Ingersoll, & Frankel LLP Services, Inc. and Trust Company
LLP 919 Third Avenue P.O. Box 4739 225 Franklin Street
1735 Market Street New York, NY 10022-3852 Houston, TX Boston, MA
Philadelphia, PA 19103-7599 77210-4739 02110-2801
</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(5) AIM High Yield Fund
AIM Blue Chip Fund AIM Global Aggressive Growth Fund AIM Income Fund
AIM Capital Development Fund AIM Global Equity Fund(6) 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 Core Stock Fund(1) AIM International Core Equity Fund(1) AIM Short Term Bond Fund
AIM Dent Demographic Trends Fund AIM International Emerging Growth Fund(7) AIM Total Return Bond Fund
AIM Diversified Dividend Fund AIM International Growth Fund Premier U.S. Government Money Portfolio(1)
AIM Dynamics Fund(1) AIM Trimark Fund
AIM Emerging Growth Fund TAX-FREE
AIM Large Cap Basic Value Fund SECTOR EQUITY
AIM Large Cap Growth Fund AIM High Income Municipal Fund
AIM Libra Fund AIM Advantage Health Sciences Fund(1) AIM Municipal Bond Fund
AIM Mid Cap Basic Value Fund AIM Energy Fund(1) AIM Tax-Exempt Cash Fund
AIM Mid Cap Core Equity Fund(2) AIM Financial Services Fund(1) AIM Tax-Free Intermediate Fund
AIM Mid Cap Growth Fund AIM Global Health Care Fund
AIM Mid Cap Stock Fund(1) AIM Gold & Precious Metals Fund(1) AIM ALLOCATION SOLUTIONS
AIM Opportunities I Fund AIM Health Sciences Fund(1)
AIM Opportunities II Fund AIM Leisure Fund(1) AIM Aggressive Allocation Fund
AIM Opportunities III Fund AIM Multi-Sector Fund(1) AIM Conservative Allocation Fund
AIM Premier Equity Fund AIM Real Estate Fund AIM Moderate Allocation Fund
AIM S&P 500 Index Fund(1) AIM Technology Fund(1)
AIM Select Equity Fund AIM Utilities Fund(1)
AIM Small Cap Equity Fund(3)
AIM Small Cap Growth Fund(4) ======================================================================================
AIM Small Company Growth Fund(1) CONSIDER THE INVESTMENT OBJECTIVES, RISKS, AND CHARGES AND EXPENSES CAREFULLY. FOR
AIM Total Return Fund*(1) THIS AND OTHER INFORMATION ABOUT AIM FUNDS, OBTAIN A PROSPECTUS FROM YOUR FINANCIAL
AIM Trimark Endeavor Fund ADVISOR AND READ IT THOROUGHLY BEFORE INVESTING.
AIM Trimark Small Companies Fund ======================================================================================
AIM Weingarten Fund
</Table>
* Domestic equity and income fund
(1) The following name changes became effective October 15, 2004: INVESCO
Advantage Health Sciences Fund to AIM Advantage Health Sciences Fund, INVESCO
Core Equity Fund to AIM Core Stock Fund, INVESCO Dynamics Fund to AIM Dynamics
Fund, INVESCO Energy Fund to AIM Energy Fund, INVESCO Financial Services Fund to
AIM Financial Services Fund, INVESCO Gold & Precious Metals Fund to AIM Gold &
Precious Metals Fund, INVESCO Health Sciences Fund to AIM Health Sciences Fund,
INVESCO International Core Equity Fund to AIM International Core Equity Fund,
INVESCO Leisure Fund to AIM Leisure Fund, INVESCO Mid-Cap Growth Fund to AIM Mid
Cap Stock Fund, INVESCO Multi-Sector Fund to AIM Multi-Sector Fund, INVESCO S&P
500 Index Fund to AIM S&P 500 Index Fund, INVESCO Small Company Growth Fund to
AIM Small Company Growth Fund, INVESCO Technology Fund to AIM Technology Fund,
INVESCO Total Return Fund to AIM Total Return Fund, INVESCO U.S. Government
Money Fund to Premier U.S. Government Money Portfolio, INVESCO Utilities Fund to
AIM Utilities Fund. (2) As of the close of business on February 27, 2004, AIM
Mid Cap Core Equity Fund is available to new investors on a limited basis. For
information on who may continue to invest in AIM Mid Cap Core Equity Fund,
please contact your financial advisor. (3) Effective December 13, 2004, AIM
Small Cap Equity Fund is open to all investors. (4) AIM Small Cap Growth Fund
was closed to most investors on March 18, 2002. For information on who may
continue to invest in AIM Small Cap Growth Fund, please contact your financial
advisor. (5) AIM European Small Company Fund will close to new investors when
net assets reach $500 million. (6) Effective March 31, 2004, AIM Global Trends
Fund was renamed AIM Global Equity Fund. (7) AIM International Emerging Growth
Fund will close to new investors when net assets reach $500 million.
If used after January 20, 2005, 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 $132 billion in assets. AIM is a subsidiary of
AMVESCAP PLC, one of the world's largest independent financial services
companies with $363 billion in assets under management. Data as of September 30,
2004.
AIMinvestments.com T-END-AR-1 AIM 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 TRIMARK FUND
Annual Report to Shareholders o October 31, 2004
[COVER IMAGE]
[YOUR GOALS. OUR SOLUTIONS.] [AIM INVESTMENTS LOGO APPEARS HERE]
--Registered Trademark-- --Registered Trademark--
<Table>
===================================================================================================================================
AIM TRIMARK FUND SEEKS TO PROVIDE LONG-TERM GROWTH OF CAPITAL.
o Unless otherwise stated, information presented in this report is as of 10/31/04 and is based on total net assets.
===================================================================================================================================
ABOUT SHARE CLASSES o The unmanaged Standard & Poor's The fund files its complete schedule of
Composite Index of 500 Stocks (the S&P portfolio holdings with the Securities
o Class B shares are not available as an 500--Registered Trademark-- Index) is an and Exchange Commission ("SEC") for the
investment for retirement plans index of common stocks frequently used 1st and 3rd quarters of each fiscal year
maintained pursuant to Section 401 of as a general measure of U.S. stock on Form N-Q. The fund's Form N-Q filings
the Internal Revenue Code, including market performance. are available on the SEC's Web site at
401(k) plans, money purchase pension http://www.sec.gov. Copies of the fund's
plans and profit sharing plans. Plans o The fund is not managed to track the Forms N-Q may be reviewed and copied at
that have existing accounts invested in performance of any particular index, the SEC's Public Reference Room at 450
Class B shares will continue to be including the indexes defined here, and Fifth Street, N.W., Washington, D.C.
allowed to make additional purchases. consequently, the performance of the 20549-0102. You can obtain information
fund may deviate significantly from the on the operation of the Public Reference
o Class R shares are available only to performance of the indexes. Room, including information about
certain retirement plans. Please see the duplicating fee charges, by calling
prospectus for more information. o A direct investment cannot be made in 1-202-942-8090 or by electronic request
an index. Unless otherwise indicated, at the following e-mail address:
PRINCIPAL RISKS OF INVESTING IN THE FUND index results include reinvested publicinfo@sec.gov. The SEC file numbers
dividends, and they do not reflect sales for the fund are 811-05426 and 33-19338.
o International investing presents charges. Performance of an index of The fund's most recent portfolio
certain risks not associated with funds reflects fund expenses. holdings, as filed on Form N-Q, are also
investing solely in the United States. Performance of a market index does not. available at AIMinvestments.com.
These include risks relating to
fluctuations in the value of the U.S. OTHER INFORMATION A description of the policies and
dollar relative to the values of other procedures that the Fund uses to
currencies, the custody arrangements o The returns shown in the Management's determine how to vote proxies relating
made for the fund's foreign holdings, Discussion of Fund Performance are based to portfolio securities is available
differences in accounting, political on net asset values calculated for without charge, upon request, by calling
risks and the lesser degree of public shareholder transactions. Generally 800-959-4246, or on the AIM Web site,
information required to be provided by accepted accounting principles require AIMinvestments.com. Scroll down on the
non-U.S. companies. adjustments to be made to the net assets home page and click on AIM Funds or
of the fund at period end for financial INVESCO Funds Proxy Voting Policies.
o By concentrating on a small number of reporting purposes, and as such, the net
holdings, the fund carries greater risk asset values for shareholder Information regarding how the fund voted
because each investment has a greater transactions and the returns based on proxies related to its portfolio
effect on the fund's overall those net asset values may differ from securities during the 12 months ended
performance. the net asset values and returns 6/30/04 is available at our Web site. Go
reported in the Financial Highlights. to AIMinvestments.com, click on About
ABOUT INDEXES USED IN THIS REPORT Us, then on Required Notices and then
o Industry classifications used in this select your fund from the drop-down
o The unmanaged MSCI World Index is a report are generally according to the menu.
group of global securities tracked by Global Industry Classification Standard,
Morgan Stanley Capital International. which was developed by and is the
exclusive property and a service mark of
o The unmanaged Lipper Global Fund Index Morgan Stanley Capital International
represents an average of the performance Inc. and Standard & Poor's.
of global funds tracked by Lipper, Inc.,
an independent mutual fund performance
monitor.
</Table>
=============================================================================
THIS REPORT MUST BE ACCOMPANIED OR PRECEDED BY A CURRENTLY EFFECTIVE FUND
PROSPECTUS, WHICH CONTAINS MORE COMPLETE INFORMATION, INCLUDING SALES CHARGES
AND EXPENSES. INVESTORS SHOULD READ IT CAREFULLY BEFORE INVESTING.
=============================================================================
=====================================================
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
=====================================================
AIMinvestments.com
TO OUR SHAREHOLDERS
DEAR FELLOW SHAREHOLDER OF THE AIM FAMILY OF
FUNDS--Registered Trademark--:
NEW BOARD CHAIRMAN
[PHOTO OF It is our pleasure to introduce you to Bruce Crockett, the
ROBERT H. new Chairman of the Board of Trustees of the AIM Funds. Bob
GRAHAM] Graham has served as Chairman of the Board of Trustees of
the AIM Funds ever since Ted Bauer retired from that
position in 2000. However, as you may be aware, the U.S.
Securities and Exchange Commission recently adopted a rule
requiring that an independent fund trustee, meaning a
trustee who is not an officer of the fund's investment
advisor, serve as chairman of the funds' Board. In addition,
a similar provision was included in the terms of AIM
Advisors' recent settlements with certain regulators.
Accordingly, the AIM Funds' Board recently elected Mr.
ROBERT H. GRAHAM Crockett, one of the fourteen independent trustees on the
AIM Funds' Board, as Chairman. His appointment became
effective on October 4, 2004. Mr. Graham will remain on the
funds' Board, as will Mark Williamson, President and Chief
Executive Officer of AIM. Mr. Graham will also remain
Chairman of AIM Investments--Registered Trademark--.
Mr. Crockett has been a member of the AIM Funds' board
since 1992, when AIM acquired certain funds that had been
advised by CIGNA. He had been a member of the board of those
[PHOTO OF funds since 1978. Mr. Crockett has more than 30 years of
MARK H. experience in finance and general management and has been
WILLIAMSON] Chairman of Crockett Technologies Associates since 1996. He
is the first independent chairman of the funds' board in
AIM's history, as he is not affiliated with AIM or AMVESCAP
in any way. He is committed to ensuring that the AIM Funds
adhere to the highest standards of corporate governance for
the benefit of fund shareholders, and we at AIM share that
commitment.
MARK H. MARKET CONDITIONS DURING THE FISCAL YEAR
WILLIAMSON
Virtually every equity index, domestic and foreign, produced
positive returns for the fiscal year ended October 31, 2004.
Domestically, the S&P 500 Index was up 9.41% for the year.
Globally, the MSCI World Index advanced more than 13%.
However, a goodly portion of this positive performance was
achieved during 2003. Year to date as of October 31, the S&P
500 Index was up just over 3%, the MSCI World Index just
about 5%. In the pages that follow, you will find a more
detailed discussion of the market conditions that affected
your fund during the fiscal year.
[PHOTO OF While it is agreeable to report positive market
BRUCE L. performance for the year covered by this report, as ever, we
CROCKETT] encourage our shareholders to look past short-term
performance and focus on their long-term investment goals.
Over the short term, the one sure thing about the investment
markets is their unpredictability. Over the long term,
equities have produced very attractive returns. For the
25-year period ended October 31, 2004, the S&P 500 Index
averaged 13.50% growth per year and the MSCI World Index
averaged 11.16%. While past performance cannot guarantee
future results, we believe staying invested for the long
BRUCE L. CROCKETT term offers the best opportunity for capital growth.
YOUR FUND
The following pages of this report provide an explanation of
how your fund was managed during the fiscal year, how it
performed in comparison to various benchmarks, and a
presentation of its long-term performance. We hope you find
this information helpful. Current information about your
fund and about the markets in general is always available on
our Web site, AIMinvestments.com.
As always, AIM remains committed to building solutions
for your investment goals, and we thank you for your
continued participation in AIM Investments. If you have any
questions, please contact our Client Service representatives
at 800-959-4246.
Sincerely,
/s/ ROBERT H. GRAHAM /s/ MARK H. WILLIAMSON
-------------------------- ----------------------
Robert H. Graham Mark H. Williamson
Chairman, AIM Investments CEO & President,
President & Vice Chairman, AIM Investments
AIM Funds Trustee, AIM Funds
December 16, 2004
AIM Investments is a registered service mark of A I M
Management Group Inc. A I M Advisors, Inc. and A I M Capital
Management, Inc. are the investment advisors, and A I M
Distributors, Inc. is the distributor for the retail funds
represented by AIM Investments.
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
<Table>
FUND UNDERPERFORMED BENCHMARKS AMID Trimark discipline, which avoids timing
RISING OIL PRICES the short-term ups and downs of
commodity cycles and instead remains
AIM Trimark Fund launched on November 4, the effect rising commodity and energy focused on buying businesses with the
2003. For the annual reporting period prices might have on a maturing economic strongest and most sustainable long-term
ended October 31, 2004, Class A shares recovery. In addition, a moderation of outlooks.
of AIM Trimark Fund returned 3.80% at what had been generally strong levels of
net asset value. PERFORMANCE SHOWN AT consumer confidence and manufacturing Our discussion of the fund's lack of
NAV DOES NOT INCLUDE FRONT-END SALES activity served to validate growing energy exposure provides a good context
CHARGES, WHICH WOULD HAVE REDUCED THE investor concerns. for examining other key drivers of fund
PERFORMANCE. Results for other share performance during the period. As you
classes are shown in the table on page With the price of oil rising sharply may have noted, our investment strategy
3. The fund underperformed its during the period, it came as no has resulted in a relatively focused
benchmarks, the MSCI World Index and the surprise that energy was the market's group of business holdings that has
Lipper Global Fund Index, which returned best-performing sector in the MSCI World little in common with the composition of
13.25% and 12.86%, respectively, for the Index for the year. Utilities and the fund's benchmarks and peers. As a
one-year period ended October 31, 2004. telecommunications also had strong result, it may sometimes appear that the
performances during the period. We fund's relative sector weights
The fund's underperformance is linked recognize that the fund's dearth of significantly influenced performance
to its lack of exposure to energy, energy companies may be surprising to during any short-term period, just as
utilities and telecommunication some, given the recent strength in oil energy has in the most recent period.
services, which were the best-performing prices. Therefore we would like to take However, because we focus on businesses
sectors of the MSCI World Index. The the opportunity to relate this key theme rather than sectors, we believe the
fund did not hold energy companies from the reporting period to our fund's long-term performance will
because they do not fit our investment application of the Trimark discipline. instead be dictated by how successful we
discipline. have or have not been in investing in
In our opinion, energy companies individual businesses. If one were to
MARKET CONDITIONS AND CURRENT PERIOD often lack pricing power to deliver broadly categorize the individual
ANALYSIS compelling returns. Energy companies are businesses that contributed most to
subject to strong competition from many performance during the period, many came
The global market environment during the worldwide firms, and a business with from the financials, health care and
period was mixed yet positive overall significant access to capital could consumer staples sectors. Select
for equities. The first half of the establish competing oil production detractors from performance came from
period was characterized by an extension operations. Once these operations were consumer discretionary, as well as in
of the market rally that predominated up and running, the company would have several holdings across disparate
much of 2003 when investors embraced no control over the price, which can industries.
evidence of stronger economic growth. As often times be set by a small group of
the year progressed, this buoyancy gave nations that comprises the Organization Specifically in health care, Amersham
way to some trepidation, as investors of Petroleum Exporting Countries (OPEC). was among the strongest contributors to
began to fret over These characteristics run in direct fund performance. Our investment in this
contrast to the bioscience company is an excellent
example of the Trimark discipline at
work. We initially developed our
proprietary view on Amersham
</Table>
<Table>
===================================================================================================================================
PORTFOLIO COMPOSITION TOP 10 EQUITY HOLDINGS* TOP 10 INDUSTRIES*
By country
[PIE CHART] 1. WPP Group PLC (United Kingdom) 4.5% 1. Publishing 6.0%
United Kingdom 18.2% 2. American Express Co. 4.1 2. Construction Materials 5.7
Mexico 5.9% 3. Reed Elsevier PLC 3. Advertising 4.5
(United Kingdom) 4.0
Japan 4.8% 4. Broadcasting & Cable TV 4.1
4. Cemex SA de C.V.-ADR (Mexico) 3.4
Ireland 4.0% 5. Consumer Finance 4.1
5. Harrah's Entertainment, Inc. 3.3
Italy 2.1% 6. Casinos & Gaming 3.4
6. Canon Inc. (Japan) 3.3
Netherlands 2.0% 7. Office Electronics 3.3
7. Oracle Corp. 3.1
Other Countries 1.3% 8. Specialty Chemicals 3.1
8. Anthem, Inc. 2.9
U.S. Governement Agencies Plus 9. Systems Software 3.1
Other Assets Less Liabilities 6.3% 9. State Street Corp. 2.9
10. Employment Services 3.0
United States 55.4% 10. RadioShack Corp. 2.8
The fund's holdings are subject to change, and there is no
assurance that the fund will continue to hold any particular
security.
*Excluding U.S. Government Agency Securities.
===================================================================================================================================
</Table>
2
<Table>
as many other investors focused on as opposed to a short-term stock trade. there were 41 equity holdings in your
troubles at one of the company's smaller We therefore attempted to ignore much of fund, and each one was purchased in
business units. As the market punished the short-term news that had little accordance to the five core principles
the company's stock price, we solidified impact on an investment's long-term of the Trimark discipline: 1) Know the
our view that Amersham was undervalued return potential. Instead, we focused on business inside and out, 2) Focus on the
relative to its intrinsic value. Unlike conducting our own in-depth, independent business' management, 3) Wait for the
prevailing market sentiment, we believed research to identify high-quality global right price, 4) Form a proprietary view
the market was undervaluing the businesses that have understandable and 5) Maintain patience and long-term
company's largest and most profitable business models, strong management and focus. We appreciate your continued
revenue source, the manufacture and leading industry positions that are very investment in AIM Trimark Fund.
distribution of contrast agents for difficult for competitors to encroach
X-rays. In April 2004, General Electric upon. We then used our research to The views and opinions expressed in
recognized the value we saw in Amersham develop a proprietary view about why we Management's Discussion of Fund
and purchased the company at a believe these businesses will grow their Performance are those of A I M Advisors,
significant premium. Therefore, the fund value over a period of several years. Inc. These views and their opinions are
no longer holds Amersham. subject to change at any time based on
Consistent with our long-term factors such as market and economic
Among the detractors during the period investment horizon, the fund experienced conditions. These views and opinions may
was the world's largest caterer, Compass relatively low turnover during the not be relied upon as investment advice
Group. Although the company's stock period. Five businesses were sold from or recommendations, or as an offer for a
price fell during the period as the fund, many of which when their particular security. The information is
investors reacted to what we believed market price exceeded what we believed not a complete analysis of every aspect
was a short-term decline in profit to be their intrinsic value (the value of any market, country, industry,
margins due to such factors as a of the businesses that is based on security or the fund. Statements of fact
change in suppliers, Compass Group future cash flows, management execution are from sources considered reliable,
embodied the business characteristics and business fundamentals). These but A I M Advisors, Inc. makes no
and long-term growth prospects we look businesses were replaced by 10 new representation or warranty as to their
for. At the close of the period, our investment opportunities that our completeness or accuracy. Although
long-term proprietary view on Compass proprietary views suggest have at least historical performance is no guarantee
saw a company that was uniquely as strong long-term business prospects, of future results, these insights may
positioned to take advantage of its size yet at more attractive market prices. help you understand our investment
as well as strong growth prospects in These new businesses included Tesco, management philosophy.
the catering industry as companies and Sherwin Williams, Costco, Compass, Clear
institutions increasingly continued to Channel Communications, GlaxoSmithKline, See important fund and index
outsource their cafeteria operations. RyanAir, Weight Watchers, Grupo Televisa disclosures inside front cover.
Therefore, we continued to hold Compass and Vedior.
Group at the close of the period. TYE BOUSADA
IN CLOSING Mr. Bousada,
YOUR FUND [BOUSADA Chartered Financial
We remained focused on growing your PHOTO] Analyst, is lead
We describe the Trimark discipline as capital over the long-term by portfolio manager of
"business people buying businesses" and consistently applying our investment AIM Trimark Fund.
view each investment as a long-term discipline regardless of the market Prior to joining AIM Trimark
business investment environment. At the close of the period Investments in 1999, Mr. Bousada worked
as an investment analyst and portfolio
manager. He earned an Honors B.A. in
business administration from The
University of Western Ontario.
DANA LOVE
Mr. Love, Chartered
[LOVE Financial Analyst,
PHOTO] joined AIM Trimark
Investments in 1999.
He began his
investment career in 1993. From 1995 to
1997, Mr. Love advised clients on
strategic investment policy and other
portfolio management issues. He is a
Certified Financial Planner and received
a M.S. in finance from the London
Business School in 1998 and a B.A. in
sociology from the University of
Waterloo in 1992.
====================================================================================
FUND VS. INDEXES TOTAL NET ASSETS $18.2 MILLION
Total returns, 11/4/03-10/31/04,
excluding applicable sales charges.
If sales charges were included, returns
would be lower. TOTAL NUMBER OF HOLDINGS 41
Class A Shares 3.80%
Class B Shares 3.10
Class C Shares 3.10
Class R Shares 3.62**
MSCI World Index
(Broad Market and
Style-specific Index) 13.25***
Lipper Global Fund Index
(Peer Group Index) 12.86***
SOURCE: LIPPER, INC.
**Inception date 4/30/04. Returns prior
to 4/30/04 are hypothetical based on
Class A Shares. See explanation, page 5.
***Index data shows a one-year return as
of 10/31/04.
==================================================================================== [RIGHT ARROW GRAPHIC]
FOR A PRESENTATION OF YOUR FUND'S
PERFORMANCE RECORD, PLEASE TURN TO
PAGE 5.
</Table>
3
INFORMATION ABOUT YOUR FUND'S EXPENSES
<Table>
===================================================================================================================================
CALCULATING YOUR ONGOING FUND EXPENSES
EXAMPLE together with the amount you invested, use this information to compare the
to estimate the expenses that you paid ongoing costs of investing in the fund
As a shareholder of the fund, you incur over the period. Simply divide your and other funds. To do so, compare this
two types of costs: (1) transaction account value by $1,000 (for example, an 5% hypothetical example with the 5%
costs, which may include sales charges $8,600 account value divided by $1,000 = hypothetical examples that appear in the
(loads) on purchase payments; contingent 8.6), then multiply the result by the shareholder reports of the other funds.
deferred sales charges on redemptions; number in the table under the heading
and redemption fees, if any; and (2) entitled "Actual Expenses Paid During Please note that the expenses shown
ongoing costs, including management Period" to estimate the expenses you in the table are meant to highlight your
fees; distribution and/or service fees paid on your account during this period. ongoing costs only and do not reflect
(12b-1); and other fund expenses. This any transactional costs, such as sales
example is intended to help you HYPOTHETICAL EXAMPLE FOR COMPARISON charges (loads) on purchase payments,
understand your ongoing costs (in PURPOSES contingent deferred sales charges on
dollars) of investing in the fund and to redemptions, and redemption fees, if
compare these costs with ongoing costs The table below also provides any. Therefore, the hypothetical
of investing in other mutual funds. The information about hypothetical account information is useful in comparing
example is based on an investment of values and hypothetical expenses based ongoing costs only, and will not help
$1,000 invested at the beginning of the on the fund's actual expense ratio and you determine the relative total costs
period and held for the entire period, an assumed rate of return of 5% per year of owning different funds. In addition,
May 1, 2004 - October 31, 2004. before expenses, which is not the fund's if these transactional costs were
actual return. The hypothetical account included, your costs would have been
ACTUAL EXPENSES values and expenses may not be used to higher.
estimate the actual ending account
The table below provides information balance or expenses you paid for the
about actual account values and actual period. You may
expenses. You may use the information in
this table,
</Table>
<Table>
===================================================================================================================================
ACTUAL HYPOTHETICAL
(5% ANNUAL RETURN BEFORE EXPENSES)
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES ENDING ACCOUNT EXPENSES
VALUE VALUE PAID DURING VALUE PAID DURING
(5/1/04) (10/31/04)(1) PERIOD(2) (10/31/04) PERIOD(2)
Class A $1,000.00 $987.60 $11.24 $1,013.83 $11.39
Class B 1,000.00 983.80 14.46 1,010.56 14.66
Class C 1,000.00 983.80 14.46 1,010.56 14.66
Class R 1,000.00 986.70 11.99 1,013.07 12.14
(1) The actual ending account value is based on the actual total return of the
fund for the period May 1, 2004, to October 31, 2004, after actual expenses and
will differ from the hypothetical ending account value which is based on the
fund's expense ratio and a hypothetical annual return of 5% before expenses. The
actual cumulative return at net asset value for the period May 1, 2004, to
October 31, 2004, was -1.24%, -1.62%, -1.62% and -1.33% for Class A, B, C and R
shares, respectively.
(2) Expenses are equal to the Fund's annualized expense ratio (2.25%, 2.90%, [ARROW
2.90% and 2.40% for Class A, B, C and R shares, respectively) multiplied by the BUTTON For More Information Visit
average account value over the period, multiplied by 184/366 (to reflect the IMAGE] AIMinvestments.com
one-half year period).
===================================================================================================================================
</Table>
4
LONG-TERM PERFORMANCE
YOUR FUND'S PERFORMANCE
<Table>
===================================================================================================================================
Below you will find a presentation of RESULTS OF A $10,000 INVESTMENT
your Past performance cannot guarantee 11/4/03-10/31/04 (Index data from 10/31/03)
comparable future results.
[MOUNTAIN CHART]
Your fund's total return includes
reinvested distributions, applicable AIM TRIMARK AIM TRIMARK AIM TRIMARK
sales charges, fund expenses and FUND FUND FUND LIPPER GLOBAL MSCI WORLD
management fees. Results for Class B DATE CLASS A SHARES CLASS B SHARES CLASS C SHARES FUND INDEX INDEX
shares are calculated as if a
hypothetical shareholder had liquidated 11/4/2003 9450 10000 10000 10000 10000
his entire investment in the fund at the 11/03 9545 10090 10090 10186 10151
close of the reporting period and paid 12/03 9809 10369 10369 10800 10787
the applicable contingent deferred sales 1/04 9950 10509 10509 11027 10960
charges. Index results include 2/04 10054 10620 10620 11262 11144
reinvested dividends, but they do not 3/04 9997 10560 10560 11214 11070
reflect sales charges. Performance of an 4/04 9931 10480 10480 10924 10843
index of funds reflects fund expenses 5/04 9940 10480 10480 10961 10934
and management fees; performance of a 6/04 10158 10710 10710 11146 11167
market index does not. Performance shown 7/04 9629 10140 10140 10729 10802
in the chart does not reflect deduction 8/04 9544 10039 10039 10735 10849
of taxes a shareholder would pay on fund 9/04 9723 10229 10229 11022 11055
distributions or sale of fund shares. 10/04 9811 9810 10210 11286 11325
Performance of the indexes does not
reflect the effects of taxes. Source: Lipper, Inc.
Class R shares' inception date is Class B shares declines from 5%
CUMULATIVE TOTAL RETURNS* 4/30/04. Returns since that date are beginning at the time of purchase to 0%
historical returns. All other returns at the beginning of the seventh year.
As of 10/31/04, including applicable are blended returns of historical Class The CDSC on Class C shares is 1% for the
sales charges R share performance and restated Class A first year after purchase. Class R
share performance (for periods prior to shares do not have a front-end sales
CLASS A SHARES the inception date of Class R shares) at charge; returns shown are at net asset
Inception (11/4/03) -1.89% net asset value, adjusted to reflect the value and do not reflect a 0.75% CDSC
higher Rule 12b-1 fees applicable to that may be imposed on a total
CLASS B SHARES Class R shares. Class A shares' redemption of retirement plan assets
Inception (11/4/03) -1.90% inception date is 11/4/03. within the first year.
CLASS C SHARES The performance data quoted represent The performance of the fund's share
Inception (11/4/03) 2.10% past performance and cannot guarantee classes will differ due to different
comparable future results; current sales charge structures and class
CLASS R SHARES performance may be lower or higher. expenses.
Inception 3.62% Please visit AIMinvestments.com for the
most recent month-end performance. Had the advisor not waived fees
In addition to returns as of the close Performance figures reflect reinvested and/or reimbursed expenses, performance
of the fiscal year, industry regulations distributions, changes in net asset would have been lower.
require us to provide cumulative total value and the effect of the maximum
returns as of 9/30/04, the most recent sales charge unless otherwise stated. A redemption fee of 2% will be
calendar quarter-end. Investment return and principal value imposed on certain redemptions or
will fluctuate so that you may have a exchanges out of the fund within 30 days
CUMULATIVE TOTAL RETURNS* gain or loss when you sell shares. of purchase. Exceptions to the
redemption fee are listed in the fund's
As of 9/30/04, most recent calendar Class A share performance reflects prospectus.
the maximum 5.50% sales charge, and
quarter-end, including applicable Class B and Class C share performance
sales charges reflects the applicable contingent
deferred sales charge (CDSC) for the
CLASS A SHARES period involved. The CDSC on
Inception (11/4/03) -2.74%
CLASS B SHARES
Inception (11/4/03) -2.70%
CLASS C SHARES
Inception (11/4/03) 1.30%
CLASS R SHARES
Inception 2.72%
*Returns have not been annualized.
===================================================================================================================================
</Table>
5
SUPPLEMENT TO ANNUAL REPORT DATED 10/31/04
AIM TRIMARK FUND
<Table>
INSTITUTIONAL CLASS SHARES ========================================= Institutional Class shares have no sales
TOTAL RETURN charge; therefore, performance is at net
The following information has been For periods ended 10/31/04 asset value. Performance of Institutional
prepared to provide Institutional Class Inception 4.00%* Class shares will differ from performance
shareholders with a performance overview * Cumulative total return that has not of other share classes due to differing
specific to their holdings. Institutional been annualized sales charges and class expenses.
Class shares are offered exclusively to
institutional investors, including ========================================= Please note that past performance is
defined contribution plans that meet TOTAL RETURN not indicative of future results. More
certain criteria. For periods ended 9/30/04 recent returns may be more or less than
Inception 3.00%* those shown. All returns assume
* Cumulative total return that has not reinvestment of distributions at net
been annualized asset value. Investment return and
principal value will fluctuate so your
========================================= shares, when redeemed, may be worth more
or less than their original cost. See
Institutional Class shares' inception full report for information on
date is 4/30/04. Returns since that date comparative benchmarks. Please consult
are historical returns. All other returns your fund prospectus for more
are blended returns of historical information. For the most current
Institutional Class share performance and month-end performance, please call
restated Class A share performance (for 800-451-4246 or visit AIMinvestments.com.
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 11/4/03.
Institutional Class shares would have had
different returns due to differences in
the expense structure of the
Institutional Class.
Had the advisor not waived fees and/or
reimbursed expenses, performance would
have been lower.
</Table>
Over for information on your fund's expenses.
FOR INSTITUTIONAL INVESTOR USE ONLY
This material is for institutional investor use only and may not be quoted,
reproduced or shown to the public, nor used in written form as sales literature
for public use.
[YOUR GOALS. OUR SOLUTIONS.] [AIM INVESTMENTS LOGO APPEARS HERE]
--Registered Trademark-- --Registered Trademark--
AIMinvestments.com T-TRI-INS-1 10/04
INFORMATION ABOUT YOUR FUND'S EXPENSES
CALCULATING YOUR ONGOING FUND EXPENSES
<Table>
EXAMPLE period. Simply divide your account value You may use this information to compare
by $1,000 (for example, an $8,600 account the ongoing costs of investing in the
As a shareholder of the fund, you incur value divided by $1,000 = 8.6), then fund and other funds. To do so, compare
ongoing costs, including management fees; multiply the result by the number in the this 5% hypothetical example with the 5%
and other fund expenses. This example is table under the heading entitled "Actual hypothetical examples that appear in the
intended to help you understand your Expenses Paid During Period" to estimate shareholder reports of the other funds.
ongoing costs (in dollars) of investing the expenses you paid on your account
in the fund and to compare these costs during this period. Please note that the expenses shown in
with ongoing costs of investing in other the table are meant to highlight your
mutual funds. The example is based on an HYPOTHETICAL EXAMPLE FOR ongoing costs only. Therefore, the
investment of $1,000 invested at the COMPARISON PURPOSES hypothetical information is useful in
beginning of the period and held for the comparing ongoing costs only, and will
entire period, May 1, 2004, to October The table below also provides information not help you determine the relative total
31, 2004. about hypothetical account values and costs of owning different funds.
hypothetical expenses based on the fund's
ACTUAL EXPENSES actual expense ratio and an assumed rate
of return of 5% per year before expenses,
The table below provides information which is not the fund's actual return.
about actual account values and actual The hypothetical account values and
expenses. You may use the information in expenses may not be used to estimate the
this table, together with the amount you actual ending account balance or expenses
invested, to estimate the expenses that you paid for the period.
you paid over the
</Table>
<Table>
<Caption>
====================================================================================================================================
ACTUAL HYPOTHETICAL
(5% ANNUAL RETURN BEFORE EXPENSES)
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES ENDING ACCOUNT EXPENSES
VALUE VALUE PAID DURING VALUE PAID DURING
(05/01/04) (10/31/04)(1) PERIOD(2) (10/31/04) PERIOD(2)
Institutional Class $1,000.00 $989.50 $9.50 $1,015.58 $9.63
(1) The actual ending account value is based on the actual total return of the fund for the period May 1, 2004, to October 31, 2004,
after actual expenses and will differ from the hypothetical ending account value which is based on the fund's expense ratio and
a hypothetical annual return of 5% before expenses. The actual cumulative return at net asset value for the period May 1, 2004,
to October 31, 2004, was -1.05% for the Institutional Class shares.
(2) Expenses are equal to the fund's annualized expense ratio, 1.90% for the Institutional Class, multiplied by the average account
value over the period, multiplied by 184/366 (to reflect the one-half year period).
====================================================================================================================================
</Table>
AIMinvestments.com T-TRI-INS-1 10/04
FINANCIALS
SCHEDULE OF INVESTMENTS
October 31, 2004
<Table>
<Caption>
MARKET
SHARES VALUE
- -----------------------------------------------------------------------
DOMESTIC COMMON STOCKS & OTHER EQUITY
INTERESTS-55.35%
ASSET MANAGEMENT & CUSTODY BANKS-2.88%
State Street Corp. 11,600 $ 522,580
=======================================================================
BROADCASTING & CABLE TV-2.63%
Clear Channel Communications, Inc. 14,300 477,620
=======================================================================
CASINOS & GAMING-3.35%
Harrah's Entertainment, Inc. 10,400 608,608
=======================================================================
COMPUTER & ELECTRONICS RETAIL-2.82%
RadioShack Corp. 17,100 511,803
=======================================================================
CONSTRUCTION MATERIALS-2.27%
Vulcan Materials Co. 8,300 413,174
=======================================================================
CONSUMER FINANCE-4.09%
American Express Co. 14,000 742,980
=======================================================================
DATA PROCESSING & OUTSOURCED SERVICES-1.29%
Sabre Holdings Corp.-Class A 10,900 234,459
=======================================================================
DIVERSIFIED CHEMICALS-1.96%
Engelhard Corp. 12,600 356,580
=======================================================================
ELECTRONIC MANUFACTURING SERVICES-1.98%
Molex Inc.-Class A 14,000 360,080
=======================================================================
EMPLOYMENT SERVICES-1.00%
Manpower Inc. 4,000 181,000
=======================================================================
HEALTH CARE SERVICES-2.59%
IMS Health Inc. 22,200 470,196
=======================================================================
HOME IMPROVEMENT RETAIL-2.54%
Sherwin-Williams Co. (The) 10,800 461,376
=======================================================================
HYPERMARKETS & SUPER CENTERS-2.03%
Costco Wholesale Corp. 7,700 369,138
=======================================================================
INTERNET RETAIL-2.39%
IAC/InterActiveCorp(a) 20,100 434,562
=======================================================================
MANAGED HEALTH CARE-2.92%
Anthem, Inc.(a) 6,600 530,640
=======================================================================
MOVIES & ENTERTAINMENT-2.08%
Walt Disney Co. (The) 15,000 378,300
=======================================================================
PROPERTY & CASUALTY INSURANCE-2.73%
Progressive Corp. (The) 5,300 495,815
=======================================================================
</Table>
<Table>
MARKET
SHARES VALUE
- -----------------------------------------------------------------------
<Caption>
PUBLISHING-1.99%
Meredith Corp. 7,400 $ 362,600
=======================================================================
REAL ESTATE-2.31%
Equity Residential 12,600 420,210
=======================================================================
SPECIALIZED FINANCE-1.75%
Moody's Corp. 4,100 319,021
=======================================================================
SPECIALTY CHEMICALS-2.39%
Sigma-Aldrich Corp. 7,800 433,992
=======================================================================
SPECIALTY STORES-1.07%
Weight Watchers International, Inc.(a) 5,400 193,968
=======================================================================
SYSTEMS SOFTWARE-3.10%
Oracle Corp.(a) 44,500 563,370
=======================================================================
TRADING COMPANIES & DISTRIBUTORS-1.19%
W.W. Grainger, Inc. 3,700 216,783
=======================================================================
Total Domestic Common Stocks & Other
Equity Interests (Cost $9,916,860) 10,058,855
=======================================================================
FOREIGN STOCKS & OTHER EQUITY
INTERESTS-38.31%
DENMARK-0.71%
Novozymes A.S.-Class B (Specialty
Chemicals)(b) 2,900 129,547
=======================================================================
FRANCE-0.62%
Societe BIC S.A. (Office Services &
Supplies)(b) 2,400 112,086
=======================================================================
IRELAND-3.95%
Kerry Group PLC-Class A (Packaged Foods &
Meats)(b) 20,900 470,607
- -----------------------------------------------------------------------
Ryanair Holdings PLC-ADR (Airlines)(a) 8,600 247,508
=======================================================================
718,115
=======================================================================
ITALY-2.12%
Luxottica Group S.p.A.-ADR (Apparel,
Accessories & Luxury Goods) 20,700 385,848
=======================================================================
JAPAN-4.84%
Canon Inc. (Office Electronics)(b) 12,000 593,921
- -----------------------------------------------------------------------
Murata Manufacturing Co., Ltd. (Electronic
Equipment Manufacturers)(b) 6,000 286,222
=======================================================================
880,143
=======================================================================
MEXICO-5.92%
Cemex S.A. de C.V.-ADR (Construction
Materials) 21,308 617,506
- -----------------------------------------------------------------------
Grupo Modelo S.A. de C.V.-Series C (Brewers) 73,300 188,030
- -----------------------------------------------------------------------
Grupo Televisa S.A.-ADR (Broadcasting & Cable
TV) 4,900 269,500
=======================================================================
1,075,036
=======================================================================
</Table>
F-1
<Table>
<Caption>
MARKET
SHARES VALUE
- -----------------------------------------------------------------------
NETHERLANDS-1.97%
Vedior N.V. (Employment Services)(b) 24,200 $ 358,046
=======================================================================
UNITED KINGDOM-18.18%
Compass Group PLC (Restaurants)(b) 114,100 472,726
- -----------------------------------------------------------------------
GlaxoSmithKline PLC (Pharmaceuticals)(b) 13,264 279,741
- -----------------------------------------------------------------------
Reed Elsevier PLC (Publishing)(b) 82,100 735,237
- -----------------------------------------------------------------------
Smiths Group PLC (Industrial
Conglomerates)(b) 36,100 495,149
- -----------------------------------------------------------------------
Tesco PLC (Food Retail)(b) 96,819 511,016
- -----------------------------------------------------------------------
WPP Group PLC (Advertising)(b) 80,500 809,970
=======================================================================
3,303,839
=======================================================================
Total Foreign Stocks & Other Equity
Interests (Cost $7,007,235) 6,962,660
=======================================================================
</Table>
<Table>
MARKET
SHARES VALUE
- -----------------------------------------------------------------------
<Caption>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
- -----------------------------------------------------------------------
U.S. GOVERNMENT AGENCY SECURITIES-6.58%
FEDERAL HOME LOAN BANK-6.58%
Unsec. Disc. Notes,
1.69%, 11/01/04 (Cost $1,195,999)(c) $1,196,000 $ 1,195,888
=======================================================================
TOTAL INVESTMENTS-100.24% (Cost $18,120,094) 18,217,403
=======================================================================
OTHER ASSETS LESS LIABILITIES-(0.24%) (43,329)
=======================================================================
NET ASSETS-100.00% $18,174,074
_______________________________________________________________________
=======================================================================
</Table>
Investment Abbreviations:
<Table>
ADR - American Depositary Receipt
Disc. - Discounted
Unsec. - Unsecured
</Table>
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) In accordance with the procedures established by the Board of Trustees, the
foreign security is fair valued using adjusted closing market prices. The
aggregate market value of these securities at October 31, 2004 was
$5,254,268, which represented 28.84% of the Fund's Total Investments. See
Note 1A.
(c) Security traded on a discount basis. The interest rate shown represents the
discount rate at the time of purchase by the Fund.
See accompanying notes which are an integral part of the financial statements.
F-2
STATEMENT OF ASSETS AND LIABILITIES
October 31, 2004
<Table>
ASSETS:
Investments, at market value (cost
$18,120,094) $18,217,403
- -----------------------------------------------------------
Foreign currencies, at value (cost $2,034) 2,118
- -----------------------------------------------------------
Cash 186
- -----------------------------------------------------------
Receivables for:
Investments sold 200,481
- -----------------------------------------------------------
Fund shares sold 91,945
- -----------------------------------------------------------
Dividends 26,107
- -----------------------------------------------------------
Amount due from advisor 11,336
- -----------------------------------------------------------
Investment for trustee deferred compensation
and retirement plans 1,884
- -----------------------------------------------------------
Other assets 53,078
===========================================================
Total assets 18,604,538
___________________________________________________________
===========================================================
LIABILITIES:
Payables for:
Investments purchased 365,578
- -----------------------------------------------------------
Trustee deferred compensation and retirement
plans 1,884
- -----------------------------------------------------------
Accrued distribution fees 7,358
- -----------------------------------------------------------
Accrued trustees' fees 1,195
- -----------------------------------------------------------
Accrued transfer agent fees 1,655
- -----------------------------------------------------------
Accrued operating expenses 52,794
===========================================================
Total liabilities 430,464
===========================================================
Net assets applicable to shares outstanding $18,174,074
___________________________________________________________
===========================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $18,266,121
- -----------------------------------------------------------
Undistributed net investment income (loss) (1,873)
- -----------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities and foreign currencies (187,479)
- -----------------------------------------------------------
Unrealized appreciation of investment
securities and foreign currencies 97,305
===========================================================
$18,174,074
___________________________________________________________
===========================================================
NET ASSETS:
Class A $ 9,757,173
___________________________________________________________
===========================================================
Class B $ 4,357,602
___________________________________________________________
===========================================================
Class C $ 4,039,537
___________________________________________________________
===========================================================
Class R $ 9,868
___________________________________________________________
===========================================================
Institutional Class $ 9,894
___________________________________________________________
===========================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER SHARE,
UNLIMITED NUMBER OF SHARES AUTHORIZED:
Class A 939,950
___________________________________________________________
===========================================================
Class B 422,567
___________________________________________________________
===========================================================
Class C 391,697
___________________________________________________________
===========================================================
Class R 952
___________________________________________________________
===========================================================
Institutional Class 951
___________________________________________________________
===========================================================
Class A:
Net asset value per share $ 10.38
- -----------------------------------------------------------
Offering price per share:
(Net asset value of $10.38 divided by
94.50%) $ 10.98
___________________________________________________________
===========================================================
Class B:
Net asset value and offering price per share $ 10.31
___________________________________________________________
===========================================================
Class C:
Net asset value and offering price per share $ 10.31
___________________________________________________________
===========================================================
Class R:
Net asset value and offering price per share $ 10.37
___________________________________________________________
===========================================================
Institutional Class:
Net asset value and offering price per share $ 10.40
___________________________________________________________
===========================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
F-3
STATEMENT OF OPERATIONS
For the period November 4, 2003 (date operations commenced)
through October 31, 2004
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $7,787) $ 163,191
- -----------------------------------------------------------------------
Interest 13,587
=======================================================================
Total investment income 176,778
=======================================================================
EXPENSES:
Advisory fees 87,385
- -----------------------------------------------------------------------
Administrative services fees 50,000
- -----------------------------------------------------------------------
Custodian fees 45,259
- -----------------------------------------------------------------------
Distribution fees:
Class A 20,295
- -----------------------------------------------------------------------
Class B 23,509
- -----------------------------------------------------------------------
Class C 21,213
- -----------------------------------------------------------------------
Class R 25
- -----------------------------------------------------------------------
Transfer agent fees -- Class A, B, C and R 21,602
- -----------------------------------------------------------------------
Transfer agent fees -- Institutional Class 6
- -----------------------------------------------------------------------
Trustees' fees and retirement benefits 12,026
- -----------------------------------------------------------------------
Registration and filing fees 57,802
- -----------------------------------------------------------------------
Professional fees 62,436
- -----------------------------------------------------------------------
Other 22,057
=======================================================================
Total expenses 423,615
=======================================================================
Less: Fees waived, expenses reimbursed and expense offset
arrangements (163,355)
=======================================================================
Net expenses 260,260
=======================================================================
Net investment income (loss) (83,482)
=======================================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES AND FOREIGN CURRENCIES:
Net realized gain (loss) from:
Investment securities (187,658)
- -----------------------------------------------------------------------
Foreign currencies (9,047)
=======================================================================
(196,705)
=======================================================================
Change in net unrealized appreciation (depreciation) of:
Investment securities 97,309
- -----------------------------------------------------------------------
Foreign currencies (4)
=======================================================================
97,305
=======================================================================
Net gain (loss) from investment securities and foreign
currencies (99,400)
=======================================================================
Net increase (decrease) in net assets resulting from
operations $(182,882)
_______________________________________________________________________
=======================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
F-4
STATEMENT OF CHANGES IN NET ASSETS
For the period November 4, 2003 (date operations commenced)
through October 31, 2004
<Table>
<Caption>
2004
- ---------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (83,482)
- ---------------------------------------------------------------------------
Net realized gain (loss) from investment securities and
foreign currencies (196,705)
- ---------------------------------------------------------------------------
Change in net unrealized appreciation of investment
securities and foreign currencies 97,305
===========================================================================
Net increase (decrease) in net assets resulting from
operations (182,882)
===========================================================================
Share transactions-net:
Class A 9,842,778
- ---------------------------------------------------------------------------
Class B 4,399,603
- ---------------------------------------------------------------------------
Class C 4,094,575
- ---------------------------------------------------------------------------
Class R 10,000
- ---------------------------------------------------------------------------
Institutional Class 10,000
===========================================================================
Net increase (decrease) in net assets resulting from
share transactions 18,356,956
===========================================================================
Net increase in net assets 18,174,074
===========================================================================
NET ASSETS:
Beginning of Period --
===========================================================================
End of period (including undistributed net investment
income (loss) of $(1,873)) $18,174,074
___________________________________________________________________________
===========================================================================
</Table>
NOTES TO FINANCIAL STATEMENTS
October 31, 2004
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Trimark Fund (the "Fund") is a separate series of AIM Investment Funds (the
"Trust"). The Trust is organized as a Delaware statutory trust and is registered
under the Investment Company Act of 1940, as amended (the "1940 Act"), as an
open-end series management investment company consisting of six separate series
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 commenced operations on
November 4, 2003.
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.
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
F-5
by an independent source at the mean between the last bid and ask prices.
For purposes of determining net asset value per share, futures and option
contracts generally will be valued 15 minutes after the close of the
customary trading session of the New York Stock Exchange ("NYSE").
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.
Debt obligations (including convertible bonds) are fair valued using an
evaluated quote provided by an independent pricing service. Evaluated
quotes provided by the pricing service may be determined without exclusive
reliance on quoted prices, and may reflect appropriate factors such as
institution-size trading in similar groups of securities, developments
related to specific securities, dividend rate, yield, quality, type of
issue, coupon rate, maturity, individual trading characteristics and other
market data. Short-term obligations having 60 days or less to maturity and
commercial paper are valued at amortized cost which approximates market
value.
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.
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 the event is likely to have affected the closing price of the security,
the security will be valued at fair value in good faith using procedures
approved by the Board of Trustees. Adjustments to closing prices to reflect
fair value may also be based on a screening process of an independent
pricing service to indicate the degree of certainty, based on historical
data, that the closing price in the principal market where a foreign
security trades is not the current market value as of the close of the
NYSE. Foreign securities meeting the approved degree of certainty that the
price is not reflective of current market value will be priced at the
indication of fair value from the independent pricing service. Multiple
factors may be considered by the independent pricing service in determining
adjustments to reflect fair value and may include information relating to
sector indices, ADRs, domestic and foreign index futures and
exchange-traded funds.
Securities for which market quotations are not readily available or are
unreliable are valued at fair value as determined in good faith by or under
the supervision of the Trust's officers following procedures approved by
the Board of 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.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions
are accounted for on a trade date basis. Realized gains or losses on sales
are computed on the basis of specific identification of the securities
sold. Interest income is recorded on the accrual basis from settlement
date. Dividend income is recorded on the ex-dividend date. Bond premiums
and discounts are amortized and/or accreted for financial reporting
purposes.
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 and other shareholder record keeping 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. 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
F-6
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.
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement,
the Fund pays an advisory fee to AIM at the annual rate of 0.85% of the first $1
billion of the Fund's average daily net assets, plus 0.80% of the Fund's average
daily net assets in excess of $1 billion. AIM has contractually agreed to waive
advisory fees and/or reimburse expenses to the extent necessary to limit Total
Annual Operating Expenses (excluding certain items discussed below) of Class A,
Class B, Class C, Class R and Institutional Class shares to 2.25%, 2.90%, 2.90%,
2.40% and 1.90% of average daily net assets, respectively, through October 31,
2005. 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. 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. 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 period November 4, 2003 (date operations commenced) through October 31,
2004, AIM waived fees of $87,385 and reimbursed expenses of $58,745. Under the
terms of a master sub-advisory agreement between AIM and AIM Funds Management
Inc. ("AIM Funds Management"), AIM pays AIM Funds Management 40% of the amount
paid by the Fund to AIM.
For the period November 4, 2003 (date operations commenced) through October
31, 2004, at the request of the Trustees of the Trust, AMVESCAP PLC ("AMVESCAP")
agreed to assume $2,639 of expenses incurred by the Fund in connection with
matters related to recently settled regulatory actions and investigations
concerning market timing activity in the AIM Funds, including legal, audit,
shareholder servicing, communication and trustee expenses. These expenses along
with the related expense reimbursement, are included in the Statement of
Operations.
The Fund, pursuant to a master administrative services agreement with AIM,
has agreed to pay AIM for certain administrative costs incurred in providing
accounting services to the Fund. For the period November 4, 2003 (date
operations commenced) through October 31, 2004, AIM was paid $50,000 for such
services.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay AIM Investment Services, Inc. ("AISI") a fee for providing transfer agency
and shareholder services to the Fund and reimburse AISI for certain expenses
incurred by AISI in the course of providing such services. For the Institutional
Class, the transfer agent has contractually agreed to reimburse class specific
transfer agent fees and expenses to the extent necessary to limit transfer agent
fees to 0.10% of the average net assets. For the period November 4, 2003 (date
operations commenced) through October 31, 2004, the Fund paid AISI $21,602 for
Class A, Class B, Class C and Class R shares and $6 for Institutional Class
shares and reimbursed fees for Class A, Class B, Class C and Class R shares of
$14,412 and Institutional Class shares of $3. AISI may make payments to
intermediaries to provide omnibus account services, sub-accounting services
and/or networking 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 period November 4, 2003 (date operations
commenced) through October 31, 2004, the Class A, Class B, Class C and Class R
shares paid $20,295, $23,509, $21,213 and $25, 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 period
November 4, 2003 (date operations commenced) through October 31, 2004, AIM
Distributors advised the Fund that it retained $23,974 in front-end sales
commissions from the sale of Class A shares and $0, $1,082, $438 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-7
NOTE 3--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 period
November 4, 2003 (date operations commenced) through October 31, 2004, the Fund
received credits in transfer agency fees of $145 and credits in custodian fees
of $26 under expense offset arrangements, which resulted in a reduction of the
Fund's total expenses of $171.
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 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 period November 4, 2003 (date operations commenced) through
October 31, 2004, the Fund paid legal fees of $2,484 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. 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. A loan will be secured by collateral if the
Fund's aggregate borrowings from all sources exceeds 10% of the Fund's total
assets. 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 period November 4, 2003 (date operations commenced) through
October 31, 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 at an amount equal to the Federal
Funds rate plus 100 basis points.
NOTE 6--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
DISTRIBUTIONS TO SHAREHOLDERS:
There were no ordinary income or long-term capital gain distributions paid
during the period November 4, 2003 (date operations commenced) through October
31, 2004.
TAX COMPONENTS OF NET ASSETS:
As of October 31, 2004, the components of net assets on a tax basis were as
follows:
<Table>
<Caption>
2004
- ---------------------------------------------------------------------------
Unrealized appreciation -- investments $ 64,007
- ---------------------------------------------------------------------------
Temporary book/tax differences (1,924)
- ---------------------------------------------------------------------------
Capital loss carryforward (154,130)
- ---------------------------------------------------------------------------
Shares of beneficial interest 18,266,121
===========================================================================
Total net assets $18,174,074
___________________________________________________________________________
===========================================================================
</Table>
The difference between book-basis and tax-basis unrealized appreciation
(depreciation) is due to differences in the timing of recognition of gains and
losses on investments for tax and book purposes. The Fund's unrealized
appreciation (depreciation) difference is attributable primarily to losses on
wash sales. The tax-basis unrealized appreciation (depreciation) on investments
amount includes appreciation (depreciation) on foreign currencies of $(4).
The temporary book/tax differences are a result of timing differences
between book and tax recognition of income and/or expenses. The Fund's temporary
book/tax differences are the result of the trustee deferral of compensation and
retirement plan expenses.
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 utilize capital loss carryforward in the future may be limited under
the Internal Revenue Code and related regulations based on the results of future
transactions.
F-8
The Fund has a capital loss carryforward as of October 31, 2004 which
expires as follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD*
- -----------------------------------------------------------------------------
October 31, 2012 $154,130
_____________________________________________________________________________
=============================================================================
</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 7--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 period
November 4, 2003 (date operations commenced) through October 31, 2004 was
$20,522,907 and $3,411,155, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- -------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $ 719,045
- -------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (655,034)
===============================================================================
Net unrealized appreciation of investment securities $ 64,011
_______________________________________________________________________________
===============================================================================
Cost of investments for tax purposes is $18,153,392.
</Table>
NOTE 8--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of foreign currency
transactions, non-deductible stock issuance costs and net operating losses, on
October 31, 2004, undistributed net investment income (loss) was increased by
$81,609, undistributed net realized gain (loss) was increased by $9,226 and
shares of beneficial interest decreased by $90,835. This reclassification had no
effect on the net assets of the Fund.
F-9
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 certain 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(a)
- --------------------------------------------------------------------------------------
NOVEMBER 4, 2003
(DATE OPERATIONS
COMMENCED) TO
OCTOBER 31, 2004
------------------------
SHARES AMOUNT
- --------------------------------------------------------------------------------------
Sold:
Class A 1,037,741 $10,842,516
- --------------------------------------------------------------------------------------
Class B 441,749 4,598,409
- --------------------------------------------------------------------------------------
Class C 404,000 4,219,660
- --------------------------------------------------------------------------------------
Class R(b) 952 10,000
- --------------------------------------------------------------------------------------
Institutional Class(b) 951 10,000
======================================================================================
Automatic conversion of Class B shares to Class A shares:
Class A 5,961 62,836
- --------------------------------------------------------------------------------------
Class B (5,984) (62,836)
======================================================================================
Reacquired:(c)
Class A (103,752) (1,062,574)
- --------------------------------------------------------------------------------------
Class B (13,198) (135,970)
- --------------------------------------------------------------------------------------
Class C (12,303) (125,085)
======================================================================================
1,756,117 $18,356,956
______________________________________________________________________________________
======================================================================================
</Table>
(a) There is one entity that is a record owner of more than 5% of the
outstanding shares of the Fund and owns 11% of the outstanding shares of the
Fund. AIM Distributors has an agreement with this entity to sell Fund
shares. The Fund, AIM and/or AIM affiliates may make payments to this
entity, which is considered to be related to the Fund, for providing
services to the Fund, AIM and/or AIM Affiliates including but not limited to
services such as, securities brokerage, distribution, third party record
keeping and account servicing. The Trust has no knowledge as to whether all
or any portion of the shares owned of record by this shareholder are also
owned beneficially.
(b) Class R and Institutional Class shares commenced sales on April 30, 2004.
(c) Amount is net of redemption fees of $193, $64, $59 and $0 for Class A, Class
B, Class C and Class R shares for 2004, respectively.
F-10
NOTE 10--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
CLASS A
----------------
NOVEMBER 4, 2003
(DATE OPERATIONS
COMMENCED) TO
OCTOBER 31,
2004
- --------------------------------------------------------------------------------
Net asset value, beginning of period $10.00
- --------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.05)(a)
================================================================================
Net gains on securities (both realized and unrealized) 0.43
================================================================================
Total from investment operations 0.38
================================================================================
Redemption fees added to shares of beneficial interest 0.00
================================================================================
Net asset value, end of period $10.38
________________________________________________________________________________
================================================================================
Total return(b) 3.80%
________________________________________________________________________________
================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $9,757
________________________________________________________________________________
================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 2.25%(c)
- --------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 3.84%(c)
================================================================================
Ratio of net investment income (loss) to average net assets (0.53)%(c)
________________________________________________________________________________
================================================================================
Portfolio turnover rate(d) 38%
________________________________________________________________________________
================================================================================
</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 the 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
$5,846,389.
(d) Not annualized for periods of less than one year.
F-11
NOTE 10--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS B
----------------
NOVEMBER 4, 2003
(DATE OPERATIONS
COMMENCED) TO
OCTOBER 31,
2004
- --------------------------------------------------------------------------------
Net asset value, beginning of period $10.00
- --------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.12)(a)
================================================================================
Net gains on securities (both realized and unrealized) 0.43
================================================================================
Total from investment operations 0.31
================================================================================
Redemption fees added to shares of beneficial interest 0.00
================================================================================
Net asset value, end of period $10.31
________________________________________________________________________________
================================================================================
Total return(b) 3.10%
________________________________________________________________________________
================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $4,358
________________________________________________________________________________
================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 2.90%(c)
- --------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 4.49%(c)
================================================================================
Ratio of net investment income (loss) to average net assets (1.18)%(c)
________________________________________________________________________________
================================================================================
Portfolio turnover rate(d) 38%
________________________________________________________________________________
================================================================================
</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 the 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
$2,370,339.
(d) Not annualized for periods of less than one year.
F-12
NOTE 10--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS C
----------------
NOVEMBER 4, 2003
(DATE OPERATIONS
COMMENCED) TO
OCTOBER 31,
2004
- --------------------------------------------------------------------------------
Net asset value, beginning of period $10.00
- --------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.12)(a)
================================================================================
Net gains on securities (both realized and unrealized) 0.43
================================================================================
Total from investment operations 0.31
================================================================================
Redemption fees added to shares of beneficial interest 0.00
================================================================================
Net asset value, end of period $10.31
________________________________________________________________________________
================================================================================
Total return(b) 3.10%
________________________________________________________________________________
================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $4,040
________________________________________________________________________________
================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 2.90%(c)
- --------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 4.49%(c)
================================================================================
Ratio of net investment income (loss) to average net assets (1.18)%(c)
________________________________________________________________________________
================================================================================
Portfolio turnover rate(d) 38%
________________________________________________________________________________
================================================================================
</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 the 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
$2,138,835.
(d) Not annualized for periods of less than one year.
F-13
NOTE 10--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS R
--------------
APRIL 30, 2004
(DATE SALES
COMMENCED) TO
OCTOBER 31,
2004
- ------------------------------------------------------------------------------
Net asset value, beginning of period $10.51
- ------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.04)(a)
==============================================================================
Net losses on securities (both realized and unrealized) (0.10)
==============================================================================
Total from investment operations (0.14)
==============================================================================
Redemption fees added to shares of beneficial interest 0.00
==============================================================================
Net asset value, end of period $10.37
______________________________________________________________________________
==============================================================================
Total return(b) (1.33)%
______________________________________________________________________________
==============================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 10
______________________________________________________________________________
==============================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 2.40%(c)
- ------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 3.99%(c)
==============================================================================
Ratio of net investment income (loss) to average net assets (0.68)%(c)
______________________________________________________________________________
==============================================================================
Portfolio turnover rate(d) 38%
______________________________________________________________________________
==============================================================================
</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 the returns for
shareholder transactions. Not annualized for periods less than one year.
(c) Ratios are annualized and based on average daily net assets of $9,826.
(d) Not annualized for periods less than one year.
F-14
NOTE 10--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
INSTITUTIONAL CLASS
-------------------
APRIL 30, 2004
(DATE SALES
COMMENCED) TO
OCTOBER 31,
2004
- -----------------------------------------------------------------------------------
Net asset value, beginning of period $10.51
- -----------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.01)(a)
===================================================================================
Net gains on securities (both realized and unrealized) (0.10)
===================================================================================
Total from investment operations (0.11)
===================================================================================
Net asset value, end of period $10.40
___________________________________________________________________________________
===================================================================================
Total return(b) (1.05)%
___________________________________________________________________________________
===================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 10
___________________________________________________________________________________
===================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.90%(c)
- -----------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 3.42%(c)
===================================================================================
Ratio of net investment income (loss) to average net assets (0.18)%(c)
_________________________________________________________________________________ )
===================================================================================
Portfolio turnover rate(d) 38%
___________________________________________________________________________________
===================================================================================
</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 the returns for
shareholder transactions. Not annualized for periods less than one year.
(c) Ratios are annualized and based on average daily net assets of $9,838.
(d) Not annualized for periods less than one year.
NOTE 11--LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
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, contractual plans, issues
related to Section 529 college savings plans and procedures for locating lost
securityholders.
As described more fully below, INVESCO Funds Group, Inc. ("IFG"), the former
investment advisor to certain AIM Funds, A I M Advisors, Inc. ("AIM"), the
Fund's investment advisor, and A I M Distributors, Inc. ("ADI"), the distributor
of the retail AIM Funds and a wholly owned subsidiary of AIM, reached final
settlements with the Securities and Exchange Commission ("SEC"), the New York
Attorney General ("NYAG"), the Colorado Attorney General ("COAG"), the Colorado
Division of Securities ("CODS") and the Secretary of State of the State of
Georgia to resolve civil enforcement actions and investigations related to
market timing activity and related issues in the AIM Funds, including those
formerly advised by IFG.
In addition, as described more fully below, IFG and AIM are the subject of a
number of ongoing regulatory inquiries and civil lawsuits related to one or more
of the issues currently being scrutinized by various Federal and state
regulators, including but not limited to those issues described above.
Additional regulatory actions and/or civil lawsuits related to the above or
other issues may be filed against the AIM Funds, 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 the AIM Funds, IFG, AIM
and/or related entities and individuals in the future.
As a result of the matters discussed below, investors in the AIM 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.
Settled Enforcement Actions and Investigations Related to Market Timing
On October 8, 2004, AMVESCAP PLC ("AMVESCAP"), the parent company of IFG and
AIM, announced that final settlements had been reached with the SEC, the NYAG,
the COAG and the Secretary of State of Georgia to resolve civil enforcement
actions and investigations related to market timing activity and related issues
in the AIM Funds, including those formerly advised by IFG. A final settlement
also has been reached with the Colorado Division of Securities ("CODS") with
respect to this matter. In their enforcement actions and investigations, these
regulators alleged, in substance, that IFG and AIM failed to disclose in the
prospectuses for the AIM Funds that they advised and to the independent
directors/trustees of such Funds that IFG and AIM had entered into certain
arrangements permitting market timing of such Funds, thereby breaching their
fiduciary duties to such Funds. As a result of the foregoing, the regulators
alleged that IFG, AIM and ADI breached various Federal and state securities,
business and consumer protection laws. Under the terms of the settlements, IFG,
AIM and ADI consent to the entry of settlement orders or assurances of
discontinuance, as applicable, by the regulators containing certain terms, some
of which are described below, without admitting or denying any wrongdoing.
F-15
NOTE 11--LEGAL PROCEEDINGS (CONTINUED)
Under the terms of the settlements, IFG agreed to pay a total of $325
million, of which $110 million is civil penalties. Of the $325 million total
payment, half will be paid on or before December 31, 2004 and the remaining half
will be paid on or before December 31, 2005. AIM and ADI agreed to pay a total
of $50 million, of which $30 million is civil penalties. The entire $50 million
payment by AIM and ADI has been paid.
The entire $325 million IFG settlement payment will be available for
distribution to the shareholders of those AIM Funds that IFG formerly advised
that were harmed by market timing activity, and the entire $50 million
settlement payment by AIM and ADI will be available for distribution to the
shareholders of those AIM Funds advised by AIM that were harmed by market timing
activity, all as to be determined by an independent distribution consultant to
be appointed under the settlements. The settlement payments will be distributed
in accordance with a methodology to be determined by the independent
distribution consultant, in consultation with AIM and the independent trustees
of the AIM Funds and acceptable to the staff of the SEC.
Under the settlements with the NYAG and COAG, AIM has agreed to reduce
management fees on the AIM Funds by $15 million per year for the next five
years, based upon effective fee rates and assets under management as of July 1,
2004, and not to increase certain management fees. IFG will also pay $1.5
million to the COAG to be used for investor education purposes and to reimburse
the COAG for actual costs. Finally, IFG and AIM will pay $175,000 to the
Secretary of State of Georgia to be used for investor education purposes and to
reimburse the Secretary of State for actual costs.
None of the costs of the settlements will be borne by the AIM Funds or by
Fund shareholders.
Under the terms of the settlements, AIM will make certain governance
reforms, including maintaining an internal controls committee and retaining an
independent compliance consultant, a corporate ombudsman and, as stated above,
an independent distribution consultant. Also, commencing in 2007 and at least
once every other year thereafter, AIM will undergo a compliance review by an
independent third party.
In addition, under the terms of the settlements, AIM has undertaken to cause
the AIM Funds to operate in accordance with certain governance policies and
practices, including retaining a full-time independent senior officer whose
duties will include monitoring compliance and managing the process by which
proposed management fees to be charged the AIM Funds are negotiated. Also,
commencing in 2008 and not less than every fifth calendar year thereafter, the
AIM Funds will hold shareholder meetings at which their Boards of Trustees will
be elected.
On October 8, 2004, the SEC announced that it had settled a market timing
enforcement action against Raymond R. Cunningham, the former president and chief
executive officer of IFG and a former member of the board of directors of the
AIM Funds formerly advised by IFG. As part of the settlement, the SEC ordered
Mr. Cunningham to pay $1 in restitution and civil penalties in the amount of
$500,000. In addition, the SEC prohibited Mr. Cunningham from associating with
an investment advisor, broker, dealer or investment company for a period of two
years and further prohibited him from serving as an officer or director of an
investment advisor, broker, dealer or investment company for a period of five
years.
On August 31, 2004, the SEC announced that it had settled market timing
enforcement actions against Timothy J. Miller, the former chief investment
officer and a former portfolio manager for IFG, Thomas A. Kolbe, the former
national sales manager of IFG, and Michael D. Legoski, a former assistant vice
president in IFG's sales department. As part of the settlements, the SEC ordered
Messrs. Miller, Kolbe and Legoski to pay $1 in restitution each and civil
penalties in the amounts of $150,000, $150,000 and $40,000, respectively. In
addition, the SEC prohibited each of them from associating with an investment
advisor or investment company for a period of one year, prohibited Messrs.
Miller and Kolbe from serving as an officer or director of an investment advisor
or investment company for three years and two years, respectively, and
prohibited Mr. Legoski from associating with a broker or dealer for a period of
one year.
As referenced by the SEC in the SEC's settlement order, one former officer
of ADI and one current officer of AIM (who has taken a voluntary leave of
absence) have received regulatory inquiries in the form of subpoenas or other
oral or written requests for information and/or documents related to market
timing activity in the AIM Funds.
At the direction of the trustees of the AIM Funds, AMVESCAP has agreed to
pay all of the expenses incurred by such Funds related to the market timing
investigations, including expenses incurred in connection with the regulatory
complaints against IFG alleging market timing and the market timing
investigations with respect to IFG and AIM.
The payments made in connection with the above-referenced settlements by
IFG, AIM and ADI will total approximately $375 million (not including AIM's
agreement to reduce management fees on the AIM Funds by $15 million per year for
the next five years, based upon effective fee rates and assets under management
as of July 1, 2004). The manner in which the settlement payments will be
distributed is unknown at the present time and will be determined by an
independent distribution consultant to be appointed under the settlements.
Therefore, management of AIM and the Fund are unable at the present time to
estimate the impact, if any, that the distribution of the settlement amounts may
have on the Fund or whether such distribution will have an impact on the Fund's
financial statements in the future.
At the present time, management of AIM and the Fund are unable to estimate
the impact, if any, that the outcome of the ongoing matters described below may
have on AIM, ADI or the Fund.
Ongoing Regulatory Inquiries Concerning IFG and AIM
IFG, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds formerly advised by IFG 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 such 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 SEC, the NASD,
Inc. ("NASD"), the Florida Department of Financial Services, 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. 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 of the AIM
Funds formerly advised by IFG. IFG is providing full cooperation with respect to
these inquiries.
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
General of the State of West Virginia, the West Virginia Securities Commission
and the Bureau of Securities of the State of New Jersey. IFG and certain of
F-16
NOTE 11--LEGAL PROCEEDINGS (CONTINUED)
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 of the AIM
Funds formerly advised by IFG. IFG is providing full cooperation with respect to
these inquiries.
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, contractual
plans, issues related to Section 529 college savings plans and procedures for
locating lost securityholders. These regulators include the SEC, the NASD, the
Department of Banking for the State of Connecticut, 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 SEC, the NASD, the DOL, the
Internal Revenue Service, the New York Stock Exchange, 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 AIM Funds, IFG, AIM, A I M Management Group Inc. ("AIM
Management"), AMVESCAP, certain related entities, certain of their current and
former officers and/or certain unrelated third parties) making allegations that
are similar in many respects to those in the settled regulatory actions brought
by the SEC, the NYAG and the COAG concerning market timing activity in the AIM
Funds. 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 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; injunctive relief; disgorgement of management fees; imposition of a
constructive trust; removal of certain directors and/or employees; various
corrective measures under ERISA; rescission of certain Funds' advisory
agreements; interest; and attorneys' and experts' fees.
All lawsuits based on allegations of market timing, late trading, and
related issues have been transferred to the United States District Court for the
District of Maryland (the "MDL Court") for consolidated or coordinated pre-trial
proceedings. Pursuant to an Order of the MDL Court, plaintiffs consolidated
their claims for pre-trial purposes into three amended complaints against
various AIM- and IFG-related parties: (i) a Consolidated Amended Class Action
Complaint purportedly brought on behalf of shareholders of the AIM Funds; (ii) a
Consolidated Amended Fund Derivative Complaint purportedly brought on behalf of
the AIM Funds and fund registrants; and (iii) an Amended Class Action Complaint
for Violations of the Employee Retirement Income Securities Act purportedly
brought on behalf of participants in AMVESCAP's 401(k) plan. Plaintiffs in one
of the underlying lawsuits transferred to the MDL Court continue to seek remand
of their action 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 AIM Funds, IFG and/or AIM)
alleging that certain AIM 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/or 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, INVESCO Institutional (N.A.), Inc., ADI and/or INVESCO
Distributors, Inc.) alleging that the defendants charged excessive advisory
and/or 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 Federal
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 Charging of Distribution Fees on Closed
Funds or Share Classes
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, IFG, AIM, ADI and/or certain of the trustees of the AIM 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 Federal 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. and/or
certain of the trustees of the AIM Funds) alleging that the defendants
improperly used the assets of the AIM Funds to pay brokers to aggressively
promote the sale of the AIM 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.
F-17
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees and Shareholders of
AIM Trimark Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the AIM Trimark Fund (the "Fund")
at October 31, 2004, the results of its operations, the changes in its net
assets and the financial highlights for the period November 4, 2003 (date
operations commenced) through October 31, 2004, in conformity with accounting
principles generally accepted in the United States of America. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Fund's management; our responsibility
is to express an opinion on these financial statements based on our audit. We
conducted our audit of these financial statements in accordance with the
standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit, which included confirmation of securities at October 31, 2004 by
correspondence with the custodian and brokers, provides a reasonable basis for
our opinion.
/s/ PRICEWATERHOUSECOOPERS LLP
December 20, 2004
Houston, Texas
F-18
OTHER INFORMATION
TRUSTEES AND OFFICERS
As of October 31, 2004
The address of each trustee and officer of AIM Investment Funds (the "Trust"),
is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee oversees 114
portfolios in the AIM Funds complex. The trustees serve for the life of the
Trust, subject to their earlier death, incapacitation, resignation, retirement
or removal as more specifically provided in the Trust's organizational
documents. Column two below includes length of time served with predecessor
entities, if any.
<Table>
<Caption>
NAME, YEAR OF BIRTH AND TRUSTEE AND/
POSITION(S) HELD WITH THE OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- -------------------------------------------------------------------------------------------------------------------------------
INTERESTED PERSONS
- -------------------------------------------------------------------------------------------------------------------------------
Robert H. Graham(1) -- 1946 1998 Director and Chairman, A I M Management Group Inc. None
Trustee and President (financial services holding company); Director and
Vice Chairman, AMVESCAP PLC and Chairman, AMVESCAP
PLC -- AIM Division (parent of AIM and a global
investment management firm)
Formerly: President and Chief Executive Officer,
A I M Management Group Inc.; Director, Chairman
and President, A I M Advisors, Inc. (registered
investment advisor); Director and Chairman, A I M
Capital Management, Inc. (registered investment
advisor), A I M Distributors, Inc. (registered
broker dealer), AIM Investment Services, Inc.,
(registered transfer agent), and Fund Management
Company (registered broker dealer); and Chief
Executive Officer, AMVESCAP PLC -- Managed
Products
- -------------------------------------------------------------------------------------------------------------------------------
Mark H. Williamson(2) -- 1951 2003 Director, President and Chief Executive Officer, None
Trustee and Executive Vice A I M Management Group Inc. (financial services
President holding company); Director, Chairman and
President, A I M Advisors, Inc. (registered
investment advisor); Director, A I M Capital
Management, Inc. (registered investment advisor)
and A I M Distributors, Inc. (registered broker
dealer); Director and Chairman, AIM Investment
Services, Inc. (registered transfer agent), Fund
Management Company (registered broker dealer) and
INVESCO Distributors, Inc. (registered broker
dealer); and Chief Executive Officer, AMVESCAP
PLC -- AIM Division (parent of AIM and a global
investment management firm)
Formerly: Director, Chairman, President and Chief
Executive Officer, INVESCO Funds Group, Inc.;
President and Chief Executive Officer, INVESCO
Distributors, Inc.; Chief Executive Officer,
AMVESCAP PLC -- Managed Products; Chairman and
Chief Executive Officer of NationsBanc Advisors,
Inc.; and Chairman of NationsBanc Investments,
Inc.
- -------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- -------------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett(3) -- 1944 2001 Chairman, Crockett Technology Associates ACE Limited (insurance
Trustee and Chair (technology consulting company) company); and
Captaris, Inc.
(unified messaging
provider)
- -------------------------------------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 2003 Retired None
Trustee
Formerly: President and Chief Executive Officer,
AMC Cancer Research Center; and Chairman and Chief
Executive Officer, First Columbia Financial
Corporation
- -------------------------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 1987 Retired Badgley Funds, Inc.
Trustee (registered investment
Formerly: Partner, law firm of Baker & McKenzie company)
- -------------------------------------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 2003 Co-President and Founder, Green, Manning & Bunch None
Trustee Ltd., (investment banking firm); and Director,
Policy Studies, Inc. and Van Gilder Insurance
Corporation
- -------------------------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2001 Director of a number of public and private Cortland Trust, Inc.
Trustee business corporations, including the Boss Group (Chairman) (registered
Ltd. (private investment and management) and investment company);
Magellan Insurance Company Annuity and Life Re
(Holdings), Ltd.
Formerly: Director, President and Chief Executive (insurance company)
Officer, Volvo Group North America, Inc.; Senior
Vice President, AB Volvo; and director of various
affiliated Volvo companies
- -------------------------------------------------------------------------------------------------------------------------------
Edward K. Dunn, Jr. -- 1935 2001 Retired None
Trustee
Formerly: Chairman, Mercantile Mortgage Corp.;
President and Chief Operating Officer,
Mercantile-Safe Deposit & Trust Co.; and
President, Mercantile Bankshares Corp.
- -------------------------------------------------------------------------------------------------------------------------------
Jack M. Fields -- 1952 2001 Chief Executive Officer, Twenty First Century Administaff, and
Trustee Group, Inc. (government affairs company) and Discovery Global
Texana Timber LP (sustainable forestry company) Education Fund (non-
profit)
- -------------------------------------------------------------------------------------------------------------------------------
</Table>
(1) Mr. Graham is considered an interested person of the Trust because he is a
director of AMVESCAP PLC, parent of the advisor to the Trust. Prior to
October 4, 2004, Mr. Graham served as Chairman of the Board of Trustees of
the Trust.
(2) Mr. Williamson is considered an interested person of the Trust because he is
an officer and a director of the advisor to, and a director of the principal
underwriter of, the Trust.
(3) Mr. Crockett was elected Chair of the Board of Trustees of the Trust
effective October 4, 2004.
Trustees and Officers (continued)
As of October 31, 2004
The address of each trustee and officer of AIM Investment Funds (the "Trust"),
is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee oversees 114
portfolios in the AIM Funds complex. The trustees serve for the life of the
Trust, subject to their earlier death, incapacitation, resignation, retirement
or removal as more specifically provided in the Trust's organizational
documents. Column two below includes length of time served with predecessor
entities, if any.
<Table>
<Caption>
NAME, YEAR OF BIRTH AND TRUSTEE AND/ PRINCIPAL OCCUPATION(S)
POSITION(S) HELD WITH THE TRUST OR OFFICER SINCE DURING PAST 5 YEARS
- -------------------------------------------------------------------------------------------------------------------
Carl Frischling -- 1937 2001 Partner, law firm of Kramer Levin Naftalis and Frankel LLP
Trustee
- -------------------------------------------------------------------------------------------------------------------
Gerald J. Lewis -- 1933 2003 Chairman, Lawsuit Resolution Services (California)
Trustee
Formerly: Associate Justice of the California Court of
Appeals
- -------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 2001 Formerly: Chief Executive Officer, YWCA of the USA
Trustee
- -------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 2001 Partner, law firm of Pennock & Cooper
Trustee
- -------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 1987 Retired
Trustee
- -------------------------------------------------------------------------------------------------------------------
Louis S. Sklar -- 1939 2001 Executive Vice President, Development and Operations, Hines
Trustee Interests Limited Partnership (real estate development
company)
- -------------------------------------------------------------------------------------------------------------------
Larry Soll -- 1942 2003 Retired
Trustee
- -------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- -------------------------------------------------------------------------------------------------------------------
Lisa O. Brinkley(4) -- 1959 2004 Senior Vice President, A I M Management Group Inc.
Senior Vice President and Chief (financial services holding company); Senior Vice President
Compliance Officer and Chief Compliance Officer, A I M Advisors, Inc.; Vice
President and Chief Compliance Officer, A I M Capital
Management, Inc. and A I M Distributors, Inc.; and Vice
President, AIM Investment Services, Inc. and Fund Management
Company
Formerly: Senior Vice President and Compliance Director,
Delaware Investments Family of Funds
- -------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 2003 Director, Senior Vice President, Secretary and General
Senior Vice President, Counsel, A I M Management Group Inc. (financial services
Secretary and Chief Legal holding company) and A I M Advisors, Inc.; Director and Vice
Officer President, INVESCO Distributors, Inc.; Vice President, A I M
Capital Management, Inc., and AIM Investment Services, Inc.;
Director, Vice President and General Counsel, Fund
Management Company and Senior Vice President, A I M
Distributors, Inc.
Formerly: Senior Vice President and General Counsel, Liberty
Financial Companies, Inc.; Senior Vice President and General
Counsel, Liberty Funds Group, LLC and Vice President, A I M
Distributors, Inc.
- -------------------------------------------------------------------------------------------------------------------
Stuart W. Coco -- 1955 2002 Managing Director and Director of Money Market Research and
Vice President Special Projects, A I M Capital Management, Inc.; and Vice
President, A I M Advisors, Inc.
- -------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, A I M Advisors, Inc.
Vice President and Treasurer
Formerly: Senior Vice President, AIM Investment Services,
Inc.; and Vice President, A I M Distributors, Inc.
- -------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 2004 Director of Cash Management, Managing Director and Chief
Vice President Cash Management Officer, A I M Capital Management, Inc;
Director and President, Fund Management Company; and Vice
President, A I M Advisors, Inc.
- -------------------------------------------------------------------------------------------------------------------
Edgar M. Larsen -- 1940 2002 Executive Vice President, A I M Management Group, Inc.;
Vice President Senior Vice President, A I M Advisors, Inc., and President,
Director of Investments, Chief Executive Officer and Chief
Investment Officer, A I M Capital Management, Inc.
Formerly: Director of A I M Advisors, Inc. and A I M
Management Group Inc., A I M Advisors, Inc.; and Director
and Chairman, A I M Capital Management, Inc.
- -------------------------------------------------------------------------------------------------------------------
<Caption>
NAME, YEAR OF BIRTH AND OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST HELD BY TRUSTEE
- --------------------------------- ----------------------
Carl Frischling -- 1937 Cortland Trust, Inc.
Trustee (registered investment
company)
- --------------------------------------------------------------------------------
Gerald J. Lewis -- 1933 General Chemical
Trustee Group, Inc.
- -------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 None
Trustee
- -------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 None
Trustee
- -------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 None
Trustee
- -------------------------------------------------------------------------------------------------------------------
Louis S. Sklar -- 1939 None
Trustee
- -------------------------------------------------------------------------------------------------------------------
Larry Soll -- 1942 None
Trustee
- -------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- -------------------------------------------------------------------------------------------------------------------
Lisa O. Brinkley(4) -- 1959 N/A
Senior Vice President and Chief
Compliance Officer
- -------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 N/A
Senior Vice President,
Secretary and Chief Legal
Officer
- -------------------------------------------------------------------------------------------------------------------
Stuart W. Coco -- 1955 N/A
Vice President
- -------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 N/A
Vice President and Treasurer
- -------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 N/A
Vice President
- -------------------------------------------------------------------------------------------------------------------
Edgar M. Larsen -- 1940 N/A
Vice President
- -------------------------------------------------------------------------------------------------------------------
</Table>
(4) Ms. Brinkley was elected Senior Vice President and Chief Compliance Officer
of the Trust effective September 20, 2004.
The Statement of Additional Information of the Trust includes additional
information about the Fund's Trustees and is available upon request, without
charge, by calling 1.800.959.4246.
<Table>
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS SUB-ADVISOR
11 Greenway Plaza A I M Advisors, Inc. A I M Distributors, PricewaterhouseCoopers AIM Funds
Suite 100 11 Greenway Plaza Inc. LLP Management, Inc.
Houston, TX 77046-1173 Suite 100 11 Greenway Plaza 1201 Louisiana 5140 Yonge Street
Houston, TX 77046-1173 Suite 100 Street Suite 900
Houston, TX Suite 2900 Toronto, Ontario M2N
77046-1173 Houston, Texas 6X7
77002-5678
COUNSEL TO THE FUND COUNSEL TO THE TRUSTEES TRANSFER AGENT CUSTODIAN
Ballard Spahr Kramer, Levin, Naftalis AIM Investment State Street Bank
Andrews & Ingersoll, & Frankel LLP Services, Inc. and Trust Company
LLP 919 Third Avenue P.O. Box 4739 225 Franklin Street
1735 Market Street New York, NY 10022-3852 Houston, TX Boston, MA
Philadelphia, PA 19103-7599 77210-4739 02110-2801
</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(5) AIM High Yield Fund
AIM Blue Chip Fund AIM Global Aggressive Growth Fund AIM Income Fund
AIM Capital Development Fund AIM Global Equity Fund(6) 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 Core Stock Fund(1) AIM International Core Equity Fund(1) AIM Short Term Bond Fund
AIM Dent Demographic Trends Fund AIM International Emerging Growth Fund(7) AIM Total Return Bond Fund
AIM Diversified Dividend Fund AIM International Growth Fund Premier U.S. Government Money
AIM Dynamics Fund(1) AIM Trimark Fund Portfolio(1)
AIM Emerging Growth Fund
AIM Large Cap Basic Value Fund SECTOR EQUITY TAX-FREE
AIM Large Cap Growth Fund
AIM Libra Fund AIM Advantage Health Sciences Fund(1) AIM High Income Municipal Fund
AIM Mid Cap Basic Value Fund AIM Energy Fund(1) AIM Municipal Bond Fund
AIM Mid Cap Core Equity Fund(2) AIM Financial Services Fund(1) AIM Tax-Exempt Cash Fund
AIM Mid Cap Growth Fund AIM Global Health Care Fund AIM Tax-Free Intermediate Fund
AIM Mid Cap Stock Fund(1) AIM Gold & Precious Metals Fund(1)
AIM Opportunities I Fund AIM Health Sciences Fund(1) AIM ALLOCATION SOLUTIONS
AIM Opportunities II Fund AIM Leisure Fund(1)
AIM Opportunities III Fund AIM Multi-Sector Fund(1) AIM Aggressive Allocation Fund
AIM Premier Equity Fund AIM Real Estate Fund AIM Conservative Allocation Fund
AIM S&P 500 Index Fund(1) AIM Technology Fund(1) AIM Moderate Allocation Fund
AIM Select Equity Fund AIM Utilities Fund(1)
AIM Small Cap Equity Fund(3)
AIM Small Cap Growth Fund(4)
AIM Small Company Growth Fund(1)
==============================================================================
AIM Total Return Fund*(1) CONSIDER THE INVESTMENT OBJECTIVES, RISKS, AND CHARGES AND EXPENSES CAREFULLY.
AIM Trimark Endeavor Fund FOR THIS AND OTHER INFORMATION ABOUT AIM FUNDS, OBTAIN A PROSPECTUS FROM YOUR
AIM Trimark Small Companies Fund FINANCIAL ADVISOR AND READ IT THOROUGHLY BEFORE INVESTING.
AIM Weingarten Fund ==============================================================================
</Table>
* Domestic equity and income fund
(1) The following name changes became effective October 15, 2004: INVESCO
Advantage Health Sciences Fund to AIM Advantage Health Sciences Fund, INVESCO
Core Equity Fund to AIM Core Stock Fund, INVESCO Dynamics Fund to AIM Dynamics
Fund, INVESCO Energy Fund to AIM Energy Fund, INVESCO Financial Services Fund to
AIM Financial Services Fund, INVESCO Gold & Precious Metals Fund to AIM Gold &
Precious Metals Fund, INVESCO Health Sciences Fund to AIM Health Sciences Fund,
INVESCO International Core Equity Fund to AIM International Core Equity Fund,
INVESCO Leisure Fund to AIM Leisure Fund, INVESCO Mid-Cap Growth Fund to AIM Mid
Cap Stock Fund, INVESCO Multi-Sector Fund to AIM Multi-Sector Fund, INVESCO S&P
500 Index Fund to AIM S&P 500 Index Fund, INVESCO Small Company Growth Fund to
AIM Small Company Growth Fund, INVESCO Technology Fund to AIM Technology Fund,
INVESCO Total Return Fund to AIM Total Return Fund, INVESCO U.S. Government
Money Fund to Premier U.S. Government Money Portfolio, INVESCO Utilities Fund to
AIM Utilities Fund. (2) As of the close of business on February 27, 2004, AIM
Mid Cap Core Equity Fund is available to new investors on a limited basis. For
information on who may continue to invest in AIM Mid Cap Core Equity Fund,
please contact your financial advisor. (3) Effective December 13, 2004, AIM
Small Cap Equity Fund is open to all investors. (4) AIM Small Cap Growth Fund
was closed to most investors on March 18, 2002. For information on who may
continue to invest in AIM Small Cap Growth Fund, please contact your financial
advisor. (5) AIM European Small Company Fund will close to new investors when
net assets reach $500 million. (6) Effective March 31, 2004, AIM Global Trends
Fund was renamed AIM Global Equity Fund. (7) AIM International Emerging Growth
Fund will close to new investors when net assets reach $500 million.
If used after January 20, 2005, 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 $132 billion in assets. AIM is a subsidiary of
AMVESCAP PLC, one of the world's largest independent financial services
companies with $363 billion in assets under management. Data as of September 30,
2004.
AIMinvestments.com T-TRI-AR-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 TRIMARK SMALL COMPANIES FUND
Annual Report to Shareholders o October 31, 2004
[COVER IMAGE]
YOUR GOALS. OUR SOLUTIONS. [AIM INVESTMENTS LOGO APPEARS HERE]
--Registered Trademark-- --Registered Trademark--
<Table>
===================================================================================================================================
AIM TRIMARK SMALL COMPANIES FUND SEEKS TO PROVIDE LONG-TERM GROWTH OF CAPITAL.
o Unless otherwise stated, information presented in this report is as of 10/31/04 and is based on total net assets.
===================================================================================================================================
ABOUT SHARE CLASSES o The unmanaged Lipper Small-Cap Core The fund files its complete schedule of
Fund Index represents an average of the portfolio holdings with the Securities
o Class B shares are not available as an performance of the 30 largest and Exchange Commission ("SEC") for the
investment for retirement plans small-capitalization core equity funds 1st and 3rd quarters of each fiscal year
maintained pursuant to Section 401 of tracked by Lipper, Inc., an independent on Form N-Q. The fund's Form N-Q filings
the Internal Revenue Code, including mutual fund performance monitor. are available on the SEC's Web site at
401(k) plans, money purchase pension http://www.sec.gov. Copies of the fund's
plans and profit sharing plans. Plans o The unmanaged Russell 2000--Registered Forms N-Q may be reviewed and copied at
that have existing accounts invested in Trademark--Index represents the the SEC's Public Reference Room at 450
Class B shares will continue to be performance of the stocks of Fifth Street, N.W., Washington, D.C.
allowed to make additional purchases. small-capitalization companies. 20549-0102. You can obtain information
on the operation of the Public Reference
o Class R shares are available only to o The unmanaged MSCI World Index is a Room, including information about
certain retirement plans. Please see the group of global securities tracked by duplicating fee charges, by calling
prospectus for more information. Morgan Stanley Capital International. 1-202-942-8090 or by electronic request
at the following e-mail address:
PRINCIPAL RISKS OF INVESTING IN THE FUND o The fund is not managed to track the publicinfo@sec.gov. The SEC file numbers
performance of any particular index, for the fund are 811-05426 and 33-19338.
o Investing in small and mid-size including the indexes defined here, and The fund's most recent portfolio
companies involves risks not associated consequently, the performance of the holdings, as filed on Form N-Q, are also
with investing in more established fund may deviate significantly from the available at AIMinvestments.com.
companies, including business risk, performance of the indexes.
significant stock price fluctuations and A description of the policies and
illiquidity. o A direct investment cannot be made in procedures that the fund uses to
an index. Unless otherwise indicated, determine how to vote proxies relating
o International investing presents index results include reinvested to portfolio securities is available
certain risks not associated with dividends, and they do not reflect sales without charge, upon request, by calling
investing solely in the United States. charges. Performance of an index of 800-959-4246, or on the AIM Web site,
These include risks relating to funds reflects fund expenses. AIMinvestments.com. Scroll down on the
fluctuations in the value of the U.S. Performance of a market index does not. home page and click on AIM Funds or
dollar relative to the values of other INVESCO Funds Proxy Voting Policies.
currencies, the custody arrangements OTHER INFORMATION
made for the fund's foreign holdings, Information regarding how the fund voted
differences in accounting, political o The returns shown in the Management's proxies related to its portfolio
risks and the lesser degree of public Discussion of Fund Performance are based securities during the 12 months ended
information required to be provided by on net asset values calculated for 6/30/04 is available at our Web site. Go
non-U.S. companies. The fund may invest shareholder transactions. Generally to AIMinvestments.com, click on About
up to 25% of its assets in the accepted accounting principles require Us, then on Required Notices and then
securities of non-U.S. issuers. adjustments to be made to the net assets select your fund from the drop-down
of the fund at period end for financial menu.
o By concentrating on a small number of reporting purposes, and as such, the net
holdings, the fund carries greater risk asset values for shareholder
because each investment has a greater transactions and the returns based on
effect on the fund's overall those net asset values may differ from
performance. the net asset values and returns
reported in the Financial Highlights.
ABOUT INDEXES USED IN THIS REPORT
o Industry classifications used in this
o The unmanaged Standard & Poor's report are generally according to the
Composite Index of 500 Stocks (the S&P Global Industry Classification Standard,
500--Registered Trademark--Index) is an which was developed by and is the
index of common stocks frequently used exclusive property and a service mark of
as a general measure of U.S. stock Morgan Stanley Capital International
market performance. Inc. and Standard & Poor's.
</Table>
=============================================================================
THIS REPORT MUST BE ACCOMPANIED OR PRECEDED BY A CURRENTLY EFFECTIVE FUND
PROSPECTUS, WHICH CONTAINS MORE COMPLETE INFORMATION, INCLUDING SALES CHARGES
AND EXPENSES. INVESTORS SHOULD READ IT CAREFULLY BEFORE INVESTING.
=============================================================================
=====================================================
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
=====================================================
AIMinvestments.com
DEAR FELLOW SHAREHOLDER OF THE AIM FAMILY OF
FUNDS--Registered Trademark--:
NEW BOARD CHAIRMAN
[PHOTO OF It is our pleasure to introduce you to Bruce Crockett, the
ROBERT H. new Chairman of the Board of Trustees of the AIM Funds. Bob
GRAHAM] Graham has served as Chairman of the Board of Trustees of
the AIM Funds ever since Ted Bauer retired from that
ROBERT H. GRAHAM position in 2000. However, as you may be aware, the U.S.
Securities and Exchange Commission recently adopted a rule
requiring that an independent fund trustee, meaning a
trustee who is not an officer of the fund's investment
advisor, serve as chairman of the funds' Board. In addition,
a similar provision was included in the terms of AIM
Advisors' recent settlements with certain regulators.
Accordingly, the AIM Funds' Board recently elected Mr.
Crockett, one of the fourteen independent trustees on the
AIM Funds' Board, as Chairman. His appointment became
effective on October 4, 2004. Mr. Graham will remain on the
funds' Board, as will Mark Williamson, President and Chief
Executive Officer of AIM. Mr. Graham will also remain
Chairman of AIM Investments--Registered Trademark--.
Mr. Crockett has been a member of the AIM Funds' board
since 1992, when AIM acquired certain funds that had been
advised by CIGNA. He had been a member of the board of those
[PHOTO OF funds since 1978. Mr. Crockett has more than 30 years of
MARK H. experience in finance and general management and has been
WILLIAMSON] Chairman of Crockett Technologies Associates since 1996. He
is the first independent chairman of the funds' board in
MARK H. AIM's history, as he is not affiliated with AIM or AMVESCAP
WILLIAMSON in any way. He is committed to ensuring that the AIM Funds
adhere to the highest standards of corporate governance for
the benefit of fund shareholders, and we at AIM share that
commitment.
MARKET CONDITIONS DURING THE FISCAL YEAR
Virtually every equity index, domestic and foreign, produced
positive returns for the fiscal year ended October 31, 2004.
Domestically, the S&P 500 Index was up 9.41% for the year.
Globally, the MSCI World Index advanced more than 13%.
However, a goodly portion of this positive performance was
achieved during 2003. Year to date as of October 31, the S&P
500 Index was up just over 3%, the MSCI World Index just
about 5%. In the pages that follow, you will find a more
detailed discussion of the market conditions that affected
your fund during the fiscal year.
[PHOTO OF While it is agreeable to report positive market
BRUCE L. performance for the year covered by this report, as ever, we
CROCKETT] encourage our shareholders to look past short-term
performance and focus on their long-term investment goals.
BRUCE L. CROCKETT Over the short term, the one sure thing about the investment
markets is their unpredictability. Over the long term,
equities have produced very attractive returns. For the
25-year period ended October 31, 2004, the S&P 500 Index
averaged 13.50% growth per year and the MSCI World Index
averaged 11.16%. While past performance cannot guarantee
future results, we believe staying invested for the long
term offers the best opportunity for capital growth.
YOUR FUND
The following pages of this report provide an explanation of
how your fund was managed during the fiscal year, how it
performed in comparison to various benchmarks, and a
presentation of its long-term performance. We hope you find
this information helpful. Current information about your
fund and about the markets in general is always available on
our Web site, AIMinvestments.com.
As always, AIM remains committed to building solutions
for your investment goals, and we thank you for your
continued participation in AIM Investments. If you have any
questions, please contact our Client Service representatives
at 800-959-4246.
Sincerely,
/s/ ROBERT H. GRAHAM /s/ MARK H. WILLIAMSON
-------------------------- ------------------------
Robert H. Graham Mark H. Williamson
Chairman, AIM Investments CEO & President, AIM
President & Vice Chairman, Investments Trustee,
AIM Funds AIM Funds
December 16, 2004
AIM Investments is a registered service mark of A I M
Management Group Inc. A I M Advisors, Inc. and A I M Capital
Management, Inc. are the investment advisors, and A I M
Distributors, Inc. is the distributor for the retail funds
represented by AIM Investments.
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
<Table>
STRONG STOCK SELECTION FUELED POSITIVE potential. Instead, we focus on
RETURNS conducting our own in-depth, independent
research to identify high quality
AIM Trimark Small Companies Fund and manufacturing activity served to small-capitalization businesses that
launched on November 4, 2003. For the validate growing investor concerns. have understandable business models,
reporting period ended October 31, 2004, Given our stock-by-stock, fundamental strong managements and leading industry
Class A shares of AIM Trimark Small approach to investing, the broad positions that are very difficult for
Companies Fund returned 19.00% at net performance in our holdings is competitors to encroach upon. We then
asset value. PERFORMANCE SHOWN AT NAV consistent with a market environment use our research to develop a
DOES NOT INCLUDE FRONT-END SALES that was significantly more proprietary view about why we believe
CHARGES, WHICH WOULD HAVE REDUCED THE discriminating than the blanket rally these businesses will grow their value
PERFORMANCE. Results for other share that characterized the prior year. over a period of several years.
classes are shown in the table on page
3. Aided by strong stock selection and With the price of oil rising sharply While the fund's strong performance
the market's preference for small- and during the period, it came as no over the period is gratifying, we
mid-cap stocks, the fund outperformed surprise that energy was the market's believe these short-term performance
its benchmarks, the S&P 500 Index, the best-performing sector in the S&P 500 periods should be of relatively little
Russell 2000 Index and the Lipper Index for the year. Utilities and importance to shareholders who share our
Small-Cap Core Fund Index, which materials also had strong performances long-term investment horizon. Our
returned 9.41%, 11.73% and 14.96%, during the fiscal year; information investment strategy entails a
respectively for the one-year period technology, health care and consumer willingness to wait as long as five
ended October 31, 2004. staples were the weakest-performing years or more for our views on a
sectors. These themes also generally business to unfold. Shareholders may
MARKET CONDITIONS held true for the fund's small reasonably expect similar short-term
capitalization style benchmark, the periods where the fund underperforms, as
The market environment during the Russell 2000 Index, which outperformed our investment strategy often results in
reporting period was mixed yet positive large-cap indexes during the period, the purchase of businesses that may be
overall for small caps. The first half providing an additional tailwind to fund out of favor with investors in the short
of the period was characterized by an performance. term.
extension of the market rally that
predominated throughout much of 2003, YOUR FUND In examining key drivers of fund
when investors embraced evidence of performance during the period, it is
stronger economic growth. As the period After almost a year of managing the important to note that our investment
progressed, this buoyancy gave way to fund, we would like to comment briefly strategy has resulted in a relatively
some trepidation as investors began to on our approach to investing. We focused group of business holdings that
fret over the effect rising commodity describe the Trimark discipline as have little in common with the
and energy prices might have on a "business people buying businesses." By composition of the fund's benchmarks and
maturing economic recovery. In addition, viewing each investment as a long-term peers. As a result, it may sometimes
a moderation of what had been generally business investment as opposed to a appear that the fund's relative sector
strong levels of consumer confidence short-term stock trade, we attempt to weights significantly influenced
ignore much of the short-term news that performance during any short-term
has little impact on an investment's period. However, because we focus on
long-term return businesses rather than sectors, we
believe the fund's long-term performance
will instead be dictated by
</Table>
<Table>
===================================================================================================================================
PORTFOLIO COMPOSITION TOP 10 EQUITY HOLDINGS* TOP 10 INDUSTRIES*
By sector 1. FirstService Corp. (Canada) 5.3% 1. Health Care Supplies 10.5%
[PIE CHART] 2. Endo Pharmaceuticals 2. Diversified Commercial
Holdings Inc. 5.1 Services 10.2
Government Securities Plus Other
3. SpectraLink Corp. 4.5 3. Air Freight & Logistics 7.0
Assets Less Liabilities 15.3%
4. Sola International Inc. 4.5 4. Leisure Products 6.2
Consumer Staples 7.8%
5. Pacer International, Inc. 3.9 5. Pharmaceuticals 5.1
Information Technology 7.7%
6. Polaris Industries Inc. 3.4 6. Communications Equipment 4.5
Materials 4.6%
7. FTI Consulting, Inc. 3.4 7. Advertising 4.4
Financials 2.0%
8. Sabre Holdings Corp. 8. Data Processing &
Industrials 21.7% - Class A 3.2 Outsourced Services 3.2
Health Care 19.6% 9. Sleeman Breweries Ltd. 9. Brewers 3.1
(Canada) 3.1
Consumer Discretionary 21.3% 10. Apparel, Accessories &
10. Dynamex Inc. 3.1 Luxury Goods 2.5
The fund's holdings are subject to change, and there is no assurance that the
fund will continue to hold any particular security.
* Excluding U.S. Government Agency Securities holdings.
===================================================================================================================================
</Table>
2
<Table>
how successful we have or have not been the normally slow spring and summer business's management, 3) Wait for the
in investing in individual businesses. months. While the market reacted right price, 4) Form a proprietary view
If one were to broadly categorize the negatively, we built our position in and 5) Maintain patience and long-term
individual businesses that contributed Hampshire based on our research that focus. We appreciate your continued
most to performance during the period, showed Hampshire's Designer's Original, investment in AIM Trimark Small
many came from the health care, Spring & Mercer and other brands Companies Fund.
industrials and consumer discretionary remained the premier selling sweater
sectors. Select detractors from brands at larger retailers. We suspected THE VIEWS AND OPINIONS EXPRESSED IN
performance came from financials, where that those retailers could not afford to MANAGEMENT'S DISCUSSION OF FUND
the fund had limited investments, as reduce inventory of Hampshire's products PERFORMANCE ARE THOSE OF A I M ADVISORS,
well as select holdings across disparate over the long term and viewed this INC. THESE VIEWS AND OPINIONS ARE
industries. near-term weakness as an excellent SUBJECT TO CHANGE AT ANY TIME BASED ON
opportunity to purchase a strong FACTORS SUCH AS MARKET AND ECONOMIC
Specifically in health care, contact business at a relatively low price. The CONDITIONS. THESE VIEWS AND OPINIONS MAY
lens manufacturer and distributor Cooper fund continued to hold Hampshire Group NOT BE RELIED UPON AS INVESTMENT ADVICE
Companies was a key contributor to fund at the close of the reporting period. OR RECOMMENDATIONS, OR AS AN OFFER FOR A
performance and strongly reflects our PARTICULAR SECURITY. THE INFORMATION IS
application of the Trimark discipline. Consistent with our long-term NOT A COMPLETE ANALYSIS OF EVERY ASPECT
When we purchased Cooper Companies, the investment horizon, the fund experienced OF ANY MARKET, COUNTRY, INDUSTRY,
firm possessed all the business relatively low turnover during the SECURITY OR THE FUND. STATEMENTS OF FACT
characteristics for which we look. The period. We sold seven businesses, most ARE FROM SOURCES CONSIDERED RELIABLE,
company has by far the largest market of them because their market value BUT A I M ADVISORS, INC. MAKES NO
share in contact lenses that correct exceeded what we believed to be their REPRESENTATION OR WARRANTY AS TO THEIR
astigmatism, a growing market share intrinsic value (the value of the COMPLETENESS OR ACCURACY. ALTHOUGH
against larger competitors, and a businesses that is based on future cash HISTORICAL PERFORMANCE IS NO GUARANTEE
management team with a material flows, management execution and business OF FUTURE RESULTS, THESE INSIGHTS MAY
ownership stake in the business. In fundamentals). We added Pacer HELP YOU UNDERSTAND OUR INVESTMENT
addition, Cooper Companies' management International, SpectraLink, Alderwoods MANAGEMENT PHILOSOPHY.
had a track record of effectively Group, Dynamex and Inverness Medical
entering new markets such as Europe. Innovations, all of which met our See important fund and index
These dynamics led us to purchase Cooper investment criteria. disclosures inside front cover.
COMPANIES, and the increase in the
company's market value during the period IN CLOSING ROB MIKALACHKI
benefited fund performance. We continued Mr. Mikalachki,
to hold Cooper Companies at the close of We remained focused on growing your [MIKALACHKI Chartered Financial
the reporting period. capital over the long term by PHOTO] Analyst, is
consistently applying our investment portfolio manager of
Individual detractors from discipline regardless of the market AIM Trimark Small
performance included Hampshire Group. environment. At the close of the period Companies Fund. Prior joining AIM
The sweater designer and distributor for there were 34 holdings in your fund, and Trimark Investments in 1999 as a
large retailers suffered from concerns each one was purchased by adhering to small-cap analyst, he worked with
about its partners' high inventory the five core principles of the Trimark small- and medium-sized businesses in the
levels, as well as weaker revenues in discipline: 1) Know the business inside areas of valuation, financing and merger
and out, 2) Focus on the and acquisition advising. Mr. Mikalachki
earned an undergraduate degree in
business at Wilfrid Laurier.
Assisted by AIM Trimark Small Companies
team.
======================================== ======================================== [RIGHT ARROW GRAPHIC]
FUND VS. INDEXES TOTAL NET ASSETS $38.1 MILLION FOR A PRESENTATION OF YOUR FUND'S
PERFORMANCE RECORD, PLEASE TURN TO
TOTAL RETURNS, 11/4/03-10/31/04, TOTAL NUMBER OF HOLDINGS 34 PAGE 5.
EXCLUDING APPLICABLE SALES CHARGES. IF
SALES CHARGES WERE INCLUDED, RETURNS ========================================
WOULD BE LOWER.
Class A Shares 19.00%
Class B Shares 18.40
Class C Shares 18.30
Class R Shares 18.81**
S&P 500 Index
(Broad Market Index) 9.41***
Russell 2000 Index
(Style-specific Index) 11.73***
Lipper Small-Cap Core Fund
Index (Peer Group Index) 14.96***
SOURCE: LIPPER,INC.
**Inception date 4/30/04. Returns prior
to 4/30/04 are hypothetical based on
Class A shares. See explanation, page 5.
***Index data shows a one-year return as
of 10/31/04.
========================================
</Table>
3
INFORMATION ABOUT YOUR FUND'S EXPENSES
CALCULATING YOUR ONGOING FUND EXPENSES
<Table>
EXAMPLE estimate the expenses that you paid over costs of investing in the fund and other
the period. Simply divide your account funds. To do so, compare this 5%
As a shareholder of the fund, you incur value by $1,000 (for example, an $8,600 hypothetical example with the 5%
two types of costs: (1) transaction account value divided by $1,000 = 8.6), hypothetical examples that appear in the
costs, which may include sales charges then multiply the result by the number shareholder reports of the other funds.
(loads) on purchase payments; contingent in the table under the heading entitled
deferred sales charges on redemptions; "Actual Expenses Paid During Period" to Please note that the expenses shown
and redemption fees, if any; and (2) estimate the expenses you paid on your in the table are meant to highlight your
ongoing costs, including management account during this period. ongoing costs only and do not reflect
fees; distribution and/or service fees any transactional costs, such as sales
(12b-1); and other fund expenses. This HYPOTHETICAL EXAMPLE FOR COMPARISON charges (loads) on purchase payments,
example is intended to help you PURPOSES contingent deferred sales charges on
understand your ongoing costs (in redemptions, and redemption fees, if
dollars) of investing in the fund and to The table below also provides any. Therefore, the hypothetical
compare these costs with ongoing costs information about hypothetical account information is useful in comparing
of investing in other mutual funds. The values and hypothetical expenses based ongoing costs only, and will not help
example is based on an investment of on the fund's actual expense ratio and you determine the relative total costs
$1,000 invested at the beginning of the an assumed rate of return of 5% per year of owning different funds. In addition,
period and held for the entire period, before expenses, which is not the Fund's if these transactional costs were
May 1, 2004-October 31, 2004. actual return. The hypothetical account included, your costs would have been
values and expenses may not be used to higher.
ACTUAL EXPENSES estimate the actual ending account
balance or expenses you paid for the
The table below provides information period. You may use this information to
about actual account values and actual compare the ongoing
expenses. You may use the information in
this table, together with the amount you
invested, to
===================================================================================================================================
ACTUAL HYPOTHETICAL
(5% ANNUAL RETURN BEFORE EXPENSES)
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES ENDING ACCOUNT EXPENSES
VALUE VALUE PAID DURING VALUE PAID DURING
(5/1/04) (10/31/04)(1) PERIOD(2) (10/31/04) PERIOD(2)
Class A $1,000.00 $1,126.90 $10.75 $1,015.03 $10.18
Class B 1,000.00 1,124.40 14.20 1,011.76 13.45
Class C 1,000.00 1,122.40 14.19 1,011.76 13.45
Class R 1,000.00 1,125.90 11.54 1,014.28 10.94
(1) The actual ending account value is based on the actual total return of the fund for the period May 1, 2004, to October 31, 2004,
after actual expenses and will differ from the hypothetical ending account value which is based on the fund's expense ratio and a
hypothetical annual return of 5% before expenses. The actual cumulative return at net asset value for the period May 1, 2004, to
October 31, 2004, was 12.69%, 12.44%, 12.24% and 12.59% for Class A, B, C and R shares, respectively.
(2) Expenses are equal to the fund's annualized expense ratio (2.01%, 2.66%, 2.66% and 2.16% for Class A, B, C and R shares,
respectively) multiplied by the average account value over the period, multiplied by 184/366 (to reflect the one-half year period).
===================================================================================================================================
[ARROW
BUTTON For More Information Visit
IMAGE] AIMinvestments.com
</Table>
4
LONG-TERM PERFORMANCE
YOUR FUND'S PERFORMANCE
<Table>
===================================================================================================================================
Past performance cannot guarantee RESULTS OF A $10,000 INVESTMENT
comparable future results. 11/4/03-10/31/04 (Index data from 10/31/03)
[MOUNTAIN CHART]
Your fund's total return includes
reinvested distributions, applicable AIM AIM AIM LIPPER
sales charges, fund expenses and DATE TRIMARK SMALL TRIMARK SMALL TRIMARK SMALL RUSSELL SMALL-CAP
management fees. Results for Class B COMPANIES FUND COMPANIES FUND COMPANIES FUND 2000 S&P 500 CORE FUND
shares are calculated as if a CLASS A SHARES CLASS B SHARES CLASS C SHARES INDEX INDEX INDEX
hypothetical shareholder had liquidated
his entire investment in the fund at the 11/4/2003 $9450 $10000 $10000 $10000 $10000 $10000
close of the reporting period and paid 11/03 9488 10040 10040 10355 10088 10360
the applicable contingent deferred sales 12/03 9639 10190 10200 10565 10617 10648
charges. Index results include 1/04 9723 10279 10279 11024 10811 10986
reinvested dividends, but they do not 2/04 9894 10449 10459 11123 10962 11177
reflect sales charges. Performance of an 3/04 10149 10718 10729 11226 10796 11298
index of funds reflects fund expenses 4/04 9978 10529 10539 10654 10627 10910
and management fees; performance of a 5/04 10082 10638 10639 10824 10773 11005
market index does not. Performance shown 6/04 10479 11058 11049 11279 10982 11474
in the chart does not reflect deduction 7/04 10016 10549 10549 10520 10619 10870
of taxes a shareholder would pay on fund 8/04 10044 10589 10579 10466 10661 10775
distributions or sale of fund shares. 9/04 10677 11248 11239 10957 10777 11311
Performance of the indexes does not 10/04 $11248 $11340 $11730 $11173 $10941 $11496
reflect the effects of taxes. Source: Lipper, Inc.
CUMULATIVE 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 10/31/04, 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 (11/4/03) 12.48% the inception date of Class R shares) at shares declines from 5% beginning at the
net asset value, adjusted to reflect the time of purchase to 0% at the beginning
CLASS B SHARES higher Rule 12b-1 fees applicable to of the seventh year. The CDSC on Class C
Inception (11/4/03) 13.40% Class R shares. Class A shares' shares is 1% for the first year after
inception date is 11/4/03. purchase. Class R shares do not have a
CLASS C SHARES front-end sales charge; returns shown
Inception (11/4/03) 17.30% The performance data quoted are at net asset value and do not
represent past performance and cannot reflect a 0.75% CDSC that may be imposed
CLASS R SHARES guarantee comparable future results; on a total redemption of retirement plan
Inception 18.81% current performance may be lower or assets within the first year.
higher. Please visit AIMinvestments.com
In addition to returns as of the close for the most recent month-end The performance of the fund's share
of the reporting period, industry performance. Performance figures reflect classes will differ due to different
regulations require us to provide reinvested distributions, changes in net sales charge structures and class
cumulative total returns as of 9/30/04, asset value and the effect of the expenses.
the most recent calendar quarter-end. maximum sales charge unless otherwise
stated. Investment return and principal Had the advisor not waived fees
CUMULATIVE TOTAL RETURNS* value will fluctuate so that you may and/or reimbursed expenses, performance
have a gain or loss when you sell would have been lower.
As of 9/30/04, most recent calendar shares.
quarter-end, including applicable sales
charges
CLASS A SHARES
Inception (11/4/03) 6.81%
CLASS B SHARES
Inception (11/4/03) 7.50%
CLASS C SHARES
Inception (11/4/03) 11.40%
CLASS R SHARES
Inception 12.82%
*Returns have not been annualized.
===================================================================================================================================
</Table>
5
SUPPLEMENT TO ANNUAL REPORT DATED 10/31/04
AIM TRIMARK SMALL COMPANIES FUND
<Table>
INSTITUTIONAL CLASS SHARES ========================================= Institutional Class shares have no sales
TOTAL RETURN charge; therefore, performance is at net
The following information has been For period ended 10/31/04 asset value. Performance of Institutional
prepared to provide Institutional Class Inception 19.20%* Class shares will differ from performance
shareholders with a performance overview * Cumulative total return that has not of other share classes due to differing
specific to their holdings. Institutional been annualized sales charges and class expenses.
Class shares are offered exclusively to
institutional investors, including ========================================= Please note that past performance is
defined contribution plans that meet TOTAL RETURN not indicative of future results. More
certain criteria. For period ended 9/30/04 recent returns may be more or less than
Inception 13.20%* those shown. All returns assume
* Cumulative total return that has not reinvestment of distributions at net
been annualized asset value. Investment return and
principal value will fluctuate so your
========================================= shares, when redeemed, may be worth more
or less than their original cost. See
Institutional Class shares' inception full report for information on
date is 4/30/04. Returns since that date comparative benchmarks. Please consult
are historical returns. All other returns your fund prospectus for more
are blended returns of historical information. For the most current
Institutional Class share performance and month-end performance, please call
restated Class A share performance (for 800-451-4246 or visit AIMinvestments.com.
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 11/4/03.
Institutional Class shares would have had
different returns due to differences in
the expense structure of the
Institutional Class.
Had the advisor not waived fees and/or
reimbursed expenses, performance would
have been lower.
</Table>
Over for information on your fund's expenses.
FOR INSTITUTIONAL INVESTOR USE ONLY
This material is for institutional investor use only and may not be quoted,
reproduced or shown to the public, nor used in written form as sales literature
for public use.
[YOUR GOALS. OUR SOLUTIONS.] [AIM INVESTMENTS LOGO APPEARS HERE]
--Registered Trademark-- --Registered Trademark--
AIMinvestments.com T-SCO-INS-1 10/04
INFORMATION ABOUT YOUR FUND'S EXPENSES
CALCULATING YOUR ONGOING FUND EXPENSES
<Table>
EXAMPLE estimate the expenses that you paid over divided by $1,000 = 8.6), then multiply
the period. Simply divide your account the result by the number in the table
As a shareholder of the fund, you incur value by $1,000 (for example, an $8,600 under the heading entitled "Actual
ongoing costs, including management fees; account value divided by $1,000 = 8.6), Expenses Paid During Period" to estimate
and other fund expenses. This example is then multiply the result by the number in the expenses you paid on your account
intended to help you understand your the table under the heading entitled during this period.
ongoing costs (in dollars) of investing "Actual Expenses Paid During Period" to
in the fund and to compare these costs estimate the expenses you paid on your Please note that the expenses shown in
with ongoing costs of investing in other account during this period. the table are meant to highlight your
mutual funds. The example is based on an ongoing costs only. Therefore, the
investment of $1,000 invested at the HYPOTHETICAL EXAMPLE FOR hypothetical information is useful in
beginning of the period and held for the COMPARISON PURPOSES comparing ongoing costs only, and will
entire period, May 1, 2004, to October not help you determine the relative total
31, 2004. The table below provides information costs of owning different funds.
about actual account values and actual
ACTUAL EXPENSES expenses. You may use the information in
this table, together with the amount you
The table below provides information invested, to estimate the expenses that
about actual account values and actual you paid over the period. Simply divide
expenses. You may use the information in your account value by $1,000 (for
this table, together with the amount you example, an $8,600 account value
invested, to
</Table>
<Table>
<Caption>
====================================================================================================================================
ACTUAL HYPOTHETICAL
(5% ANNUAL RETURN BEFORE EXPENSES)
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES ENDING ACCOUNT EXPENSES
VALUE VALUE PAID DURING VALUE PAID DURING
(05/01/04) (10/31/04)(1) PERIOD(2) (10/31/04) PERIOD(2)
Institutional Class $1,000.00 $1,128.80 $8.51 $1,017.14 $8.06
(1) The actual ending account value is based on the actual total return of the fund for the period May 1, 2004, to October 31, 2004,
after actual expenses and will differ from the hypothetical ending account value which is based on the fund's expense ratio and
a hypothetical annual return of 5% before expenses. The actual cumulative return at net asset value for the period May 1, 2004,
to October 31, 2004, was 12.88% for Institutional Class shares.
(2) Expenses are equal to the fund's annualized expense ratio of 1.59% for the Institutional Class shares, multiplied by the average
account value over the period, multiplied by 184/366 (to reflect the one-half year period).
====================================================================================================================================
</Table>
AIMinvestments.com T-SCO-INS-1 10/04
FINANCIALS
SCHEDULE OF INVESTMENTS
October 31, 2004
<Table>
<Caption>
MARKET
SHARES VALUE
- -----------------------------------------------------------------------
DOMESTIC COMMON STOCKS-70.77%
ADVERTISING-4.41%
ADVO, Inc. 31,900 $ 1,019,205
- -----------------------------------------------------------------------
Harte-Hanks, Inc. 25,600 658,944
=======================================================================
1,678,149
=======================================================================
AGRICULTURAL PRODUCTS-2.22%
Delta & Pine Land Co. 32,200 847,504
=======================================================================
AIR FREIGHT & LOGISTICS-7.00%
Dynamex Inc.(a) 56,700 1,173,690
- -----------------------------------------------------------------------
Pacer International, Inc.(a) 84,200 1,494,550
=======================================================================
2,668,240
=======================================================================
APPAREL, ACCESSORIES & LUXURY GOODS-2.55%
Hampshire Group, Ltd.(a) 31,800 971,172
=======================================================================
AUTO PARTS & EQUIPMENT-2.19%
Superior Industries International, Inc. 30,600 834,462
=======================================================================
CASINOS & GAMING-1.54%
Argosy Gaming Co.(a) 14,800 585,932
=======================================================================
COMMUNICATIONS EQUIPMENT-4.51%
SpectraLink Corp. 140,700 1,716,540
=======================================================================
DATA PROCESSING & OUTSOURCED SERVICES-3.16%
Sabre Holdings Corp.-Class A 56,000 1,204,560
=======================================================================
DIVERSIFIED COMMERCIAL SERVICES-4.93%
FTI Consulting, Inc.(a) 68,600 1,286,936
- -----------------------------------------------------------------------
Learning Tree International, Inc.(a) 42,900 591,162
=======================================================================
1,878,098
=======================================================================
HEALTH CARE EQUIPMENT-1.46%
DENTSPLY International Inc. 10,700 556,507
=======================================================================
HEALTH CARE FACILITIES-2.54%
Alderwoods Group, Inc.(a) 95,400 966,402
=======================================================================
HEALTH CARE SUPPLIES-10.50%
Cooper Cos., Inc. (The) 13,000 914,550
- -----------------------------------------------------------------------
Inverness Medical Innovations, Inc.(a) 19,200 397,056
- -----------------------------------------------------------------------
Ocular Sciences, Inc.(a) 8,300 405,455
- -----------------------------------------------------------------------
Sola International Inc.(a) 88,900 1,705,102
- -----------------------------------------------------------------------
Sybron Dental Specialties, Inc.(a) 17,800 579,746
=======================================================================
4,001,909
=======================================================================
</Table>
<Table>
MARKET
SHARES VALUE
- -----------------------------------------------------------------------
<Caption>
LEISURE PRODUCTS-6.16%
Oakley, Inc. 82,800 $ 1,051,560
- -----------------------------------------------------------------------
Polaris Industries Inc. 21,800 1,293,830
=======================================================================
2,345,390
=======================================================================
OFFICE SERVICES & SUPPLIES-2.21%
HNI Corp. 20,800 840,320
=======================================================================
PAPER PACKAGING-1.43%
Longview Fibre Co. 35,400 545,160
=======================================================================
PHARMACEUTICALS-5.14%
Endo Pharmaceuticals Holdings Inc.(a) 89,900 1,959,820
=======================================================================
REGIONAL BANKS-1.98%
Alabama National BanCorp. 11,800 754,020
=======================================================================
RESTAURANTS-1.93%
IHOP Corp. 19,200 735,360
=======================================================================
SPECIALTY CHEMICALS-2.38%
MacDermid, Inc. 28,700 905,772
=======================================================================
SPECIALTY STORES-2.53%
Lithia Motors, Inc.-Class A 42,600 967,155
=======================================================================
Total Domestic Common Stocks (Cost
$24,676,239) 26,962,472
=======================================================================
FOREIGN STOCKS-13.91%
CANADA-13.91%
Cymat Corp. (Aluminum)(a) 655,100 290,462
- -----------------------------------------------------------------------
FirstService Corp. (Diversified Commercial
Services)(a) 74,700 2,024,058
- -----------------------------------------------------------------------
Husky Injection Molding Systems Ltd.
(Industrial Machinery)(a) 234,300 871,483
- -----------------------------------------------------------------------
Sleeman Breweries Ltd. (Brewers)(a) 94,700 1,179,570
- -----------------------------------------------------------------------
Vincor International Inc. (Distillers &
Vintners)(a) 36,200 933,609
=======================================================================
Total Foreign Stocks (Cost $4,765,203) 5,299,182
=======================================================================
<Caption>
PRINCIPAL
AMOUNT
U.S. GOVERNMENT AGENCY SECURITIES-12.98%
FEDERAL HOME LOAN BANK-12.98%
Unsec. Disc. Notes,
1.20%, 11/01/04 (Cost $4,944,000)(b) $4,944,000 4,944,000
=======================================================================
TOTAL INVESTMENTS-97.66% (Cost $34,385,442) 37,205,654
=======================================================================
OTHER ASSETS LESS LIABILITIES-2.34% 891,899
=======================================================================
NET ASSETS-100.00% $38,097,553
_______________________________________________________________________
=======================================================================
</Table>
Investment Abbreviations:
<Table>
Disc. - Discounted
Unsec. - Unsecured
</Table>
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) Security traded on a discount basis. Unless otherwise indicated, the
interest rate shown represents the discount rate at the time of purchase by
the Fund.
See accompanying notes which are an integral part of the financial statements.
F-1
STATEMENT OF ASSETS AND LIABILITIES
October 31, 2004
<Table>
ASSETS:
Investments, at market value (cost
$34,385,442) $37,205,654
- -----------------------------------------------------------
Receivables for:
Investments sold 1,262,699
- -----------------------------------------------------------
Fund shares sold 891,726
- -----------------------------------------------------------
Dividends 16,229
- -----------------------------------------------------------
Amount due from advisor 30,666
- -----------------------------------------------------------
Investment for trustee deferred compensation
and retirement plans 1,882
- -----------------------------------------------------------
Other assets 56,041
===========================================================
Total assets 39,464,897
___________________________________________________________
===========================================================
LIABILITIES:
Payables for:
Investments purchased 1,157,342
- -----------------------------------------------------------
Fund shares reacquired 139,779
- -----------------------------------------------------------
Dividends 2
- -----------------------------------------------------------
Trustee deferred compensation and retirement
plans 1,881
- -----------------------------------------------------------
Accrued distribution fees 12,120
- -----------------------------------------------------------
Accrued trustees' fees 1,047
- -----------------------------------------------------------
Accrued transfer agent fees 5,464
- -----------------------------------------------------------
Accrued operating expenses 49,709
===========================================================
Total liabilities 1,367,344
===========================================================
Net assets applicable to shares outstanding $38,097,553
___________________________________________________________
===========================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $34,954,637
- -----------------------------------------------------------
Undistributed net investment income (loss) (1,922)
- -----------------------------------------------------------
Undistributed net realized gain from
investment securities and foreign currencies 326,675
- -----------------------------------------------------------
Unrealized appreciation of investment
securities and foreign currencies 2,818,163
===========================================================
$38,097,553
___________________________________________________________
===========================================================
NET ASSETS:
Class A $21,861,627
___________________________________________________________
===========================================================
Class B $ 6,557,957
___________________________________________________________
===========================================================
Class C $ 4,550,153
___________________________________________________________
===========================================================
Class R $ 34,005
___________________________________________________________
===========================================================
Institutional Class $ 5,093,811
___________________________________________________________
===========================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER SHARE,
UNLIMITED NUMBER OF SHARES AUTHORIZED:
Class A 1,836,967
___________________________________________________________
===========================================================
Class B 554,086
___________________________________________________________
===========================================================
Class C 384,605
___________________________________________________________
===========================================================
Class R 2,860
___________________________________________________________
===========================================================
Institutional Class 427,200
___________________________________________________________
===========================================================
Class A:
Net asset value per share $ 11.90
- -----------------------------------------------------------
Offering price per share:
(Net asset value of $11.90 divided
by 94.50%) $ 12.59
___________________________________________________________
===========================================================
Class B:
Net asset value and offering price per share $ 11.84
___________________________________________________________
===========================================================
Class C:
Net asset value and offering price per share $ 11.83
___________________________________________________________
===========================================================
Class R:
Net asset value and offering price per share $ 11.89
___________________________________________________________
===========================================================
Institutional Class:
Net asset value and offering price per share $ 11.92
___________________________________________________________
===========================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
F-2
STATEMENT OF OPERATIONS
For the period November 4, 2003 (Date operations commenced) through October 31,
2004
<Table>
INVESTMENT INCOME:
Dividends $ 68,637
- ------------------------------------------------------------------------
Interest 23,014
========================================================================
Total investment income 91,651
========================================================================
EXPENSES:
Advisory fees 93,787
- ------------------------------------------------------------------------
Administrative services fees 50,000
- ------------------------------------------------------------------------
Custodian fees 16,346
- ------------------------------------------------------------------------
Distribution fees:
Class A 21,405
- ------------------------------------------------------------------------
Class B 23,038
- ------------------------------------------------------------------------
Class C 15,195
- ------------------------------------------------------------------------
Class R 48
- ------------------------------------------------------------------------
Transfer agent fees -- Class A, B, C, and R 8,875
- ------------------------------------------------------------------------
Transfer agent fees -- Institutional Class 383
- ------------------------------------------------------------------------
Trustees' fees and retirement benefits 11,871
- ------------------------------------------------------------------------
Registration and filing fees 58,210
- ------------------------------------------------------------------------
Professional fees 57,821
- ------------------------------------------------------------------------
Other 23,385
========================================================================
Total expenses 380,364
========================================================================
Less: Fees waived, expenses reimbursed and expense offset
arrangements (138,804)
========================================================================
Net expenses 241,560
========================================================================
Net investment income (loss) (149,909)
========================================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES AND FOREIGN CURRENCIES:
Net realized gain (loss) from:
Investment securities 475,450
- ------------------------------------------------------------------------
Foreign currencies (17,343)
========================================================================
458,107
========================================================================
Change in net unrealized appreciation (depreciation) of:
Investment securities 2,820,212
- ------------------------------------------------------------------------
Foreign currencies (2,049)
========================================================================
2,818,163
========================================================================
Net gain from investment securities and foreign currencies 3,276,270
========================================================================
Net increase in net assets resulting from operations $3,126,361
________________________________________________________________________
========================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
F-3
STATEMENT OF CHANGES IN NET ASSETS
For the period November 4, 2003 (Date operations commenced) through October 31,
2004
<Table>
<Caption>
OCTOBER 31,
2004
- ---------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (149,909)
- ---------------------------------------------------------------------------
Net realized gain from investment securities and foreign
currencies 458,107
- ---------------------------------------------------------------------------
Change in net unrealized appreciation of investment
securities and foreign currencies 2,818,163
===========================================================================
Net increase in net assets resulting from operations 3,126,361
===========================================================================
Share transactions-net:
Class A 20,158,818
- ---------------------------------------------------------------------------
Class B 5,987,958
- ---------------------------------------------------------------------------
Class C 4,134,003
- ---------------------------------------------------------------------------
Class R 30,917
- ---------------------------------------------------------------------------
Institutional Class 4,659,496
===========================================================================
Net increase in net assets resulting from share
transactions 34,971,192
===========================================================================
Net increase in net assets 38,097,553
===========================================================================
NET ASSETS:
Beginning of period --
===========================================================================
End of period (including undistributed net investment
income (loss) of $(1,922)). $38,097,553
___________________________________________________________________________
===========================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
F-4
NOTES TO FINANCIAL STATEMENTS
October 31, 2004
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Trimark Small Companies Fund (the "Fund") is a separate series of AIM
Investment Funds (the "Trust"). The Trust is organized as a Delaware statutory
trust and is registered under the Investment Company Act of 1940, as amended
(the "1940 Act"), as an open-end series management investment company consisting
of six separate series 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 commenced
operations on November 4, 2003.
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.
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.
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").
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.
Debt obligations (including convertible bonds) are fair valued using an
evaluated quote provided by an independent pricing service. Evaluated
quotes provided by the pricing service may be determined without exclusive
reliance on quoted prices, and may reflect appropriate factors such as
institution-size trading in similar groups of securities, developments
related to specific securities, dividend rate, yield, quality, type of
issue, coupon rate, maturity, individual trading characteristics and other
market data. Short-term obligations having 60 days or less to maturity and
commercial paper are valued at amortized cost which approximates market
value.
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.
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 the event is likely to have affected the closing price of the security,
the security will be valued at fair value in good faith using procedures
approved by the Board of Trustees. Adjustments to closing prices to reflect
fair value may also be based on a screening process of an independent
pricing service to indicate the degree of certainty, based on historical
data, that the closing price in the principal market where a foreign
security trades is not the current market value as of the close of the
NYSE. Foreign securities meeting the approved degree of certainty that the
price is not reflective of current market value will be priced at the
indication of fair value from the independent pricing service. Multiple
factors may be considered by the independent pricing service in determining
adjustments to reflect fair value and may include information relating to
sector indices, ADRs, domestic and foreign index futures and
exchange-traded funds.
F-5
Securities for which market quotations are not readily available or are
unreliable are valued at fair value as determined in good faith by or under
the supervision of the Trust's officers following procedures approved by
the Board of 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.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions
are accounted for on a trade date basis. Realized gains or losses on sales
are computed on the basis of specific identification of the securities
sold. Interest income is recorded on the accrual basis from settlement
date. Dividend income is recorded on the ex-dividend date. Bond premiums
and discounts are amortized and/or accreted for financial reporting
purposes.
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 and other shareholder recordkeeping 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.
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement,
the Fund pays an advisory fee to AIM at the annual rate of 0.85% of the first $1
billion of the Fund's average daily net assets, plus 0.80% of the Fund's average
daily net assets in excess of $1 billion. AIM has contractually agreed to waive
advisory fees and/or reimburse expenses to the extent necessary to limit Total
Annual Operating Expenses (excluding certain items discussed below) of Class A,
Class B, Class C, Class R and Institutional Class shares to 2.00%, 2.65%, 2.65%,
2.15% and 1.65% of average daily net assets, respectively, through October 31,
2005. 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. Further, AIM has
voluntarily agreed to waive advisory fees of the Fund in the amount of 25% of
the advisory fee AIM
F-6
receives from the affiliated money market funds on investments by the Fund in
such affiliated money market funds. 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 period November 4, 2003
(date operations commenced) through October 31, 2004, AIM waived fees of $93,787
and reimbursed expenses of $42,443. Under the terms of a master sub-advisory
agreement between AIM and AIM Funds Management Inc. ("AIM Funds Management"),
AIM pays AIM Funds Management 40% of the amount paid by the Fund to AIM.
For the period November 4, 2003 (date operations commenced) through October
31, 2004, at the request of the Trustees of the Trust, AMVESCAP PLC ("AMVESCAP")
agreed to assume $2,300 of expenses incurred by the Fund in connection with
matters related to recently settled regulatory actions and investigations
concerning market timing activity in the AIM Funds, including legal, audit,
shareholder servicing, communication and trustee expenses. These expenses along
with the related expense reimbursement are included in the Statement of
Operations.
The Fund, pursuant to a master administrative services agreement with AIM,
has agreed to pay AIM for certain administrative costs incurred in providing
accounting services to the Fund. For the period November 4, 2003 (date
operations commenced) through October 31, 2004, AIM was paid $50,000 for such
services.
The Fund, pursuant to a transfer agency and service agreement, has agreed to
pay AIM Investment Services, Inc. ("AISI") a fee for providing transfer agency
and shareholder services to the Fund and reimburse AISI for certain expenses
incurred by AISI in the course of providing such services. For the Institutional
Class, the transfer agent has contractually agreed to reimburse class specific
transfer agent fees and expenses to the extent necessary to limit transfer agent
fees to 0.10% of the average net assets. For the period November 4, 2003 (date
operations commenced) through October 31, 2004, the Fund paid AISI $8,875 for
Class A, Class B, Class C and Class R shares and $383 for Institutional Class
shares. AISI may make payments to intermediaries to provide omnibus account
services, sub-accounting services and/or networking 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 period November 4, 2003 (date commenced) through
October 31, 2004, the Class A, Class B, Class C and Class R shares paid $21,405,
$23,038, $15,195 and $48, 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 period
November 4, 2003 (date operations commenced) through October 31, 2004, AIM
Distributors advised the Fund that it retained $23,572 in front-end sales
commissions from the sale of Class A shares and $192, $448, $166 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 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 period
November 4, 2003 (date operations commenced) through October 31, 2004, the Fund
received credits in transfer agency fees of $156 and credits in custodian fees
of $118 under expense offset arrangements, which resulted in a reduction of the
Fund's total expenses of $274.
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 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 period November 4, 2003 (date operations commenced) through
October 31, 2004, the Fund paid legal fees of $2,481 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. 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. A loan will be secured by
F-7
collateral if the Fund's aggregate borrowings from all sources exceeds 10% of
the Fund's total assets. 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 period November 4, 2003 (date operations commenced) through
October 31, 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 at an amount equal to the Federal
Funds rate plus 100 basis points.
NOTE 6--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
There were no ordinary income or long-term capital gain distributions paid
during the period November 4, 2003 (date operations commenced) through October
31, 2004.
TAX COMPONENTS OF NET ASSETS:
As of October 31, 2004, the components of net assets on a tax basis were as
follows:
<Table>
<Caption>
2004
- ---------------------------------------------------------------------------
Undistributed short-term gain $ 326,675
- ---------------------------------------------------------------------------
Unrealized appreciation -- investments 2,818,163
- ---------------------------------------------------------------------------
Temporary book/tax differences (1,922)
- ---------------------------------------------------------------------------
Shares of beneficial interest 34,954,637
===========================================================================
Total net assets $38,097,553
___________________________________________________________________________
===========================================================================
</Table>
The difference between book-basis and tax-basis unrealized appreciation
(depreciation) is due to differences in the timing of recognition of gains and
losses on investments for tax and book purposes. The tax-basis unrealized
appreciation on investments amount includes appreciation (depreciation) on
foreign currencies of $(2,049).
The temporary book/tax differences are a result of timing differences
between book and tax recognition of income and/or expenses. The Fund's temporary
book/tax differences are the result of the trustee deferral of compensation.
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 utilize capital loss carryforward in the future may be limited under
the Internal Revenue Code and related regulations based on the results of future
transactions.
The Fund has no capital loss carryforward as of October 31, 2004.
NOTE 7--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 period
November 4, 2003 (date operations commenced) through October 31, 2004 was
$31,839,503 and $2,875,778, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- ------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $3,143,546
- ------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (323,334)
==============================================================================
Net unrealized appreciation of investment securities $2,820,212
______________________________________________________________________________
==============================================================================
Cost of investments is the same for tax and financial statement purposes.
</Table>
NOTE 8--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of foreign currency
transactions, nondeductible stock issuance costs and net operating losses, on
October 31, 2004, undistributed net investment income was increased by $147,987,
undistributed net realized gain (loss) was decreased by $131,432 and shares of
beneficial interest decreased by $16,555. This reclassification had no effect on
the net assets of the Fund.
F-8
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 certain 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
- --------------------------------------------------------------------------------------
NOVEMBER 4, 2003
(DATE OPERATIONS
COMMENCED) TO
OCTOBER 31, 2004
------------------------
SHARES AMOUNT
- --------------------------------------------------------------------------------------
Sold:
Class A 2,059,644 $22,545,293
- --------------------------------------------------------------------------------------
Class B 593,305 6,419,319
- --------------------------------------------------------------------------------------
Class C 420,237 4,528,577
- --------------------------------------------------------------------------------------
Class R(a) 2,956 32,022
- --------------------------------------------------------------------------------------
Institutional Class(a) 431,390 4,705,451
======================================================================================
Automatic conversion of Class B shares to Class A shares:
Class A 8,450 94,770
- --------------------------------------------------------------------------------------
Class B (8,485) (94,770)
======================================================================================
Reacquired:
Class A (231,127) (2,481,245)
- --------------------------------------------------------------------------------------
Class B (30,734) (336,591)
- --------------------------------------------------------------------------------------
Class C (35,632) (394,574)
- --------------------------------------------------------------------------------------
Class R(a) (96) (1,105)
- --------------------------------------------------------------------------------------
Institutional Class(a) (4,190) (45,955)
======================================================================================
3,205,718 $34,971,192
______________________________________________________________________________________
======================================================================================
</Table>
(a) Class R shares and Institutional Class shares commenced sales on April 30,
2004.
F-9
NOTE 10--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the period indicated.
<Table>
<Caption>
CLASS A
----------------
NOVEMBER 4, 2003
(DATE OPERATIONS
COMMENCED) TO
OCTOBER 31,
2004
- --------------------------------------------------------------------------------
Net asset value, beginning of period $ 10.00
- --------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.04)
================================================================================
Net gains on securities (both realized and unrealized) 1.94
================================================================================
Total from investment operations 1.90
================================================================================
Net asset value, end of period $ 11.90
________________________________________________________________________________
================================================================================
Total return(a) 19.00%
________________________________________________________________________________
================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $21,862
________________________________________________________________________________
================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 2.01%(b)
- --------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 3.26%(b)
================================================================================
Ratio of net investment income (loss) to average net assets (1.17)%(b)
________________________________________________________________________________
================================================================================
Portfolio turnover rate(c) 29%
________________________________________________________________________________
================================================================================
</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 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 a period less than one year.
(b) Ratios are annualized and based on average daily net assets of
$6,166,407.
(c) Not annualized for a period less than one year.
<Table>
<Caption>
CLASS B
----------------
NOVEMBER 4, 2003
(DATE OPERATIONS
COMMENCED) TO
OCTOBER 31,
2004
- --------------------------------------------------------------------------------
Net asset value, beginning of period $10.00
- --------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.08)
================================================================================
Net gains on securities (both realized and unrealized) 1.92
================================================================================
Total from investment operations 1.84
================================================================================
Net asset value, end of period $11.84
________________________________________________________________________________
================================================================================
Total return(a) 18.40%
________________________________________________________________________________
================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $6,558
________________________________________________________________________________
================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 2.66%(b)
- --------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 3.91%(b)
================================================================================
Ratio of net investment income (loss) to average net assets (1.82)%(b)
________________________________________________________________________________
================================================================================
Portfolio turnover rate(c) 29%
________________________________________________________________________________
================================================================================
</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 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 a period less than one year.
(b) Ratios are annualized and based on average daily net assets of
$2,322,823.
(c) Not annualized for a period less than one year.
F-10
NOTE 10--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS C
----------------
NOVEMBER 4, 2003
(DATE OPERATIONS
COMMENCED) TO
OCTOBER 31,
2004
- --------------------------------------------------------------------------------
Net asset value, beginning of period $10.00
- --------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.07)
================================================================================
Net gains on securities (both realized and unrealized) 1.90
================================================================================
Total from investment operations 1.83
================================================================================
Net asset value, end of period $11.83
________________________________________________________________________________
================================================================================
Total return(a) 18.30%
________________________________________________________________________________
================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $4,550
________________________________________________________________________________
================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 2.66%(b)
- --------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 3.91%(b)
================================================================================
Ratio of net investment income (loss) to average net assets (1.82)%(b)
________________________________________________________________________________
================================================================================
Portfolio turnover rate(c) 29%
________________________________________________________________________________
================================================================================
</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 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 a period less than one year.
(b) Ratios are annualized and based on average daily net assets of
$1,532,060.
(c) Not annualized for a period less than one year.
<Table>
<Caption>
CLASS R
----------------
APRIL 30, 2004
(DATE SALES
COMMENCED) TO
OCTOBER 31,
2004
- --------------------------------------------------------------------------------
Net asset value, beginning of period $10.56
- --------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.04)
================================================================================
Net gains on securities (both realized and unrealized) 1.37
================================================================================
Total from investment operations 1.33
================================================================================
Net asset value, end of period $11.89
________________________________________________________________________________
================================================================================
Total return(a) 12.59%
________________________________________________________________________________
================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 34
________________________________________________________________________________
================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 2.16%(b)
- --------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 3.41%(b)
================================================================================
Ratio of net investment income (loss) to average net assets (1.32)%(b)
________________________________________________________________________________
================================================================================
Portfolio turnover rate(c) 29%
________________________________________________________________________________
================================================================================
</Table>
(a) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net value for
financial reporting purposes and the returns based upon those net values
may differ from the net asset value and returns for shareholder
transactions. Not annualized for a period less than one year.
(b) Ratios are annualized and based on average daily net assets of $18,853.
(c) Not annualized for a period of less than one year.
F-11
NOTE 10--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
INSTITUTIONAL CLASS
-------------------
APRIL 30, 2004
(DATE SALES
COMMENCED) TO
OCTOBER 31,
2004
- -----------------------------------------------------------------------------------
Net asset value, beginning of period $10.56
- -----------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.02)
===================================================================================
Net gains on securities (both realized and unrealized) 1.38
===================================================================================
Total from investment operations 1.36
===================================================================================
Net asset value, end of period $11.92
___________________________________________________________________________________
===================================================================================
Total return(a) 12.88%
___________________________________________________________________________________
===================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $5,094
___________________________________________________________________________________
===================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.60%(b)
- -----------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 2.86%(b)
===================================================================================
Ratio of net investment income (loss) to average net assets (0.77)%(b)
___________________________________________________________________________________
===================================================================================
Portfolio turnover rate(c) 29%
___________________________________________________________________________________
===================================================================================
</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 returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Not annualized for a period less than one
year.
(b) Ratios are annualized and based on average daily net assets of
$2,146,788.
(c) Not annualized for a period of less than one year.
NOTE 11--LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
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, contractual plans, issues
related to Section 529 college savings plans and procedures for locating lost
securityholders.
As described more fully below, INVESCO Funds Group, Inc. ("IFG"), the former
investment advisor to certain AIM Funds, A I M Advisors, Inc. ("AIM"), the
Fund's investment advisor, and A I M Distributors, Inc. ("ADI"), the distributor
of the retail AIM Funds and a wholly owned subsidiary of AIM, reached final
settlements with the Securities and Exchange Commission ("SEC"), the New York
Attorney General ("NYAG"), the Colorado Attorney General ("COAG"), the Colorado
Division of Securities ("CODS") and the Secretary of State of the State of
Georgia to resolve civil enforcement actions and investigations related to
market timing activity and related issues in the AIM Funds, including those
formerly advised by IFG.
In addition, as described more fully below, IFG and AIM are the subject of a
number of ongoing regulatory inquiries and civil lawsuits related to one or more
of the issues currently being scrutinized by various Federal and state
regulators, including but not limited to those issues described above.
Additional regulatory actions and/or civil lawsuits related to the above or
other issues may be filed against the AIM Funds, 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 the AIM Funds, IFG, AIM
and/or related entities and individuals in the future.
As a result of the matters discussed below, investors in the AIM 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.
Settled Enforcement Actions and Investigations Related to Market Timing
On October 8, 2004, AMVESCAP PLC ("AMVESCAP"), the parent company of IFG and
AIM, announced that final settlements had been reached with the SEC, the NYAG,
the COAG and the Secretary of State of Georgia to resolve civil enforcement
actions and investigations related to market timing activity and related issues
in the AIM Funds, including those formerly advised by IFG. A final settlement
also has been reached with the Colorado Division of Securities ("CODS") with
respect to this matter. In their enforcement actions and investigations, these
regulators alleged, in substance, that IFG and AIM failed to disclose in the
prospectuses for the AIM Funds that they advised and to the independent
directors/trustees of such Funds that IFG and AIM had entered into certain
arrangements permitting market timing of such Funds, thereby breaching their
fiduciary duties to such Funds. As a result of the foregoing, the regulators
alleged that IFG, AIM and ADI breached various Federal and state securities,
business and consumer protection laws. Under the terms of the
F-12
NOTE 11--LEGAL PROCEEDINGS (CONTINUED)
settlements, IFG, AIM and ADI consent to the entry of settlement orders or
assurances of discontinuance, as applicable, by the regulators containing
certain terms, some of which are described below, without admitting or denying
any wrongdoing.
Under the terms of the settlements, IFG agreed to pay a total of $325 million,
of which $110 million is civil penalties. Of the $325 million total payment,
half will be paid on or before December 31, 2004 and the remaining half will be
paid on or before December 31, 2005. AIM and ADI agreed to pay a total of $50
million, of which $30 million is civil penalties. The entire $50 million payment
by AIM and ADI has been paid.
The entire $325 million IFG settlement payment will be available for
distribution to the shareholders of those AIM Funds that IFG formerly advised
that were harmed by market timing activity, and the entire $50 million
settlement payment by AIM and ADI will be available for distribution to the
shareholders of those AIM Funds advised by AIM that were harmed by market timing
activity, all as to be determined by an independent distribution consultant to
be appointed under the settlements. The settlement payments will be distributed
in accordance with a methodology to be determined by the independent
distribution consultant, in consultation with AIM and the independent trustees
of the AIM Funds and acceptable to the staff of the SEC.
Under the settlements with the NYAG and COAG, AIM has agreed to reduce
management fees on the AIM Funds by $15 million per year for the next five
years, based upon effective fee rates and assets under management as of July 1,
2004, and not to increase certain management fees. IFG will also pay $1.5
million to the COAG to be used for investor education purposes and to reimburse
the COAG for actual costs. Finally, IFG and AIM will pay $175,000 to the
Secretary of State of Georgia to be used for investor education purposes and to
reimburse the Secretary of State for actual costs.
None of the costs of the settlements will be borne by the AIM Funds or by Fund
shareholders.
Under the terms of the settlements, AIM will make certain governance reforms,
including maintaining an internal controls committee and retaining an
independent compliance consultant, a corporate ombudsman and, as stated above,
an independent distribution consultant. Also, commencing in 2007 and at least
once every other year thereafter, AIM will undergo a compliance review by an
independent third party.
In addition, under the terms of the settlements, AIM has undertaken to cause
the AIM Funds to operate in accordance with certain governance policies and
practices, including retaining a full-time independent senior officer whose
duties will include monitoring compliance and managing the process by which
proposed management fees to be charged the AIM Funds are negotiated. Also,
commencing in 2008 and not less than every fifth calendar year thereafter, the
AIM Funds will hold shareholder meetings at which their Boards of Trustees will
be elected.
On October 8, 2004, the SEC announced that it had settled a market timing
enforcement action against Raymond R. Cunningham, the former president and chief
executive officer of IFG and a former member of the board of directors of the
AIM Funds formerly advised by IFG. As part of the settlement, the SEC ordered
Mr. Cunningham to pay $1 in restitution and civil penalties in the amount of
$500,000. In addition, the SEC prohibited Mr. Cunningham from associating with
an investment advisor, broker, dealer or investment company for a period of two
years and further prohibited him from serving as an officer or director of an
investment advisor, broker, dealer or investment company for a period of five
years.
On August 31, 2004, the SEC announced that it had settled market timing
enforcement actions against Timothy J. Miller, the former chief investment
officer and a former portfolio manager for IFG, Thomas A. Kolbe, the former
national sales manager of IFG, and Michael D. Legoski, a former assistant vice
president in IFG's sales department. As part of the settlements, the SEC ordered
Messrs. Miller, Kolbe and Legoski to pay $1 in restitution each and civil
penalties in the amounts of $150,000, $150,000 and $40,000, respectively. In
addition, the SEC prohibited each of them from associating with an investment
advisor or investment company for a period of one year, prohibited Messrs.
Miller and Kolbe from serving as an officer or director of an investment advisor
or investment company for three years and two years, respectively, and
prohibited Mr. Legoski from associating with a broker or dealer for a period of
one year.
As referenced by the SEC in the SEC's settlement order, one former officer of
ADI and one current officer of AIM (who has taken a voluntary leave of absence)
have received regulatory inquiries in the form of subpoenas or other oral or
written requests for information and/or documents related to market timing
activity in the AIM Funds.
At the request of the trustees of the AIM Funds, AMVESCAP has agreed to pay
all of the expenses incurred by such Funds related to the market timing
investigations, including expenses incurred in connection with the regulatory
complaints against IFG alleging market timing and the market timing
investigations with respect to IFG and AIM.
The payments made in connection with the above-referenced settlements by IFG,
AIM and ADI will total approximately $375 million (not including AIM's agreement
to reduce management fees on the AIM Funds by $15 million per year for the next
five years, based upon effective fee rates and assets under management as of
July 1, 2004). The manner in which the settlement payments will be distributed
is unknown at the present time and will be determined by an independent
distribution consultant to be appointed under the settlement agreements.
Therefore, management of AIM and the Fund are unable at the present time to
estimate the impact, if any, that the distribution of the settlement amounts may
have on the Fund or whether such distribution will have an impact on the Fund's
financial statements in the future.
At the present time, management of AIM and the Fund are unable to estimate the
impact, if any, that the outcome of the ongoing matters described below may have
on AIM, ADI or the Fund.
Ongoing Regulatory Inquiries Concerning IFG and AIM
IFG, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds formerly advised by IFG 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 such 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 SEC, the NASD,
Inc. ("NASD"), the Florida Department of Financial Services, the Attorney
F-13
NOTE 11--LEGAL PROCEEDINGS (CONTINUED)
General of the State of West Virginia, the West Virginia Securities Commission
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 of the AIM
Funds formerly advised by IFG. IFG is providing full cooperation with respect to
these inquiries.
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, contractual
plans, issues related to Section 529 college savings plans and procedures for
locating lost securityholders. These regulators include the SEC, the NASD, the
Department of Banking for the State of Connecticut, 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 SEC, the NASD, the DOL, the
Internal Revenue Service, the New York Stock Exchange, 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 AIM Funds, IFG, AIM, A I M Management Group Inc. ("AIM
Management"), AMVESCAP, certain related entities, certain of their current and
former officers and/or certain unrelated third parties) making allegations that
are similar in many respects to those in the settled regulatory actions brought
by the SEC, the NYAG and the COAG concerning market timing activity in the AIM
Funds. 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 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; injunctive relief; disgorgement of management fees; imposition of a
constructive trust; removal of certain directors and/or employees; various
corrective measures under ERISA; rescission of certain Funds' advisory
agreements; interest; and attorneys' and experts' fees.
All lawsuits based on allegations of market timing, late trading, and related
issues have been transferred to the United States District Court for the
District of Maryland (the "MDL Court") for consolidated or coordinated pre-trial
proceedings. Pursuant to an Order of the MDL Court, plaintiffs consolidated
their claims for pre-trial purposes into three amended complaints against
various AIM- and IFG-related parties: (i) a Consolidated Amended Class Action
Complaint purportedly brought on behalf of shareholders of the AIM Funds; (ii) a
Consolidated Amended Fund Derivative Complaint purportedly brought on behalf of
the AIM Funds and fund registrants; and (iii) an Amended Class Action Complaint
for Violations of the Employee Retirement Income Securities Act purportedly
brought on behalf of participants in AMVESCAP's 401(k) plan. Plaintiffs in one
of the underlying lawsuits transferred to the MDL Court continue to seek remand
of their action 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 AIM Funds, IFG and/or AIM)
alleging that certain AIM 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/or 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, INVESCO Institutional (N.A.), Inc., ADI and/or INVESCO
Distributors, Inc.) alleging that the defendants charged excessive advisory
and/or 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 Federal
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 Charging of Distribution Fees on Closed
Funds or Share Classes
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, IFG, AIM, ADI and/or certain of the trustees of the AIM 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 Federal courts and seek such remedies as
damages; injunctive relief; and attorneys' and experts' fees.
F-14
NOTE 11--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. and/or
certain of the trustees of the AIM Funds) alleging that the defendants
improperly used the assets of the AIM Funds to pay brokers to aggressively
promote the sale of the AIM 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.
F-15
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees and Shareholders of
AIM Trimark Small Companies Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the AIM Trimark Small Companies
Fund (the "Fund") at October 31, 2004, the results of its operations, the
changes in its net assets and the financial highlights for the period November
4, 2003 (date operations commenced) through October 31, 2004, in conformity with
accounting principles generally accepted in the United States of America. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these financial statements in accordance
with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit, which included confirmation of securities at October 31, 2004 by
correspondence with the custodian and brokers, provides a reasonable basis for
our opinion.
/s/ PRICEWATERHOUSECOOPERS LLP
December 20, 2004
Houston, Texas
F-16
OTHER INFORMATION
TRUSTEES AND OFFICERS
As of October 31, 2004
The address of each trustee and officer of AIM Investment Funds (the "Trust"),
is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee oversees 114
portfolios in the AIM Funds complex. The trustees serve for the life of the
Trust, subject to their earlier death, incapacitation, resignation, retirement
or removal as more specifically provided in the Trust's organizational
documents. Column two below includes length of time served with predecessor
entities, if any.
<Table>
<Caption>
TRUSTEE AND/
NAME, YEAR OF BIRTH AND OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- ---------------------------------------------------------------------------------------------------------------------------------
INTERESTED PERSONS
- ---------------------------------------------------------------------------------------------------------------------------------
Robert H. Graham(1) -- 1946 1998 Director and Chairman, A I M Management None
Trustee and President Group Inc. (financial services holding
company); Director and Vice Chairman,
AMVESCAP PLC and Chairman, AMVESCAP
PLC -- AIM Division (parent of AIM and a
global investment management firm)
Formerly: President and Chief Executive
Officer, A I M Management Group Inc.;
Director, Chairman and President, A I M
Advisors, Inc. (registered investment
advisor); Director and Chairman, A I M
Capital Management, Inc. (registered
investment advisor), A I M Distributors,
Inc. (registered broker dealer), AIM
Investment Services, Inc., (registered
transfer agent), and Fund Management
Company (registered broker dealer); and
Chief Executive Officer, AMVESCAP
PLC -- Managed Products
- ---------------------------------------------------------------------------------------------------------------------------------
Mark H. Williamson(2) -- 1951 2003 Director, President and Chief Executive None
Trustee and Executive Vice Officer, A I M Management Group Inc.
President (financial services holding company);
Director, Chairman and President, A I M
Advisors, Inc. (registered investment
advisor); Director, A I M Capital
Management, Inc. (registered investment
advisor) and A I M Distributors, Inc.
(registered broker dealer); Director and
Chairman, AIM Investment Services, Inc.
(registered transfer agent), Fund
Management Company (registered broker
dealer) and INVESCO Distributors, Inc.
(registered broker dealer); and Chief
Executive Officer, AMVESCAP PLC -- AIM
Division (parent of AIM and a global
investment management firm)
Formerly: Director, Chairman, President
and Chief Executive Officer, INVESCO
Funds Group, Inc.; President and Chief
Executive Officer, INVESCO Distributors,
Inc.; Chief Executive Officer, AMVESCAP
PLC -- Managed Products; Chairman and
Chief Executive Officer of NationsBanc
Advisors, Inc.; and Chairman of
NationsBanc Investments, Inc.
- ---------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- ---------------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett(3) -- 1944 2001 Chairman, Crockett Technology Associates ACE Limited (insurance company);
Trustee and Chair (technology consulting company) and Captaris, Inc. (unified
messaging provider)
- ---------------------------------------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 2003 Retired None
Trustee
Formerly: President and Chief Executive
Officer, AMC Cancer Research Center; and
Chairman and Chief Executive Officer,
First Columbia Financial Corporation
- ---------------------------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 1987 Retired Badgley Funds, Inc. (registered
Trustee investment company)
Formerly: Partner, law firm of Baker &
McKenzie
- ---------------------------------------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 2003 Co-President and Founder, Green, Manning None
Trustee & Bunch Ltd., (investment banking firm);
and Director, Policy Studies, Inc. and
Van Gilder Insurance Corporation
- ---------------------------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2001 Director of a number of public and Cortland Trust, Inc. (Chairman)
Trustee private business corporations, including (registered investment company);
the Boss Group Ltd. (private investment Annuity and Life Re (Holdings),
and management) and Magellan Insurance Ltd. (insurance company)
Company
Formerly: Director, President and Chief
Executive Officer, Volvo Group North
America, Inc.; Senior Vice President, AB
Volvo; and director of various
affiliated Volvo companies
- ---------------------------------------------------------------------------------------------------------------------------------
Edward K. Dunn, Jr. -- 1935 2001 Retired None
Trustee
Formerly: Chairman, Mercantile Mortgage
Corp.; President and Chief Operating
Officer, Mercantile-Safe Deposit & Trust
Co.; and President, Mercantile
Bankshares Corp.
- ---------------------------------------------------------------------------------------------------------------------------------
Jack M. Fields -- 1952 2001 Chief Executive Officer, Twenty First Administaff, and Discovery Global
Trustee Century Group, Inc. (government affairs Education Fund (non-profit)
company) and Texana Timber LP
(sustainable forestry company)
- ---------------------------------------------------------------------------------------------------------------------------------
</Table>
(1) Mr. Graham is considered an interested person of the Trust because he is a
director of AMVESCAP PLC, parent of the advisor to the Trust. Prior to
October 4, 2004, Mr. Graham served as Chairman of the Board of Trustees of
the Trust.
(2) Mr. Williamson is considered an interested person of the Trust because he is
an officer and a director of the advisor to, and a director of the principal
underwriter of, the Trust.
(3) Mr. Crockett was elected Chair of the Board of Trustees of the Trust
effective October 4, 2004.
Trustees and Officers (continued)
As of October 31, 2004
The address of each trustee and officer of AIM Investment Funds (the "Trust"),
is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee oversees 114
portfolios in the AIM Funds complex. The trustees serve for the life of the
Trust, subject to their earlier death, incapacitation, resignation, retirement
or removal as more specifically provided in the Trust's organizational
documents. Column two below includes length of time served with predecessor
entities, if any.
<Table>
<Caption>
NAME, YEAR OF BIRTH AND TRUSTEE AND/ PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST OR OFFICER SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- -----------------------------------------------------------------------------------------------------------------------------------
Carl Frischling -- 1937 2001 Partner, law firm of Kramer Levin Cortland Trust, Inc. (registered
Trustee Naftalis and Frankel LLP investment company)
- -----------------------------------------------------------------------------------------------------------------------------------
Gerald J. Lewis -- 1933 2003 Chairman, Lawsuit Resolution Services General Chemical Group, Inc.
Trustee (California)
Formerly: Associate Justice of the
California Court of Appeals
- -----------------------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 2001 Formerly: Chief Executive Officer, YWCA None
Trustee of the USA
- -----------------------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 2001 Partner, law firm of Pennock & Cooper None
Trustee
- -----------------------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 1987 Retired None
Trustee
- -----------------------------------------------------------------------------------------------------------------------------------
Louis S. Sklar -- 1939 2001 Executive Vice President, Development None
Trustee and Operations, Hines Interests Limited
Partnership (real estate development
company)
- -----------------------------------------------------------------------------------------------------------------------------------
Larry Soll -- 1942 2003 Retired None
Trustee
- -----------------------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- -----------------------------------------------------------------------------------------------------------------------------------
Lisa O. Brinkley(4) -- 1959 2004 Senior Vice President, A I M Management N/A
Senior Vice President and Group Inc. (financial services holding
Chief Compliance Officer company); Senior Vice President and
Chief Compliance Officer, A I M
Advisors, Inc.; Vice President and Chief
Compliance Officer, A I M Capital
Management, Inc. and A I M Distributors,
Inc.; and Vice President, AIM Investment
Services, Inc. and Fund Management
Company
Formerly: Senior Vice President and
Compliance Director, Delaware
Investments Family of Funds
- -----------------------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 2003 Director, Senior Vice President, N/A
Senior Vice President, Secretary and General Counsel, A I M
Secretary and Chief Legal Management Group Inc. (financial
Officer services holding company) and A I M
Advisors, Inc.; Director and Vice
President, INVESCO Distributors, Inc.;
Vice President, A I M Capital
Management, Inc., and AIM Investment
Services, Inc.; Director, Vice President
and General Counsel, Fund Management
Company and Senior Vice President, A I M
Distributors, Inc.
Formerly: Senior Vice President and
General Counsel, Liberty Financial
Companies, Inc.; Senior Vice President
and General Counsel, Liberty Funds
Group, LLC and Vice President, A I M
Distributors, Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
Stuart W. Coco -- 1955 2002 Managing Director and Director of Money N/A
Vice President Market Research and Special Projects,
A I M Capital Management, Inc.; and Vice
President, A I M Advisors, Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, A I M N/A
Vice President and Treasurer Advisors, Inc.
Formerly: Senior Vice President, AIM
Investment Services, Inc.; and Vice
President, A I M Distributors, Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 2004 Director of Cash Management, Managing N/A
Vice President Director and Chief Cash Management
Officer, A I M Capital Management, Inc;
Director and President, Fund Management
Company; and Vice President, A I M
Advisors, Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
Edgar M. Larsen -- 1940 2002 Executive Vice President, A I M N/A
Vice President Management Group, Inc.; Senior Vice
President, A I M Advisors, Inc., and
President, Director of Investments,
Chief Executive Officer and Chief
Investment Officer, A I M Capital
Management, Inc.
Formerly: Director of A I M Advisors,
Inc. and A I M Management Group Inc.,
A I M Advisors, Inc.; and Director and
Chairman, A I M Capital Management, Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
</Table>
(4) Ms. Brinkley was elected Senior Vice President and Chief Compliance Officer
of the Trust effective September 20, 2004.
The Statement of Additional Information of the Trust includes additional
information about the Fund's Trustees and is available upon request, without
charge, by calling 1.800.959.4246.
<Table>
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS SUB-ADVISOR
11 Greenway Plaza A I M Advisors, Inc. A I M Distributors, Inc. PricewaterhouseCoopers AIM Funds Management,
Suite 100 11 Greenway Plaza 11 Greenway Plaza LLP Inc.
Houston, TX 77046-1173 Suite 100 Suite 100 1201 Louisiana Street 5140 Yonge Street
Houston, TX 77046-1173 Houston, TX 77046-1173 Suite 2900 Suite 900
Houston, Texas Toronto, Ontario M2N 6X7
77002-5678
COUNSEL TO THE FUND COUNSEL TO THE TRUSTEES TRANSFER AGENT CUSTODIAN
Ballard Spahr Kramer, Levin, Naftalis AIM Investment Services, State Street Bank and
Andrews & Ingersoll, LLP & Frankel LLP Inc. Trust Company
1735 Market Street 919 Third Avenue P.O. Box 4739 225 Franklin Street
Philadelphia, PA 19103-7599 New York, NY 10022-3852 Houston, TX 77210-4739 Boston, MA 02110-2801
</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(5) AIM High Yield Fund
AIM Blue Chip Fund AIM Global Aggressive Growth Fund AIM Income Fund
AIM Capital Development Fund AIM Global Equity Fund(6) 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 Core Stock Fund(1) AIM International Core Equity Fund(1) AIM Short Term Bond Fund
AIM Dent Demographic Trends Fund AIM International Emerging Growth Fund(7) AIM Total Return Bond Fund
AIM Diversified Dividend Fund AIM International Growth Fund Premier U.S. Government Money
AIM Dynamics Fund(1) AIM Trimark Fund Portfolio(1)
AIM Emerging Growth Fund
AIM Large Cap Basic Value Fund SECTOR EQUITY TAX-FREE
AIM Large Cap Growth Fund
AIM Libra Fund AIM Advantage Health Sciences Fund(1) AIM High Income Municipal Fund
AIM Mid Cap Basic Value Fund AIM Energy Fund(1) AIM Municipal Bond Fund
AIM Mid Cap Core Equity Fund(2) AIM Financial Services Fund(1) AIM Tax-Exempt Cash Fund
AIM Mid Cap Growth Fund AIM Global Health Care Fund AIM Tax-Free Intermediate Fund
AIM Mid Cap Stock Fund(1) AIM Gold & Precious Metals Fund(1)
AIM Opportunities I Fund AIM Health Sciences Fund(1) AIM ALLOCATION SOLUTIONS
AIM Opportunities II Fund AIM Leisure Fund(1)
AIM Opportunities III Fund AIM Multi-Sector Fund(1) AIM Aggressive Allocation Fund
AIM Premier Equity Fund AIM Real Estate Fund AIM Conservative Allocation Fund
AIM S&P 500 Index Fund(1) AIM Technology Fund(1) AIM Moderate Allocation Fund
AIM Select Equity Fund AIM Utilities Fund(1)
AIM Small Cap Equity Fund(3)
AIM Small Cap Growth Fund(4) ==============================================================================
AIM Small Company Growth Fund(1) CONSIDER THE INVESTMENT OBJECTIVES, RISKS, AND CHARGES AND EXPENSES CAREFULLY.
AIM Total Return Fund*(1) FOR THIS AND OTHER INFORMATION ABOUT AIM FUNDS, OBTAIN A PROSPECTUS FROM YOUR
AIM Trimark Endeavor Fund FINANCIAL ADVISOR AND READ IT THOROUGHLY BEFORE INVESTING.
AIM Trimark Small Companies Fund ==============================================================================
AIM Weingarten Fund
</Table>
* Domestic equity and income fund
(1) The following name changes became effective October 15, 2004: INVESCO
Advantage Health Sciences Fund to AIM Advantage Health Sciences Fund, INVESCO
Core Equity Fund to AIM Core Stock Fund, INVESCO Dynamics Fund to AIM Dynamics
Fund, INVESCO Energy Fund to AIM Energy Fund, INVESCO Financial Services Fund to
AIM Financial Services Fund, INVESCO Gold & Precious Metals Fund to AIM Gold &
Precious Metals Fund, INVESCO Health Sciences Fund to AIM Health Sciences Fund,
INVESCO International Core Equity Fund to AIM International Core Equity Fund,
INVESCO Leisure Fund to AIM Leisure Fund, INVESCO Mid-Cap Growth Fund to AIM Mid
Cap Stock Fund, INVESCO Multi-Sector Fund to AIM Multi-Sector Fund, INVESCO S&P
500 Index Fund to AIM S&P 500 Index Fund, INVESCO Small Company Growth Fund to
AIM Small Company Growth Fund, INVESCO Technology Fund to AIM Technology Fund,
INVESCO Total Return Fund to AIM Total Return Fund, INVESCO U.S. Government
Money Fund to Premier U.S. Government Money Portfolio, INVESCO Utilities Fund to
AIM Utilities Fund. (2) As of the close of business on February 27, 2004, AIM
Mid Cap Core Equity Fund is available to new investors on a limited basis. For
information on who may continue to invest in AIM Mid Cap Core Equity Fund,
please contact your financial advisor. (3) Effective December 13, 2004, AIM
Small Cap Equity Fund is open to all investors. (4) AIM Small Cap Growth Fund
was closed to most investors on March 18, 2002. For information on who may
continue to invest in AIM Small Cap Growth Fund, please contact your financial
advisor. (5) AIM European Small Company Fund will close to new investors when
net assets reach $500 million. (6) Effective March 31, 2004, AIM Global Trends
Fund was renamed AIM Global Equity Fund. (7) AIM International Emerging Growth
Fund will close to new investors when net assets reach $500 million.
If used after January 20, 2005, 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 $132 billion in assets. AIM is a subsidiary of
AMVESCAP PLC, one of the world's largest independent financial services
companies with $363 billion in assets under management. Data as of September 30,
2004.
AIMinvestments.com T-SCO-AR-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.
As of the end of the period covered by this report, the
Registrant had adopted a code of ethics (the "Code") that
applies to the Registrant's principal executive officer
("PEO") and principal financial officer ("PFO"). There were no
amendments to the Code during the period covered by the
report. The Registrant did not grant any waivers, including
implicit waivers, from any provisions of the Code to the PEO
or PFO during the period covered by this report.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
The Board of Trustees has determined that the Registrant has
at least one audit committee financial expert serving on its
Audit Committee. The Audit Committee financial expert is Prema
Mathai-Davis. Dr. Mathai-Davis is "independent" within the
meaning of that term as used in Form N-CSR.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
FEES BILLED BY PWC RELATED TO THE REGISTRANT
PWC billed the Registrant aggregate fees for services rendered to the
Registrant for the last two fiscal years as follows:
<Table>
<Caption>
Percentage of Fees Percentage of Fees
Billed Applicable to Billed Applicable to
Non-Audit Services Non-Audit Services
Provided for fiscal Provided for fiscal
Fees Billed for year end 2004 Fees Billed for year end 2003
Services Rendered to Pursuant to Waiver of Services Rendered to Pursuant to Waiver of
the Registrant for Pre-Approval the Registrant for Pre-Approval
fiscal year end 2004 Requirement(1) fiscal year end 2003 Requirement(1)(2)
-------------------- --------------------- -------------------- ---------------------
Audit Fees $ 203,653 N/A $ 207,998 N/A
Audit-Related Fees $ 0 0% $ 0 0%
Tax Fees(3) $ 42,925 0% $ 37,364 0%
All Other Fees $ 0 0% $ 0 0%
------------ ------------
Total Fees $ 246,578 0% $ 245,362 0%
</Table>
PWC billed the Registrant aggregate non-audit fees of $42,925 for the fiscal
year ended 2004, and $37,364 for the fiscal year ended 2003, for non-audit
services rendered to the Registrant.
- ----------
(1) With respect to the provision of non-audit services, the pre-approval
requirement is waived pursuant to a de minimis exception if (i) such
services were not recognized as non-audit services by the Registrant at
the time of engagement, (ii) the aggregate amount of all such services
provided is no more than 5% of the aggregate audit and non-audit fees
paid by the Registrant to PWC during a fiscal year; and (iii) such
services are promptly approved by the Registrant's Audit Committee
prior to the completion of the audit by the Audit Committee.
(2) Prior to May 6, 2003, the Registrant's Audit Committee was not required
to pre-approve non-audit services. Therefore, the percentage of fees
shown in this column only represents fees billed for non-audit services
rendered after May 6, 2003, pursuant to a waiver of the pre-approval
requirement.
(3) Tax fees for the fiscal year end October 31, 2004 includes fees billed
for reviewing tax returns and consultation services. Tax fees for
fiscal year end October 31, 2003 includes fees billed for reviewing tax
returns and consultation services.
FEES BILLED BY PWC RELATED TO AIM AND AIM AFFILIATES
PWC billed AIM Advisors, Inc. ("AIM"), the Registrant's adviser, and
any entity controlling, controlled by or under common control with AIM that
provides ongoing services to the Registrant ("AIM Affiliates") aggregate fees
for pre-approved non-audit services rendered to AIM and AIM Affiliates for the
last two fiscal years as follows:
<Table>
<Caption>
Fees Billed for Fees Billed for
Non-Audit Services Percentage of Fees Non-Audit Services Percentage of Fees
Rendered to AIM and Billed Applicable to Rendered to AIM and Billed Applicable to
AIM Affiliates for Non-Audit Services AIM Affiliates for Non-Audit Services
fiscal year end 2004 Provided for fiscal fiscal year end 2003 Provided for fiscal
That Were Required year end 2004 That Were Required year end 2003
to be Pre-Approved Pursuant to Waiver to be Pre-Approved Pursuant to Waiver of
by the Registrant's of Pre-Approval by the Registrant's Pre-Approval
Audit Committee Requirement(1) Audit Committee(2) Requirement(1)(3)
------------------- ------------------- -------------------- ---------------------
Audit-Related Fees $ 0 0% $ 0 0%
Tax Fees $ 0 0% $ 0 0%
All Other Fees $ 0 0% $ 0 0%
------------ ------------
Total Fees(4) $ 0 0% $ 0 0%
</Table>
- ----------
(1) With respect to the provision of non-audit services, the pre-approval
requirement is waived pursuant to a de minimis exception if (i) such
services were not recognized as non-audit services by the Registrant at
the time of engagement, (ii) the aggregate amount of all such services
provided is no more than 5% of the aggregate audit and non-audit fees
paid by the Registrant, AIM and AIM Affiliates to PWC during a fiscal
year; and (iii) such services are promptly approved by the Registrant's
Audit Committee prior to the completion of the audit by the Audit
Committee.
(2) Prior to May 6, 2003, the Registrant's Audit Committee was not required
to pre-approve non-audit services. Therefore, the fees billed for
non-audit services shown in this column only represents fees for
pre-approved non-audit services rendered after May 6, 2003, to AIM and
AIM Affiliates.
(3) Prior to May 6, 2003, the Registrant's Audit Committee was not required
to pre-approve non-audit services. Therefore, the percentage of fees
shown in this column only represents fees billed for non-audit services
rendered after May 6, 2003, pursuant to a waiver of the pre-approval
requirement.
(4) Including the fees for services not required to be pre-approved by the
registrant's audit committee, PWC billed AIM and AIM Affiliates
aggregate non-audit fees of $0 for the fiscal year ended 2004, and $0
for the fiscal year ended 2003, for non-audit services rendered to AIM
and AIM Affiliates.
The Audit Committee also has considered whether the provision of
non-audit services that were rendered to AIM and AIM Affiliates that
were not required to be pre-approved pursuant to SEC regulations, if
any, is compatible with maintaining PWC's independence. To the extent
that such services were provided, the Audit Committee determined that
the provision of such services is compatible with PWC maintaining
independence with respect to the Registrant.
PRE-APPROVAL OF AUDIT AND NON-AUDIT SERVICES
POLICIES AND PROCEDURES
As adopted by the Audit Committees of
the AIM Funds and the INVESCO Funds (the "Funds")
Last Amended September 14, 2004
STATEMENT OF PRINCIPLES
Under the Sarbanes-Oxley Act of 2002 and rules adopted by the Securities and
Exchange Commission ("SEC") ("Rules"), the Audit Committees of the Funds' (the
"Audit Committee") Board of Directors/Trustees (the "Board") are responsible for
the appointment, compensation and oversight of the work of independent
accountants (an "Auditor"). As part of this responsibility and to assure that
the Auditor's independence is not impaired, the Audit Committees pre-approve the
audit and non-audit services provided to the Funds by each Auditor, as well as
all non-audit services provided by the Auditor to the Funds' investment adviser
and to affiliates of the adviser that provide ongoing services to the Funds
("Service Affiliates") if the services directly impact the Funds' operations or
financial reporting. The SEC Rules also specify the types of services that an
Auditor may not provide to its audit client. The following policies and
procedures comply with the requirements for pre-approval and provide a mechanism
by which management of the Funds may request and secure pre-approval of audit
and non-audit services in an orderly manner with minimal disruption to normal
business operations.
Proposed services either may be pre-approved without consideration of specific
case-by-case services by the Audit Committees ("general pre-approval") or
require the specific pre-approval of the Audit Committees ("specific
pre-approval"). As set forth in these policies and procedures, unless a type of
service has received general pre-approval, it will require specific pre-approval
by the Audit Committees. Additionally, any fees exceeding 110% of general
pre-approved fee levels will also require specific pre-approval by the Audit
Committees.
The Audit Committees will annually review and generally pre-approve the services
that may be provided by each Auditor without obtaining specific pre-approval
from the Audit Committee. The term of any general pre-approval runs from the
date of such pre-approval through September 30th of the following year, unless
the Audit Committees consider a different period and states otherwise. The Audit
Committees will add to or subtract from the list of general pre-approved
services from time to time, based on subsequent determinations.
The purpose of these policies and procedures is to set forth the guidelines to
assist the Audit Committees in fulfilling their responsibilities.
DELEGATION
The Audit Committees may from time to time delegate pre-approval authority to
one or more of its members who are Independent Directors. All decisions to
pre-approve a service by a delegated member shall be reported to the Audit
Committee at its next quarterly meeting.
AUDIT SERVICES
The annual audit services engagement terms (including fees) will be subject to
specific pre-approval of the Audit Committees. Audit services include the annual
financial statement audit and other procedures such as tax provision work that
is required to be performed by the independent auditor to be able to form an
opinion on the Funds' financial statements. The Audit Committee will obtain,
review and consider sufficient information concerning the proposed Auditor to
make a reasonable evaluation of the Auditor's qualifications and independence.
In addition to the annual Audit services engagement, the Audit Committees may
grant general pre-approval for other audit services, which are those services
that only the independent auditor reasonably can provide. Other Audit services
may include services such as issuing consents for the inclusion of audited
financial statements with SEC registration statements, periodic reports and
other documents filed with the SEC or other documents issued in connection with
securities offerings.
GENERAL PRE-APPROVAL OF NON-AUDIT SERVICES
The Audit Committees may provide general pre-approval of types of non-audit
services described in this Section IV to the Funds and its Service Affiliates if
the Audit Committees believe that the provision of the service will not impair
the independence of the Auditor, is consistent with the SEC's Rules on auditor
independence, and otherwise conforms to the Audit Committee's general principles
and policies as set forth herein.
AUDIT-RELATED SERVICES
"Audit-related services" are assurance and related services that are reasonably
related to the performance of the audit or review of the Fund's financial
statements or that are traditionally performed by the independent auditor.
Audit-related services include, among others, accounting consultations related
to accounting, financial reporting or disclosure matters not classified as
"Audit services"; assistance with understanding and implementing new accounting
and financial reporting guidance from rulemaking authorities; and agreed-upon
procedures related to mergers.
TAX SERVICES
"Tax services" include, but are not limited to, the review and signing of the
Funds' federal tax returns, the review of required distributions by the Funds
and consultations regarding tax matters such as the tax treatment of new
investments or the impact of new regulations. The Audit Committee will
scrutinize carefully the retention of the Auditor in connection with a
transaction initially recommended by the Auditor, the major business purpose of
which may be tax avoidance or the tax treatment of which may not be supported in
the Internal Revenue Code and related regulations. The Audit Committee will
consult with the Funds' Treasurer (or his or her designee) and may consult with
outside counsel or advisors as necessary to ensure the consistency of Tax
services rendered by the Auditor with the foregoing policy.
No Auditor shall represent any Fund or any Service Provider before a tax court,
district court or federal court of claims.
ALL OTHER SERVICES
The Audit Committees may pre-approve non-audit services classified as "All other
services" that are not categorically prohibited by the SEC, as listed in Exhibit
1 to this policy.
SPECIFIC PRE-APPROVAL OF NON-AUDIT SERVICES
The Audit Committees may provide specific pre-approval of any non-audit services
to the Funds and its Service Affiliates if the Audit Committees believe that the
provision of the service will not impair the independence of the auditor, is
consistent with the SEC Rules on auditor independence, and otherwise conforms to
the Audit Committees' general principles and policies as set forth herein.
PRE-APPROVAL FEE LEVELS OR ESTABLISHED AMOUNTS
Pre-approval of fees or established amounts for services to be provided by the
Auditor under general pre-approval policies will be set periodically by the
Audit Committees. Any proposed fees exceeding 110% of the maximum such amounts
will be reported to the Audit Committees at the quarterly Audit Committees
meeting and will require specific pre-approval by the Audit Committees. The
Audit Committee will always factor in the overall relationship of fees for audit
and non-audit services in determining whether to pre-approve any such services.
PROCEDURES
On an annual basis, A I M Advisors, Inc. ("AIM") will submit to the Audit
Committees for general pre-approval, a list of non-audit services that the Funds
or Service Affiliates of the Funds may request from the Auditor. The list will
describe the non-audit services in reasonable detail and will include an
estimated range of fees where possible and such other information as the Audit
Committee may request.
Each request for services to be provided by the Auditor under the general
pre-approval of the Audit Committees will be submitted to the Funds' Treasurer
(or his or her designee) and must include a detailed description of the services
to be rendered. The Treasurer or his or her designee will ensure that such
services are included within the list of services that have received the general
pre-approval of the Audit Committees. The Audit Committees will be informed at
the next quarterly scheduled Audit Committees meeting of any such services for
which the Auditor rendered an invoice and whether such services and fees had
been pre-approved and if so, by what means.
Each request to provide services that require specific approval by the Audit
Committees shall be submitted to the Audit Committees jointly by the Fund's
Treasurer or his or her designee and the Auditor, and must include a joint
statement that, in their view, such request is consistent with the policies and
procedures and the SEC Rules.
Non-audit services pursuant to the de minimis exception provided by the SEC
Rules will be promptly brought to the attention of the Audit Committees for
approval, including documentation that each of the conditions for this
exception, as set forth in the SEC Rules, has been satisfied.
On at least an annual basis, the Auditor will prepare a summary of all the
services provided to any entity in the investment company complex as defined in
section 2-01(f)(14) of Regulation S-X in sufficient detail as to the nature of
the engagement and the fees associated with those services.
The Audit Committees have designated the Funds' Treasurer to monitor the
performance of all services provided by the Auditor and to ensure such services
are in compliance with these policies and procedures. The Funds' Treasurer will
report to the Audit Committee on a periodic basis as to the results of such
monitoring. Both the Funds' Treasurer and management of AIM will immediately
report to the chairman of the Audit Committee any breach of these policies and
procedures that comes to the attention of the Funds' Treasurer or senior
management of AIM.
EXHIBIT 1 TO PRE-APPROVAL OF AUDIT AND NON-AUDIT SERVICES POLICIES AND
PROCEDURES
Conditionally Prohibited Non-Audit Services (not prohibited if the Fund can
reasonably conclude that the results of the service would not be subject to
audit procedures in connection with the audit of the Fund's financial
statements)
o Bookkeeping or other services related to the accounting
records or financial statements of the audit client
o Financial information systems design and implementation
Appraisal or valuation services, fairness opinions, or
contribution-in-kind reports
o Actuarial services
o Internal audit outsourcing services
Categorically Prohibited Non-Audit Services
o Management functions
o Human resources
o Broker-dealer, investment adviser, or investment banking
services
o Legal services
o Expert services unrelated to the audit
o Any other service that the Public Company Oversight Board
determines by regulation is impermissible
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable.
ITEM 6. 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. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT COMPANIES.
Not applicable.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None
ITEM 11. CONTROLS AND PROCEDURES.
(a) As of December 16, 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 December 16, 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 second fiscal quarter
of the period covered by this report that have materially
affected, or are reasonably likely to materially affect, the
Registrant's internal control over financial reporting.
However, on September 20, 2004, the Registrant appointed a
Chief Compliance Officer ("Registrant CCO") who reports to the
Registrant's Board of Trustees. The Registrant CCO also serves
as Chief Compliance Officer of A I M Advisors, Inc. ("AIM"),
the investment advisor for the series portfolios of the
Registrant. The Registrant CCO is a member of the Disclosure
Controls Committee ("DCC") for the Registrant, which reports
to the Registrant's PEO and PFO. The DCC is made up of
employees of AIM some of whom are officers of the Registrant.
Among other things, the DCC assists the PEO and PFO in their
responsibilities related to internal control over financial
reporting. The addition of the Registrant CCO is expected to
enhance the Registrant's internal control over financial
reporting.
ITEM 12. EXHIBITS.
12(a)(1) Code of Ethics.
12(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.
12(a)(3) Not applicable.
12(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 Investment Funds
By: /s/ ROBERT H. GRAHAM
---------------------------------------
Robert H. Graham
Principal Executive Officer
Date: January 5, 2005
---------------------------------------
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: January 5, 2005
---------------------------------------
By: /s/ SIDNEY M. DILGREN
---------------------------------------
Sidney M. Dilgren
Principal Financial Officer
Date: January 5, 2005
---------------------------------------
EXHIBIT INDEX
12(a)(1) Code of Ethics.
12(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.
12(a)(3) Not applicable.
12(b) Certifications of principal executive officer and principal
financial officer as required by Rule 30a-2(b) under the
Investment Company Act of 1940.