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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act
file number 811-1540
--------------------------------------------------------------------
AIM Funds Group
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in charter)
11 Greenway Plaza, Suite 100 Houston, Texas 77046
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
Robert H. Graham 11 Greenway Plaza, Suite 100 Houston, Texas 77046
- --------------------------------------------------------------------------------
(Name and address of agent for service)
Registrant's telephone number, including area code: (713) 626-1919
----------------------------
Date of fiscal year end: 12/31
------------
Date of reporting period: 12/31/04
------------
Item 1. Reports to Stockholders.
AIM BALANCED FUND
Annual Report to Shareholders o December 31, 2004
[COVER IMAGE]
[YOUR GOALS. OUR SOLUTIONS.] [AIM INVESTMENTS LOGO]
--Registered Trademark -- --Registered Trademark --
====================================================================================================================================
AIM BALANCED FUND SEEKS TO ACHIEVE AS HIGH A TOTAL RETURN AS POSSIBLE, CONSISTENT WITH PRESERVATION OF CAPITAL.
o Unless otherwise stated, information presented in this report is as of 12/31/04 and is based on total net assets.
====================================================================================================================================
ABOUT SHARE CLASSES o The fund uses a blended index composed o Commonality measures the similarity of
of 60% Russell 1000 --Registered holdings between two portfolios using
o Effective 9/30/03, Class B shares are Trademark-- Value Index and 40% Lehman the lowest common percentage method.
not available as an investment for U.S. Aggregate Bond Index. The unmanaged This method compares each security's
retirement plans maintained pursuant to Russell 1000 --Registered Trademark-- percentage of total net assets in both
Section 401 of the Internal Revenue Index represents the performance of the portfolios and adds the lower
Code, including 401(k) plans, money stocks of large- capitalization percentages of the two portfolios to
purchase pension plans and profit companies; the Value segment measures determine commonality.
sharing plans. Plans that have existing the performance of Russell 1000
accounts invested in Class B shares will companies with lower price/book ratios o The average credit quality of the
continue to be allowed to make and lower forecasted growth values. The fund's holdings as of the close of the
additional purchases. unmanaged Lehman U.S. Aggregate Bond reporting period represents the weighted
Index, which represents the U.S. average quality rating of the
o Class R shares are available only to investment- grade, fixed-rate bond fixed-income holdings in the portfolio
certain retirement plans. Please see the market (including government and as assigned by Nationally Recognized
prospectus for more information. corporate securities, mortgage Statistical Rating Organizations based
pass-through securities and asset-backed on assessment of the credit quality of
PRINCIPAL RISKS OF INVESTING IN THE FUND securities), is compiled by Lehman the individual securities.
Brothers, a global investment bank.
o U.S. Treasury securities such as The fund files its complete schedule of
bills, notes and bonds offer a high o The fund is not managed to track the portfolio holdings with the Securities
degree of safety, and they guarantee the performance of any particular index, and Exchange Commission ("SEC") for the
payment of principal and any applicable including the indexes defined here, and 1st and 3rd quarters of each fiscal year
interest if held to maturity. Fund consequently, the performance of the on Form N-Q. The fund's Form N-Q filings
shares are not insured, and their value fund may deviate significantly from the are available on the SEC's Web site at
and yield will vary with market performance of the indexes. http://www.sec.gov. Copies of the fund's
conditions. Forms N-Q may be reviewed and copied at
o A direct investment cannot be made in the SEC's Public Reference Room at 450
o The fund may invest up to 25% of its an index. Unless otherwise indicated, Fifth Street, N.W., Washington, D.C.
assets in the securities of non-U.S. index results include reinvested 20549-0102. You can obtain information
issuers. International investing dividends, and they do not reflect sales on the operation of the Public Reference
presents certain risks not associated charges. Performance of an index of Room, including information about
with investing solely in the United funds reflects fund expenses; duplicating fee charges, by calling
States. These include risks relating to performance of a market index does not. 1-202-942- 8090 or by electronic request
fluctuations in the value of the U.S. at the following e-mail address:
dollar relative to the values of other OTHER INFORMATION publicinfo@sec.gov. The SEC file numbers
currencies, the custody arrangements for the fund are 811-1540 and 2-27334.
made for the fund's foreign holdings, o The returns shown in the Management's The fund's most recent portfolio
differences in accounting, political Discussion of Fund Performance are based holdings, as filed on Form N-Q, are also
risks and the lesser degree of public on net asset values calculated for available at AIMinvestments.com.
information required to be provided by shareholder transactions. Generally
non-U.S. companies. accepted accounting principles require A description of the policies and
adjustments to be made to the net assets procedures that the fund uses to
ABOUT INDEXES USED IN THIS REPORT of the fund at period end for financial determine how to vote proxies relating
reporting purposes, and as such, the net to portfolio securities is available
o The unmanaged Standard & Poor's asset values for shareholder without charge, upon request, from our
Composite Index of 500 Stocks (the S&P transactions and the returns based on Client Services department at
500 --Registered Trademark-- Index) is those net asset values may differ from 800-959-4246 or on the AIM Web site,
an index of common stocks frequently the net asset values and returns AIMinvestments.com. On the home page,
used as a general measure of U.S. stock reported in the Financial Highlights. scroll down and click on AIM Funds Proxy
market performance. Policy. The information is also
o Industry classifications used in this available on the Securities and Exchange
o The unmanaged Lipper Balanced Fund report are generally according to the Commission's Web site, sec.gov.
Index represents an average of the 30 Global Industry Classification Standard,
largest balanced funds tracked by which was developed by and is the Information regarding how the fund voted
Lipper, Inc., an independent mutual fund exclusive property and a service mark of proxies related to its portfolio
performance monitor. It is calculated Morgan Stanley Capital International securities during the 12 months ended
daily, with adjustments for Inc. and Standard & Poor's. 6/30/04 is available at our Web site. Go
distributions as of the ex-dividend to AIMinvestments.com, access the About
dates. Us tab, click on Required Notices and
then click on Proxy Voting Activity.
Next, select your fund from the
drop-down menu.
================================================================================
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
AIM BALANCED FUND
DEAR FELLOW SHAREHOLDER OF THE AIM FAMILY OF FUNDS
--Registered Trademark-- :
NEW BOARD CHAIRMAN
It is our pleasure to introduce you to Bruce Crockett, the
[GRAHAM new Chairman of the Board of Trustees of the AIM Funds.
PHOTO] Bob 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
[WILLIAMSON requiring that an independent fund trustee, meaning a
PHOTO] trustee who is not an officer of the fund's investment
advisor, serve as chairman of the funds' Board. In
MARK H. WILLIAMSON addition, a similar provision was included in the terms of
AIM Advisors' recent settlements with certain regulators.
[CROCKETT Accordingly, the AIM Funds' Board recently elected Mr.
PHOTO] Crockett, one of the 14 independent trustees on the AIM
Funds' Board, as Chairman. His appointment became
BRUCE L. CROCKETT 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 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
After nine months of slow growth, equity markets rallied
late in the year to produce solid results for 2004. The
S&P 500 Index was up 10.87% for the year as a whole, but
that includes the 9.23% total return for the fourth
quarter alone. For bonds, the turning point came earlier.
Almost all of the 4.34% return produced by the Lehman U.S.
Aggregate Bond Index came during the second half of the
year, despite the fact that the Federal Reserve had begun
raising short-term interest rates about halfway through
the year. Overseas markets followed a similar pattern,
with quite robust double- digit performance across the
board, most of it produced during the second half of the
year.
All in all, 2004 was a good year for American
investors, with the decline in the dollar over the course
of the year lending a boost to returns from foreign
holdings. And there were a number of solid economic
numbers to report as of the end of the year:
o U.S. gross domestic product (GDP) rose each quarter
during 2004. And respondents to the BusinessWeek
magazine survey foresaw 2005 GDP growth at 3.5%,
above the post-World War II average of 3.4%.
o The Institute for Supply Management's manufacturing
and nonmanufacturing indexes -- based on surveys of
purchasing managers in industries that together
cover more than 70% of the U.S. economy -- both
continued to rise during December and remained in
very strong territory.
o Thomson First Call, which tracks corporate earnings
and other information for clients in financial
service industries, estimated S&P 500 earnings to be
up 10.5% in 2005.
Of course, none of this can guarantee that 2005 will be
another good year. Over the short term, the only sure
thing about the investment markets is their
unpredictability. Hence, we have always urged shareholders
to keep a long-term perspective on all their investments.
YOUR FUND
The following pages present a discussion of how your fund
invests, how it performed compared to pertinent benchmarks
during the fiscal year and how it has performed over the
long term. We hope you find this information helpful. We
also encourage you to visit AIMinvestments.com often.
Updated information on your fund is always available
there, as well as general information on a variety of
investing topics.
As always, AIM is committed to building solutions for
your investment goals, and we thank you for your
participation in AIM Investments --Registered Trademark--.
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
January 28, 2005
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.
AIM BALANCED FUND
MANAGEMENT'S DISCUSSION contrast to the average mutual fund
OF FUND PERFORMANCE portfolio turnover of more than 100%.
Furthermore, we believe low turnover
Following a strong fourth quarter in the best-performing sector for the year. Oil reduces trading costs for all
equity markets, AIM Balanced Fund service and equipment providers shareholders and may control the impact
registered a positive return for 2004 Transocean and Halliburton were among of realized capital gains for
but fell short of beating its the most significant contributors to shareholders with taxable accounts.
broad-market, style-specific and peer performance. The combination of
group indexes. attractive valuations at the beginning Fixed-income holdings were managed
of the year and favorable supply- with a bias toward higher interest rates
======================================== and-demand trends translated into during the period. We maintained our
FUND VS. INDEXES returns of more than 50% for these average credit quality rating of AA in
energy investments. Other significant an effort to manage risk. The fund's
Total returns, 12/31/03 - excluding drivers of performance were Tyco duration remained shorter than the
12/31/04, applicable sales charges. If International, Target and Masco. Lehman U.S. Aggregate Bond Index, which
sales charges were included, returns means the fund had less sensitivity to
would be lower. Tyco was one of the fund's rising rates than its benchmark. As the
top-performing stocks in 2004. Tyco year progressed, we also reduced the
Class A Shares 7.65% proved far more durable than investors fund's exposure to government agency,
apparently believed in the midst of the corporate and mortgage-backed
Class B Shares 6.91 malfeasance charges levied against the securities. These risk sectors
former CEO. We continued to believe Tyco outperformed in 2004, with corporate
Class C Shares 6.90 was one of the better investment bonds being the best performing sector
opportunities within the industrial for a second straight year. By year-end,
Class R Shares 7.43 sector of the economy, although the the fund was
valuation was not as compelling after
S&P 500 Index rising more than 200% since 2002 lows. We continued to believe
(Broad Market Index) 10.87 Consequently we reduced our position in Tyco was one of
the company during the year, but it the better investment
60% Russell 1000 Value remained a top holding. opportunities within the
Index/40% Lehman U.S. industrial sector of the
Our largest detractors from economy, although the
Aggregate Bond Index performance were Pfizer, Interpublic valuation was not as
(Style-specific Index) 11.54 Group and Ceridian. Pfizer was a new compelling after rising
investment in 2004 and, as is often the more than 200%
Lipper Balanced Fund Index case, the stock declined initially. since 2002 lows.
(Peer Group Index) 8.99 However, we believed the market would
eventually recognize the long-term underweight all non-U.S. Treasury
SOURCE: LIPPER, INC. valuation opportunity that we saw in the assets, as we believed in aggregate that
======================================== world's largest drug company. Pfizer investors were not being appropriately
continued to face several challenges compensated for their increasing risk.
We underperformed the S&P 500 Index including patent expirations, generic
because of single-digit returns in the substitution, diminished pricing power Finally, as we communicated to you
fund's investment-grade bond holdings, and, more recently, declining demand for last year, we made changes to the fund's
which failed to match the nearly 11% its Cox-2 anti-inflammatory drugs, portfolio management team in December
return of stocks as measured by the S&P Celebrex and Bextra. We believed these 2003. The Basic Value Team now manages
500 Index. The fund would not normally challenges could make it difficult for the fund's equity holdings. We continue
be expected to outperform the S&P 500 Pfizer to grow earnings in the near to manage the fund with the same goal of
Index when stocks post positive term. But we continued to see a long- maximizing total return, but do so
double-digit returns, as bonds typically term opportunity, as we believed these utilizing a value-oriented strategy that
lag stocks in such periods. The fund and other issues were already discounted puts greater emphasis on the
underperformed the Lipper Balanced Fund in the company's historically low preservation of capital. We discuss this
Index primarily because of the valuation. strategy in greater detail in the
underperformance of the fund's equity sections that follow.
holdings. The relative strength of both We made relatively few changes to the
small- cap stocks and high-yield debt portfolio's common stock holdings during
also hurt performance in the period, 2004, consistent with our long-term
given the fund's emphasis on large-cap investment strategy. We purchased
stocks and investment-grade debt. Pfizer, Interpublic Group, Ceridian and
Aon Corporation. We also sold our
CURRENT PERIOD ANALYSIS holdings in Cooper Cameron, MGIC
Investment Corporation, United
The domestic economy continued to Technologies, Applied Materials, Cisco
recover throughout the fiscal year, with Systems and DST Systems. This low
the broader markets responding favorably turnover is evidence of our long-term
during the period. Higher commodity investment strategy and stands in stark
prices, a more restrictive monetary
policy and concerns about the
sustainability of economic growth were
key issues during the period.
With the price of oil rising as much
as 75% at its peak during the period, it
came as no surprise that energy was the
equity market's
2
INVESTMENT PROCESS AND EVALUATION price and estimated intrinsic value does PORTFOLIO ASSESSMENT
not guarantee the portfolio won't
Our investment strategy is to create experience a decline in market price, we When assessing our potential to grow
wealth by maintaining a long-term believe it lessens the probability of a your capital, we believe the single most
investment horizon and investing in permanent loss of capital. When market important measure of AIM Balanced Fund
companies that we believe are price exceeds estimated intrinsic value, is not our historical investment results
significantly undervalued on an absolute the absence of portfolio value content or popular statistical measures, but
basis or, said another way, selling at a places capital at risk of permanent rather the estimated intrinsic value of
significant discount to their estimated loss, as was the case with many the fund's equity holdings. Since we
intrinsic value. The fund's equity technology stocks in 1999 - 2000. estimate the intrinsic value of each
philosophy is based on two elements that equity holding in the portfolio, we can
we believe are supported by empirical It is our requirement for a large also estimate the intrinsic value of the
evidence: margin between market price and our equity portion of the entire fund. The
estimated intrinsic value that has difference between market price and
o Companies have a measurable estimated resulted in little portfolio commonality estimated intrinsic value is about
intrinsic value that is based on future with market indexes. average for your fund over its history,
cash flows generated by the business. but we estimate it is significantly
Importantly, this estimated intrinsic We believe popular benchmarks are not better than the market margin of safety.
value is independent of the company's optimally constructed to preserve While there is no assurance that market
stock price. capital and create wealth, even if they value will ever reflect our estimate of
are difficult to beat in certain market portfolio intrinsic value, as managers
o Market prices, in our opinion, are environments. In short, we believe their we believe this provides the best
more volatile than estimated intrinsic composition has been more risky than our indicator of achieving the fund's
values, partly because investors historical portfolios, largely because objective of maximizing total return.
regularly overreact to negative news. of lower estimated intrinsic value
content and greater absolute IN CLOSING
We believe a diversified portfolio concentration in certain sectors.
with greater estimated intrinsic value Market-relative results during this
versus the market provides the Since we began managing the fund, our period were unfavorable, but normal
opportunity for attractive long-term equity holdings have had little in market volatility predominates in the
investment results. common with relevant benchmarks. This short run. Still, we believe that our
was achieved with careful stock investment discipline has the potential
Since our application of this selection and portfolio construction. to turn market volatility and investor
strategy is highly disciplined and Only 15% - 20% of the fund's investments overreaction into capital appreciation
relatively unique, it is important to are common to the S&P 500 Index and the over the long-term. As managers, we know
understand the benefits and limitations Russell 1000 Value Index. This low a long-term investment horizon and
of our process. commonality creates the potential for attractive portfolio estimated intrinsic
outperformance in the long run but is value content are critical to creating
First, the goal of our investment too low to expect results to be wealth. We continued to work hard on
strategy is to preserve your capital consistently in line with the market in your behalf to protect and grow the
while growing it at above-market rates the short run. This creates a fund's portfolio estimated intrinsic
over the long term. diversification benefit but also value. Thank you for your investment and
suggests more variability in results for sharing our long-term horizon.
Second, we have little portfolio versus the market averages.
commonality with popular benchmarks and The views and opinions expressed in
most of our peers. Commonality measures Our fixed-income portfolio investment Management's Discussion of Fund
the similarity of holdings between two process is accomplished through the use Performance are those of A I M Advisors,
portfolios using the lowest common of top-down strategies involving Inc. These views and opinions are
percentage method. This method compares duration management, yield-curve subject to change at any time based on
each security's percentage of total net position and sector allocation. factors such as market and economic
assets in both portfolios and adds the (Duration is the measure of a debt conditions. These views and opinions may
lower percentages of the two portfolios security's sensitivity to interest rate not be relied upon as investment advice
to determine commonality. changes, expressed in terms of years. or recommendations, or as an offer for a
Longer durations usually are more particular security. The information is
Third, we believe this strategy sensitive to interest rate movements. not a complete analysis of every aspect
creates the potential for the fund to The yield curve traces the yields on of any market, country, industry,
outperform over the long-term but debt securities of the same quality but security or the Fund. Statements of fact
realize that short-term results may lag different maturities from the shortest are from sources considered reliable,
the market. to the longest available.) In addition, but A I M Advisors, Inc. makes no
we use bottom- up strategies involving representation or warranty as to their
Our process is absolute in nature, credit analysis and selection of completeness or accuracy. Although
which means that investment decisions specific securities. By combining historical performance is no guarantee
are predicated on a company's estimated perspectives from both the portfolio and of future results, these insights may
intrinsic value, not a target price the security level, we seek to help you understand our investment
dependent on stock market valuation consistently add value over time while management philosophy.
levels. Funds with relative performance minimizing portfolio risk.
objectives do not emphasize capital See important fund and index
preservation to the same degree and disclosures inside front cover.
commonly are more closely tied to market
benchmarks. We emphasize capital
preservation by requiring a large
cushion between price and estimated
intrinsic value. Although a large
cushion between market
3
AIM BALANCED FUND
YOUR FUND'S LONG-TERM PERFORMANCE
=============================================================================================================================
Past performance cannot guarantee RESULTS OF A $10,000 INVESTMENT
comparable future results. 12/31/94 - 12/31/04
Your fund's total return includes [MOUNTAIN CHART]
reinvested distributions, applicable
sales charges, fund expenses and DATE AIM BALANCED FUND S&P 500 60% RUSSELL 1000 LIPPER BALANCED
management fees. Index results include CLASS A SHARES INDEX VALUE INDEX/40% LEHMAN FUND INDEX
reinvested dividends, but they do not U.S. AGGREGATE BOND INDEX
reflect sales charges. Performance of an
index of funds reflects fund expenses 12/94 $ 9525 $10000 $10000 $10000
and management fees; performance of a 3/95 10119 10973 10771 10604
market index does not. Performance shown 6/95 11219 12019 11612 11346
in the chart does not reflect deduction 9/95 12201 12973 12308 11955
of taxes a shareholder would pay on fund 12/95 12857 13753 13010 12489
distributions or sale of fund shares. 3/96 13329 14491 13354 12768
Performance of the indexes does not 6/96 14014 15141 13523 13027
reflect the effects of taxes. 9/96 14653 15609 13863 13371
12/96 15330 16909 14857 14119
In evaluating this chart, please note 3/97 15073 17363 15056 14185
that the chart uses a logarithmic scale 6/97 17059 20392 16596 15714
along the vertical axis (the value 9/97 18980 21919 17810 16723
scale). This means that each scale 12/97 19075 22548 18506 16985
increment always represents the same 3/98 20711 25691 19912 18328
percent change in price; in a linear 6/98 20758 26544 20153 18607
chart each scale increment always 9/98 18905 23910 19107 17530
represents the same absolute change in 12/98 21448 28997 21002 19547
price. In this example, the scale 3/99 21971 30441 21140 19861
increment between $5,000 and $10,000 is 6/99 22523 32583 22482 20753
the same as that between $10,000 and 9/99 21968 30554 21202 19893
$20,000. In a linear chart, the latter 12/99 25533 35096 21883 21302
scale increment would be twice as large. 3/00 27119 35900 22190 21936
The benefit of using a logarithmic scale 6/00 26015 34946 21721 21672
is that it better illustrates 9/00 26411 34608 23006 22103
performance during the early years 12/00 24458 31902 23903 21810
depicted in the chart before reinvested 3/01 22229 28122 23340 20717
distributions and compounding create the 6/01 22819 29767 24081 21445
potential for the original investment to 9/01 20033 25399 22900 19819
grow to very large numbers. Had the 12/01 21684 28113 23922 21104
chart used a linear scale along its 3/02 21383 28191 24526 21232
vertical axis, you would not be able to 6/02 19191 24416 23611 19829
see as clearly the movements in the 9/02 17084 20200 21297 17871
value of the fund and the indexes during 12/02 17814 21902 22632 18849
the early years depicted in the chart. 3/03 17383 21212 22093 18502
We use a logarithmic scale in financial 6/03 19177 24476 24574 20521
reports of funds that have more than 9/03 19345 25124 24874 20942
five years of performance history. 12/03 20883 28181 26993 22606
3/04 21647 28658 27771 23146
======================================== 6/04 21650 29151 27645 23115
AVERAGE ANNUAL TOTAL RETURNS 9/04 21016 28606 28255 23157
12/04 $22481 $31245 $30109 $24638
As of 12/31/04, including applicable SOURCE: LIPPER, INC.
sales charges
CLASS C SHARES Class A share performance reflects
CLASS A SHARES Inception (8/4/97) 2.15% the maximum 4.75% sales charge, and
Inception (3/31/78) 9.32% 5 Years -3.24 Class B and Class C share performance
10 Years 8.44 1 Year 5.90 reflects the applicable contingent
5 Years -3.46 deferred sales charge (CDSC) for the
1 Year 2.55 CLASS R SHARES period involved. The CDSC on Class B
10 Years 8.70 shares declines from 5% beginning at the
CLASS B SHARES 5 Years -2.74 time of purchase to 0% at the beginning
Inception (10/18/93) 6.52% 1 Year 7.43 of the seventh year. The CDSC on Class C
10 Years 8.28 ======================================== shares is 1% for the first year after
5 Years -3.60 purchase. Class R shares do not have a
1 Year 1.91 Class R shares' inception date is front-end sales charge; returns shown
6/3/02. Returns since that date are are at net asset value and do not
historical returns. All other returns reflect a 0.75% CDSC that may be imposed
are blended returns of historical Class on a total redemption of retirement plan
R share performance and restated Class A assets within the first year.
share performance (for periods prior to
the inception date of Class R shares) at The performance of the fund's share
net asset value, adjusted to reflect the classes will differ due to different
higher Rule 12b-1 fees applicable to sales charge structures and class
Class R shares. expenses.
The performance data quoted represent Had the advisor not waived fees
past performance and cannot guarantee and/or reimbursed expenses in the
comparable future results; current current year and prior year, performance
performance may be lower or higher. would have been lower for all classes.
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.
=============================================================================================================================
4
AIM BALANCED FUND
CALCULATING YOUR ONGOING FUND EXPENSES
EXAMPLE together with the amount you invested, compare the ongoing costs of investing
to estimate the expenses that you paid in the fund and other funds. To do so,
As a shareholder of the fund, you incur over the period. Simply divide your compare this 5% hypothetical example
two types of costs: (1) transaction account value by $1,000 (for example, an with the 5% hypothetical examples that
costs, which may include sales charges $8,600 account value divided by $1,000 = appear in the shareholder reports of the
(loads) on purchase payments; contingent 8.6), then multiply the result by 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,
July 1, 2004 - December 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 your actual ending account
The table below provides information balance or expenses you paid for the
about actual account values and actual period. You may use this information to
expenses. You may use the information in
this table,
====================================================================================================================================
ACTUAL HYPOTHETICAL
(5% ANNUAL RETURN BEFORE EXPENSES)
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES ENDING ACCOUNT EXPENSES
SHARE VALUE VALUE PAID DURING VALUE PAID DURING
CLASS (7/1/04) (12/31/04)(1) PERIOD(2) (12/31/04) PERIOD(2)
Class A $1,000.00 $1,038.50 $5.64 $1,019.61 $5.58
Class B 1,000.00 1,034.70 9.46 1,015.84 9.37
Class C 1,000.00 1,034.70 9.46 1,015.84 9.37
Class R 1,000.00 1,037.20 6.91 1,018.35 6.85
(1) The actual ending account value is based on the actual total return of the fund for the period July 1, 2004 to December 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 July 1, 2004 to
December 31, 2004 was 3.85%, 3.47%, 3.47% and 3.72% for Class A, B, C and R shares, respectively.
(2) Expenses are equal to the fund's annualized expense ratio (1.10%, 1.85%, 1.85% and 1.35% 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
5
AIM BALANCED FUND
======================================== ========================================
TOP 10 EQUITY HOLDINGS* TOP 10 INDUSTRIES* BRET W. STANLEY,
Chartered Financial
1. Tyco International Ltd. 1. Mortgage-Backed U.S. Agency [STANLEY Analyst, senior
(Bermuda) 2.7% Securities 9.4% PHOTO] portfolio manager, is
lead manager of AIM
2. Cardinal Health, Inc 2.6 2. Other Diversified Financial Balanced Fund and the
Services 6.6 head of AIM's Value Investment
3. Sanofi-Aventis-ADR (France) 2.3 Management Unit. He received a B.B.A. in
3. Non-Mortgaged-Backed U.S. finance from The University of Texas at
4. Computer Associates Agency Securities 6.4 Austin and an M.S. in finance from the
International, Inc. 2.2 University of Houston.
4. Pharmaceuticals 5.0
5. JPMorgan Chase & Co. 2.1 R. CANON COLEMAN II,
5. Industrial Conglomerates 4.4 Chartered Financial
6. First Data Corp. 2.0 [COLEMAN Analyst, portfolio
6. U.S. Treasury Securities 4.3 PHOTO] manager, is a manager
7. Fannie Mae 2.0 of AIM Balanced Fund.
7. Health Care Distributors 3.8 He earned a B.S. and
8. Omnicom Group Inc. 2.0 an M.S. in accounting from the
8. Consumer Finance 3.5 University of Florida. He also has an
9. Waste Management, Inc. 2.0 M.B.A. from The Wharton School at the
9. Advertising 3.2 University of Pennsylvania.
10. WellPoint Inc. 2.0
10. Oil & Gas Equipment & Services 3.2 JAN H. FRIEDLI,
======================================== senior portfolio
PORTFOLIO COMPOSITION The fund's holdings are subject to [FRIEDLI manager, is a manager
By security type change, and there is no assurance that PHOTO] of AIM Balanced Fund.
the fund will continue to hold any He joined AIM in
1. Stocks 66.1% particular security. 1999. He graduated
cum laude from Villanova University with
2. Corporate Bonds & Notes 16.2 *Excluding money market fund holdings. a B.S. in computer science and earned an
======================================== M.B.A. with honors from the University
3. U.S. Government of Chicago.
Mortgage-Backed Securities 9.4
SCOT W. JOHNSON,
4. U.S. Treasury Securities 4.3 Chartered Financial
[JOHNSON Analyst, senior
5. Corporate Asset-Backed PHOTO] portfolio manager, is
Securities 1.3 a manager of AIM
Balanced Fund. He
6. Money Market Funds Plus received both his bachelor's degree in
Other Assets Less Liabilities economics and an M.B.A. in finance from
& Other Security Types 2.7 Vanderbilt University.
TOTAL NET ASSETS $1.9 BILLION
MATTHEW W.
TOTAL NUMBER OF HOLDINGS* 453 SEINSHEIMER,
[SEINSHEIMER Chartered Financial
AVERAGE CREDIT QUALITY, PHOTO] Analyst, senior
FIXED-INCOME HOLDINGS: AA portfolio manager, is
======================================== a manager of AIM
Balanced Fund. He received a B.B.A. from
Southern Methodist University and an
M.B.A. from The University of Texas at
Austin.
MICHAEL J. SIMON,
Chartered Financial
[SIMON Analyst, senior
PHOTO] portfolio manager, is
a manager of AIM
Balanced Fund. He
received a B.B.A. in finance from Texas
Christian University and an M.B.A. from
the University of Chicago.
Assisted by Basic Value Team and
Investment Grade Team
6
SUPPLEMENT TO ANNUAL REPORT DATED 12/31/04
AIM BALANCED FUND
<Table>
========================================
INSTITUTIONAL CLASS SHARES AVERAGE ANNUAL TOTAL RETURNS Please note that past performance is not
For periods ended 12/31/04 indicative of future results. More
The following information has been Inception (3/15/02) 1.90% recent returns may be more or less than
prepared to provide Institutional Class 1 Year 8.10 those shown. All returns assume
shareholders with a performance overview reinvestment of distributions at net
specific to their holdings. ======================================== asset value. Investment return and
Institutional Class shares are offered principal value will fluctuate so your
exclusively to institutional investors, Institutional Class shares have no sales shares, when redeemed, may be worth more
including defined contribution plans charge; therefore, performance is at net or less than their original cost. See
that meet certain criteria. asset value. Performance of full report for information on
Institutional Class shares will differs comparative benchmarks. Please consult
from performance of other share classes your fund prospectus for more
due to differing sales charges and class information. For the most current
expenses. month-end performance, please call
800-451-4246 or visit
AIMinvestments.com.
</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.
<Table>
AIMinvestments.com BAL-INS-1 12/04 [YOUR GOALS. OUR SOLUTIONS.] [AIM INVESTMENTS LOGO APPEARS HERE]
--Registered Trademark-- --Registered Trademark--
</Table>
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 account value divided by $1,000 = 8.6), and other funds. To do so, compare this
fees; and other fund expenses. This then multiply the result by the number 5% hypothetical example with the 5%
example is intended to help you in the table under the heading entitled hypothetical examples that appear in the
understand your ongoing costs (in "Actual Expenses Paid During Period" to shareholder reports of the other funds.
dollars) of investing in the fund and to estimate the expenses you paid on your
compare these costs with ongoing costs account during this period. Please note that the expenses shown
of investing in other mutual funds. The in the table are meant to highlight your
example is based on an investment of HYPOTHETICAL EXAMPLE FOR COMPARISON ongoing costs only. Therefore, the
$1,000 invested at the beginning of the PURPOSES hypothetical information is useful in
period and held for the entire period, comparing ongoing costs only, and will
July 1, 2004 - December 31, 2004. The table below also provides not help you determine the relative
information about hypothetical account total costs of owning different funds.
ACTUAL EXPENSES values and hypothetical expenses based
on the fund's actual expense ratio and
The table below provides information an assumed rate of return of 5% per year
about actual account values and actual before expenses, which is not the fund's
expenses. You may use the information in actual return. The hypothetical account
this table, together with the amount you values and expenses may not be used to
invested, to estimate the actual ending account
balance
====================================================================================================================================
ACTUAL HYPOTHETICAL
(5% ANNUAL RETURN BEFORE EXPENSES)
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES ENDING ACCOUNT EXPENSES
VALUE VALUE PAID DURING VALUE PAID DURING
(07/01/04) (12/31/04)(1) PERIOD(2) (12/31/04) PERIOD(2)
Institutional Class $1,000.00 $1,041.10 $3.49 $1,021.72 $3.46
(1) The actual ending account value is based on the actual total return of the fund for the period July 1, 2004, to December 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 July 1, 2004,
to December 31, 2004, was 4.11% for the Institutional Class.
(2) Expenses are equal to the fund's annualized expense ratio, 0.68% 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 BAL-INS-1 12/04
FINANCIALS
SCHEDULE OF INVESTMENTS
December 31, 2004
<Table>
<Caption>
MARKET
SHARES VALUE
- -------------------------------------------------------------------------------
STOCKS & OTHER EQUITY INTERESTS-66.08%
ADVERTISING-3.19%
Interpublic Group of Cos., Inc. (The)(a)(b) 1,650,000 $ 22,110,000
- -------------------------------------------------------------------------------
Omnicom Group Inc.(b) 445,000 37,522,400
===============================================================================
59,632,400
===============================================================================
AEROSPACE & DEFENSE-1.14%
Honeywell International Inc. 605,000 21,423,050
===============================================================================
ALUMINUM-0.88%
Alcoa Inc. 525,300 16,504,926
===============================================================================
APPAREL RETAIL-1.20%
Gap, Inc. (The)(b) 1,063,700 22,465,344
===============================================================================
ASSET MANAGEMENT & CUSTODY BANKS-1.48%
Bank of New York Co., Inc. (The) 830,000 27,738,600
===============================================================================
BUILDING PRODUCTS-2.34%
American Standard Cos. Inc.(a) 391,700 16,185,044
- -------------------------------------------------------------------------------
Masco Corp.(b) 752,900 27,503,437
===============================================================================
43,688,481
===============================================================================
COMMUNICATIONS EQUIPMENT-0.69%
Motorola, Inc. 750,000 12,900,000
===============================================================================
CONSUMER ELECTRONICS-2.12%
Koninklijke (Royal) Philips Electronics N.V.-
New York Shares (Netherlands) 641,000 16,986,500
- -------------------------------------------------------------------------------
Sony Corp.-ADR (Japan) 581,000 22,635,760
===============================================================================
39,622,260
===============================================================================
DATA PROCESSING & OUTSOURCED SERVICES-3.00%
Ceridian Corp.(a) 975,100 17,824,828
- -------------------------------------------------------------------------------
First Data Corp. 900,800 38,320,032
===============================================================================
56,144,860
===============================================================================
DEPARTMENT STORES-0.87%
May Department Stores Co. (The)(b) 556,300 16,355,220
===============================================================================
DIVERSIFIED CHEMICALS-0.53%
Dow Chemical Co. (The) 201,000 9,951,510
===============================================================================
DIVERSIFIED COMMERCIAL SERVICES-1.74%
Cendant Corp. 1,393,400 32,577,692
===============================================================================
ENVIRONMENTAL SERVICES-1.99%
Waste Management, Inc. 1,244,100 37,248,354
===============================================================================
</Table>
<Table>
MARKET
SHARES VALUE
- -------------------------------------------------------------------------------
<Caption>
FOOD RETAIL-1.96%
Kroger Co. (The)(a) 1,264,000 $ 22,170,560
- -------------------------------------------------------------------------------
Safeway Inc.(a)(b) 733,000 14,469,420
===============================================================================
36,639,980
===============================================================================
GENERAL MERCHANDISE STORES-1.65%
Target Corp. 594,500 30,872,385
===============================================================================
HEALTH CARE DISTRIBUTORS-3.80%
Cardinal Health, Inc. 831,000 48,322,650
- -------------------------------------------------------------------------------
McKesson Corp. 725,000 22,808,500
===============================================================================
71,131,150
===============================================================================
HEALTH CARE EQUIPMENT-1.01%
Baxter International Inc. 549,000 18,962,460
===============================================================================
HEALTH CARE FACILITIES-1.21%
HCA, Inc. 565,000 22,577,400
===============================================================================
HEALTH CARE SERVICES-0.36%
IMS Health Inc. 289,600 6,721,616
===============================================================================
INDUSTRIAL CONGLOMERATES-4.15%
General Electric Co. 736,200 26,871,300
- -------------------------------------------------------------------------------
Tyco International Ltd. (Bermuda)(b) 1,421,300 50,797,262
===============================================================================
77,668,562
===============================================================================
INDUSTRIAL MACHINERY-1.49%
Illinois Tool Works Inc.(b) 300,000 27,804,000
===============================================================================
INSURANCE BROKERS-0.60%
Aon Corp.(b) 474,600 11,323,956
===============================================================================
INTEGRATED OIL & GAS-0.11%
Shell Frontier Oil & Gas Inc.-Series B, 2.91%
Floating Rate Pfd.(c) 20 2,000,000
===============================================================================
INVESTMENT BANKING & BROKERAGE-2.77%
Merrill Lynch & Co., Inc.(b) 411,500 24,595,355
- -------------------------------------------------------------------------------
Morgan Stanley 489,000 27,149,280
===============================================================================
51,744,635
===============================================================================
MANAGED HEALTH CARE-1.95%
WellPoint Inc.(a)(b) 316,900 36,443,500
===============================================================================
MOVIES & ENTERTAINMENT-1.69%
Walt Disney Co. (The) 1,137,000 31,608,600
===============================================================================
MULTI-LINE INSURANCE-1.05%
Hartford Financial Services Group, Inc.
(The)(b) 282,700 19,593,937
===============================================================================
OIL & GAS DRILLING-1.54%
Transocean Inc. (Cayman Islands)(a) 678,500 28,761,615
===============================================================================
</Table>
F-1
<Table>
<Caption>
MARKET
SHARES VALUE
- -------------------------------------------------------------------------------
OIL & GAS EQUIPMENT & SERVICES-3.16%
Halliburton Co.(b) 920,000 $ 36,100,800
- -------------------------------------------------------------------------------
Schlumberger Ltd. (Netherlands) 343,000 22,963,850
===============================================================================
59,064,650
===============================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES-4.29%
ABN AMRO XVIII Custodial Receipts- Series
MM18, 2.79% Floating Rate Pfd. (Acquired
09/10/04-09/13/04; Cost
$1,399,980)(d)(e)(f) 14 1,400,000
- -------------------------------------------------------------------------------
Citigroup Inc. 741,933 35,746,332
- -------------------------------------------------------------------------------
JPMorgan Chase & Co. 1,002,200 39,095,822
- -------------------------------------------------------------------------------
Zurich RegCaPS Funding Trust III, 2.75%
Floating Rate Pfd. (Acquired 06/03/04-
09/28/04; Cost $3,952,517)(c)(d)(f) 4,050 3,997,350
===============================================================================
80,239,504
===============================================================================
PACKAGED FOODS & MEATS-1.10%
Kraft Foods Inc.-Class A(b) 578,600 20,603,946
===============================================================================
PHARMACEUTICALS-4.99%
Pfizer Inc. 1,019,600 27,417,044
- -------------------------------------------------------------------------------
Sanofi-Aventis (France)(g) 530,640 42,339,591
- -------------------------------------------------------------------------------
Wyeth 552,600 23,535,234
===============================================================================
93,291,869
===============================================================================
PROPERTY & CASUALTY INSURANCE-1.54%
ACE Ltd. (Cayman Islands) 676,000 28,899,000
===============================================================================
SYSTEMS SOFTWARE-2.18%
Computer Associates International, Inc.(b) 1,311,000 40,719,660
===============================================================================
THRIFTS & MORTGAGE FINANCE-2.31%
Fannie Mae(b) 531,600 37,855,236
- -------------------------------------------------------------------------------
Fannie Mae-Series J, 4.72% Pfd.(h) 52,000 2,626,000
- -------------------------------------------------------------------------------
Fannie Mae-Series K, 3.00% Pfd.(h) 55,000 2,782,659
===============================================================================
43,263,895
===============================================================================
Total Stocks & Other Equity
Interests-(Cost $1,063,952,155) $1,236,189,017
===============================================================================
<Caption>
PRINCIPAL
AMOUNT
BONDS & NOTES-16.18%
ADVERTISING-0.02%
Interpublic Group of Cos., Inc. (The), Sr.
Unsec. Notes, 7.88%, 10/15/05(h) $ 393,000 405,454
===============================================================================
AEROSPACE & DEFENSE-0.02%
Lockheed Martin Corp.-Series A, Medium Term
Notes, 8.66%, 11/30/06(h) 300,000 328,188
===============================================================================
</Table>
<Table>
- -------------------------------------------------------------------------------
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
AUTO PARTS & EQUIPMENT-0.09%
Lear Corp.-Series B, Sr. Unsec. Gtd Notes,
7.96%, 05/15/05(h) $ 1,560,000 $ 1,591,933
===============================================================================
AUTOMOBILE MANUFACTURERS-0.13%
DaimlerChrysler N.A. Holding Corp., Unsec.
Gtd. Global Notes, 7.40%, 01/20/05(h) 1,990,000 1,994,438
- -------------------------------------------------------------------------------
General Motors Corp., Unsec. Global Notes,
6.25%, 05/01/05(h) 450,000 454,252
===============================================================================
2,448,690
===============================================================================
BROADCASTING & CABLE TV-0.90%
Continental Cablevision, Inc., Sr. Unsec.
Deb.,
8.88%, 09/15/05(h) 5,200,000 5,397,080
- -------------------------------------------------------------------------------
9.50%, 08/01/13(h) 1,710,000 1,823,629
- -------------------------------------------------------------------------------
Cox Communications, Inc., Unsec. Notes,
6.88%, 06/15/05(h) 600,000 610,200
- -------------------------------------------------------------------------------
Cox Radio, Inc., Sr. Unsec. Notes, 6.63%,
02/15/06(h) 750,000 773,212
- -------------------------------------------------------------------------------
Lenfest Communications, Inc., Sr. Unsec.
Notes,
8.38%, 11/01/05(h) 1,000,000 1,045,750
- -------------------------------------------------------------------------------
TCI Communications, Inc.,
Sr. Notes, 7.25%, 08/01/05(h) 1,175,000 1,203,165
- -------------------------------------------------------------------------------
Sr. Unsec. Notes, 8.00%, 08/01/05(h) 575,000 591,209
- -------------------------------------------------------------------------------
Time Warner Cos., Inc.,
Sr. Unsec. Gtd. Deb., 7.57%, 02/01/24(h) 250,000 294,082
- -------------------------------------------------------------------------------
Unsec. Deb., 9.15%, 02/01/23(h) 2,150,000 2,874,485
- -------------------------------------------------------------------------------
Unsec. Notes, 7.75%, 06/15/05(h) 2,232,000 2,277,778
===============================================================================
16,890,590
===============================================================================
CONSUMER FINANCE-3.45%
Associates Corp. of North America, Sr. Global
Deb., 6.95%, 11/01/18(h) 1,525,000 1,768,878
- -------------------------------------------------------------------------------
Capital One Bank, Sr. Global Notes, 8.25%,
06/15/05(h) 3,250,000 3,322,085
- -------------------------------------------------------------------------------
Capital One Capital I, Sub. Floating Rate
Bonds, 3.71%, 02/01/27 (Acquired 09/16/04;
Cost $4,383,420)(c)(d)(f)(h) 4,300,000 4,371,681
- -------------------------------------------------------------------------------
Capital One Financial Corp.,
Sr. Unsec. Notes, 7.25%, 05/01/06(h) 1,820,000 1,906,887
- -------------------------------------------------------------------------------
Unsec. Notes, 7.13%, 08/01/08(h) 1,000,000 1,095,310
- -------------------------------------------------------------------------------
Ford Motor Credit Co., Global Notes, 7.60%,
08/01/05(h) 6,750,000 6,903,832
- -------------------------------------------------------------------------------
Notes, 6.75%, 05/15/05(h) 2,425,000 2,455,409
- -------------------------------------------------------------------------------
Unsec. Floating Rate Global Notes,
2.31%, 04/28/05(c)(h) 3,261,000 3,259,859
- -------------------------------------------------------------------------------
Unsec. Global Notes,
6.50%, 01/25/07(h) 1,890,000 1,966,261
- -------------------------------------------------------------------------------
6.88%, 02/01/06(h) 6,690,000 6,898,260
- -------------------------------------------------------------------------------
7.50%, 03/15/05(h) 2,690,000 2,714,129
- -------------------------------------------------------------------------------
Unsec. Notes, 7.75%, 03/15/05(h) 2,205,000 2,225,352
- -------------------------------------------------------------------------------
</Table>
F-2
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
- -------------------------------------------------------------------------------
CONSUMER FINANCE-(CONTINUED)
General Motors Acceptance Corp., Floating
Rate Medium Term Notes,
4.23%, 05/19/05(c)(h) $ 6,250,000 $ 6,272,125
- -------------------------------------------------------------------------------
4.44%, 03/04/05(c)(h) 7,100,000(i) 7,115,265
- -------------------------------------------------------------------------------
Global Notes,
4.50%, 07/15/06(h) 2,000,000 2,004,320
- -------------------------------------------------------------------------------
7.50%, 07/15/05(h) 400,000 408,488
- -------------------------------------------------------------------------------
Medium Term Notes,
4.15%, 02/07/05(h) 1,650,000 1,651,864
- -------------------------------------------------------------------------------
5.25%, 05/16/05(h) 4,600,000 4,632,200
- -------------------------------------------------------------------------------
Unsec. Unsub. Global Notes,
6.75%, 01/15/06(h) 3,500,000(i) 3,592,330
===============================================================================
64,564,535
===============================================================================
DIVERSIFIED BANKS-2.13%
AB Spintab (Sweden), Bonds, 7.50% (Acquired
02/12/04; Cost $3,682,866)(d)(h)(j) 3,300,000 3,505,263
- -------------------------------------------------------------------------------
American Savings Bank, Notes, 6.63%, 02/15/06
(Acquired 03/05/03; Cost $554,525)(d)(f)(h) 500,000 514,425
- -------------------------------------------------------------------------------
Banco Nacional de Comercio Exterior S.N.C.
(Mexico), Notes, 3.88%, 01/21/09 (Acquired
02/25/04; Cost $983,750)(d)(f)(h) 1,000,000 963,810
- -------------------------------------------------------------------------------
BankBoston Capital Trust IV, Gtd. Floating
Rate Notes, 3.04%, 06/08/28(c)(h) 3,215,000 3,104,436
- -------------------------------------------------------------------------------
Barclays Bank PLC (United Kingdom), Bonds,
8.55% (Acquired 11/05/03; Cost
$652,239)(d)(h)(j) 530,000 642,296
- -------------------------------------------------------------------------------
Centura Capital Trust I, Gtd. Notes, 8.85%,
06/01/27 (Acquired 05/22/03; Cost
$1,771,602)(d)(f)(h) 1,400,000 1,652,028
- -------------------------------------------------------------------------------
Chohung Bank (South Korea), Unsec. Sub.
Second Tier Notes, 11.50%, 04/01/10
(Acquired 07/01/04; Cost
$3,407,008)(d)(f)(h) 3,200,000 3,260,672
- -------------------------------------------------------------------------------
Corporacion Andina de Fomento (Venezuela),
Unsec. Global Notes, 6.88%, 03/15/12(h) 900,000 1,004,382
- -------------------------------------------------------------------------------
Unsec. Yankee Notes, 8.88%, 06/01/05(h) 1,835,000 1,875,150
- -------------------------------------------------------------------------------
Daiwa P.B. Ltd. (Cayman Islands), Gtd. Sub.
Floating Rate Medium Term Euro Notes,
3.09%(j)(k) 1,200,000 1,188,000
- -------------------------------------------------------------------------------
Danske Bank A/S (Denmark), First Tier Bonds,
5.91% (Acquired 06/07/04; Cost
$1,245,000)(d)(h)(j) 1,245,000 1,320,186
- -------------------------------------------------------------------------------
HSBC Capital Funding L.P. (United Kingdom),
Gtd. Bonds, 4.61% (Acquired 11/05/03; Cost
$373,008)(d)(h)(j) 400,000 379,508
- -------------------------------------------------------------------------------
Lloyds Bank PLC (United Kingdom)-Series 1,
Unsec. Sub. Euro Dollar Notes,
2.94%(h)(j)(k) 3,870,000 3,451,537
- -------------------------------------------------------------------------------
National Bank of Canada (Canada), Floating
Rate Euro Deb., 2.13%, 08/29/87(h)(k) 1,500,000 1,234,780
- -------------------------------------------------------------------------------
National Westminster Bank PLC (United
Kingdom)-Series B, Unsec. Sub. Floating
Rate Euro Notes, 2.13%(h)(j)(k) 1,000,000 882,831
- -------------------------------------------------------------------------------
NBD Bank N.A. Michigan, Unsec. Sub. Deb.,
8.25%, 11/01/24(h) 1,715,000 2,238,298
- -------------------------------------------------------------------------------
</Table>
<Table>
- -------------------------------------------------------------------------------
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
DIVERSIFIED BANKS-(CONTINUED)
RBS Capital Trust I, Bonds, 4.71%(h)(j) $ 400,000 $ 382,948
- -------------------------------------------------------------------------------
Wells Fargo & Co., Sr. Unsec. Global Notes,
3.75%, 10/15/07(h) 6,750,000 6,781,455
- -------------------------------------------------------------------------------
Wells Fargo Bank, N.A., Unsec. Sub. Global
Notes, 7.80%, 06/15/10(h) 2,100,000 2,148,300
- -------------------------------------------------------------------------------
Woori Bank (South Korea), Unsec. Sub. Second
Tier Notes, 11.75%, 03/01/10 (Acquired
07/01/04; Cost $3,388,480)(d)(f)(h) 3,200,000 3,283,840
===============================================================================
39,814,145
===============================================================================
DIVERSIFIED CAPITAL MARKETS-0.06%
UBS Preferred Funding Trust I, Gtd. Global
Bonds, 8.62%(h)(j) 1,000,000 1,198,690
===============================================================================
ELECTRIC UTILITIES-0.57%
AmerenEnergy Generating Co.-Series C, Sr.
Unsec. Global Notes, 7.75%, 11/01/05(h) 350,000 363,590
- -------------------------------------------------------------------------------
Consolidated Edison Co. of New York- Series
96A, Unsec. Deb., 7.75%, 06/01/26(h)(l) 900,000 979,380
- -------------------------------------------------------------------------------
Hydro-Quebec-Series B (Canada), Gtd. Medium
Term Notes, 8.62%, 12/15/11(h) 2,150,000 2,669,633
- -------------------------------------------------------------------------------
MidAmerican Energy Holdings Co., Sr. Unsec.
Notes, 7.23%, 09/15/05(h) 4,100,000 4,207,994
- -------------------------------------------------------------------------------
Pacific Gas & Electric Co., First Mortgage
Floating Rate Notes, 2.72%, 04/03/06(c)(h) 500,000 500,447
- -------------------------------------------------------------------------------
Yorkshire Power Finance (Cayman Islands)-
Series B, Sr. Unsec. Gtd. Unsub. Global
Notes, 6.50%, 02/25/08(h) 1,875,000 1,980,037
===============================================================================
10,701,081
===============================================================================
FOOD RETAIL-0.04%
Safeway Inc., Sr. Unsec. Notes, 2.50%,
11/01/05(h) 775,000 769,908
===============================================================================
GAS UTILITIES-0.35%
CenterPoint Energy Resources Corp., Unsec.
Deb., 6.50%, 02/01/08(h) 1,990,000 2,132,603
- -------------------------------------------------------------------------------
Columbia Energy Group-Series C, Notes, 6.80%,
11/28/05(h) 3,540,000 3,645,917
- -------------------------------------------------------------------------------
NiSource Capital Markets, Inc., Medium Term
Notes, 7.68%, 04/15/05(h) 745,000 754,536
===============================================================================
6,533,056
===============================================================================
HOMEBUILDING-0.33%
D.R. Horton, Inc., Sr. Unsec. Notes, 7.88%,
08/15/11(h) 800,000 921,000
- -------------------------------------------------------------------------------
Lennar Corp.-Series B, Sr. Unsec. Gtd. Global
Notes, 9.95%, 05/01/10(h) 3,855,000 4,133,794
- -------------------------------------------------------------------------------
Pulte Homes, Inc., Unsec. Gtd. Notes, 7.30%,
10/24/05(h) 520,000 535,038
- -------------------------------------------------------------------------------
Ryland Group, Inc. (The), Sr. Unsec. Unsub.
Notes, 9.75%, 09/01/10(h) 500,000 544,975
===============================================================================
6,134,807
===============================================================================
</Table>
F-3
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
- -------------------------------------------------------------------------------
INDUSTRIAL CONGLOMERATES-0.21%
Tyco International Group S.A. (Luxembourg),
Unsec. Unsub. Gtd. Yankee Notes, 6.38%,
06/15/05(h) $ 3,050,000 $ 3,095,842
- -------------------------------------------------------------------------------
URC Holdings Corp., Sr. Notes, 7.88%,
06/30/06 (Acquired 10/08/03; Cost
$849,203)(d)(f)(h) 750,000 798,548
===============================================================================
3,894,390
===============================================================================
INTEGRATED OIL & GAS-0.37%
Amerada Hess Corp., Unsec. Notes, 7.13%,
03/15/33(h) 1,800,000 1,981,458
- -------------------------------------------------------------------------------
ConocoPhillips, Unsec. Deb., 7.13%,
03/15/28(h) 1,000,000 1,074,580
- -------------------------------------------------------------------------------
Husky Oil Ltd. (Canada), Yankee Bonds, 8.90%,
08/15/28(h) 2,009,000 2,290,461
- -------------------------------------------------------------------------------
Repsol International Finance B.V.
(Netherlands), Unsec. Gtd. Global Notes,
7.45%, 07/15/05(h) 1,590,000 1,631,054
===============================================================================
6,977,553
===============================================================================
INTEGRATED TELECOMMUNICATION SERVICES-1.30%
Deutsche Telekom International Finance B.V.
(Netherlands), Unsec. Unsub. Gtd. Global
Bonds, 8.25%, 06/15/05(h) 4,550,000 4,656,743
- -------------------------------------------------------------------------------
France Telecom S.A. (France), Sr. Unsec.
Global Notes, 8.50%, 03/01/31(h) 930,000 1,262,001
- -------------------------------------------------------------------------------
SBC Communications Inc., Notes, 4.21%,
06/05/05 (Acquired 12/10/04; Cost
$1,332,977)(d)(f)(h) 1,325,000 1,332,757
- -------------------------------------------------------------------------------
Southwestern Bell Telephone Co.- Series B,
Medium Term Notes, 6.25%, 07/07/05(h) 350,000 355,681
- -------------------------------------------------------------------------------
Sprint Capital Corp.,
Sr. Unsec. Gtd. Global Notes,
7.13%, 01/30/06(h) 2,210,000 2,298,776
- -------------------------------------------------------------------------------
Unsec. Gtd. Global Notes, 7.90%,
03/15/05(h) 3,730,000 3,769,277
- -------------------------------------------------------------------------------
Sprint Corp., Deb., 9.25%, 04/15/22(h) 1,000,000 1,332,550
- -------------------------------------------------------------------------------
TELUS Corp. (Canada), Yankee Notes,
7.50%, 06/01/07(h) 635,000 690,074
- -------------------------------------------------------------------------------
8.00%, 06/01/11(h) 500,000 592,440
- -------------------------------------------------------------------------------
Verizon California Inc.-Series F, Unsec.
Deb., 6.75%, 05/15/27(h) 1,000,000 1,041,070
- -------------------------------------------------------------------------------
Verizon Communications Inc., Unsec. Deb.,
6.36%, 04/15/06(h) 2,570,000 2,667,557
- -------------------------------------------------------------------------------
8.75%, 11/01/21(h) 1,350,000 1,705,280
- -------------------------------------------------------------------------------
Verizon Florida Inc.-Series F, Sr. Unsec.
Deb., 6.13%, 01/15/13(h) 1,635,000 1,742,305
- -------------------------------------------------------------------------------
Verizon Virginia Inc.-Series A, Unsec. Global
Deb., 4.63%, 03/15/13(h) 950,000 929,547
===============================================================================
24,376,058
===============================================================================
</Table>
<Table>
- -------------------------------------------------------------------------------
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
INVESTMENT BANKING & BROKERAGE-0.28%
Lehman Brothers Inc.,
Sr. Sub. Deb., 11.63%, 05/15/05(h) $ 2,585,000 $ 2,659,370
- -------------------------------------------------------------------------------
Sr. Unsec. Sub. Notes, 7.63%, 06/01/06(h) 1,000,000 1,060,010
- -------------------------------------------------------------------------------
Merrill Lynch & Co., Inc.-Series B, Medium
Term Notes, 4.54%, 03/08/05(h) 1,415,000 1,420,773
===============================================================================
5,140,153
===============================================================================
LIFE & HEALTH INSURANCE-0.29%
Prudential Holdings, LLC-Series B, Bonds,
7.25%, 12/18/23 (Acquired 01/22/04-
01/29/04; Cost $4,717,650)(d)(h)(l) 4,000,000 4,771,320
- -------------------------------------------------------------------------------
ReliaStar Financial Corp., Unsec. Notes,
8.00%, 10/30/06(h) 600,000 647,736
===============================================================================
5,419,056
===============================================================================
MOVIES & ENTERTAINMENT-0.12%
Time Warner Inc., Sr. Unsec. Gtd. Global
Notes, 5.63%, 05/01/05(h) 2,220,000 2,239,736
===============================================================================
MULTI-UTILITIES & UNREGULATED POWER-0.09%
Dominion Resources, Inc.-Series B, Sr. Unsec.
Unsub. Global Notes, 7.63%, 07/15/05(h) 1,710,000 1,752,904
===============================================================================
MUNICIPALITIES-0.58%
Chicago (City of), Illinois; O'Hare
International Airport; Refunding Taxable
General Airport Third Lien Series 2004 E
RB, 3.88%, 01/01/08(h)(l) 2,400,000 2,404,992
- -------------------------------------------------------------------------------
Industry (City of), California Urban
Development Agency (Project 3); Taxable
Allocation Series 2003 B, 6.10%,
05/01/24(h)(l) 1,910,000 1,967,300
- -------------------------------------------------------------------------------
Phoenix (City of), Arizona Civic Improvement
Corp.; Taxable Rental Car Facility Series
2004 RB, 3.69%, 07/01/07(h)(l) 1,000,000 1,001,650
- -------------------------------------------------------------------------------
4.21%, 07/01/08(h)(l) 1,185,000 1,193,888
- -------------------------------------------------------------------------------
Sacramento (County of), California; Taxable
Pension Funding Series 2004 C-1 RB, 0.27%,
07/10/30(h)(l)(m) 4,425,000 4,190,475
===============================================================================
10,758,305
===============================================================================
OIL & GAS EXPLORATION & PRODUCTION-0.21%
Pemex Project Funding Master Trust, Unsec.
Gtd. Unsub. Global Notes, 7.38%,
12/15/14(h) 3,535,000 3,922,083
===============================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES-1.18%
General Electric Capital Corp.-Series A,
Medium Term Global Notes, 2.85%,
01/30/06(h) 305,000 304,256
- -------------------------------------------------------------------------------
</Table>
F-4
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
- -------------------------------------------------------------------------------
OTHER DIVERSIFIED FINANCIAL SERVICES-(CONTINUED)
Heller Financial, Inc., Sr. Unsec. Global
Notes, 8.00%, 06/15/05(h) $ 2,425,000 $ 2,481,260
- -------------------------------------------------------------------------------
ING Capital Funding Trust III, Gtd. Global
Bonds, 8.44%(h)(j) 900,000 1,073,340
- -------------------------------------------------------------------------------
Mizuho JGB Investment LLC-Series A, Bonds,
9.87% (Acquired 06/16/04; Cost
$1,357,500)(d)(h)(j) 1,200,000 1,390,692
- -------------------------------------------------------------------------------
Pemex Finance Ltd. (Cayman Islands),
Sr. Unsec. Global Notes, 8.02%, 05/15/07(h) 1,833,333 1,940,547
- -------------------------------------------------------------------------------
Series 1999-2, Class A1, Global Bonds,
9.69%,(h) 08/15/09 2,755,000 3,088,355
- -------------------------------------------------------------------------------
Pemex Project Funding Master Trust, Unsec.
Gtd. Unsub. Global Notes, 8.63%,
02/01/22(h) 2,475,000 2,877,683
- -------------------------------------------------------------------------------
PLC Trust 2003-1, Sec. Notes, 2.71%, 03/31/06
(Acquired 03/23/04; Cost
$1,259,552)(d)(f)(h) 1,205,877 1,201,151
- -------------------------------------------------------------------------------
Premium Asset 2004-04 Trust, Sr. Notes,
4.13%, 03/12/09 (Acquired 03/04/04; Cost
$3,572,605)(d)(f)(h) 3,575,000 3,499,174
- -------------------------------------------------------------------------------
Regional Diversified Funding (Cayman
Islands), Sr. Notes, 9.25%, 03/15/30
(Acquired 09/22/04; Cost
$3,221,976)(d)(f)(h) 2,723,333 3,244,470
- -------------------------------------------------------------------------------
UFJ Finance Aruba AEC (Aruba), Gtd. Sub.
Second Tier Euro Bonds, 8.75%(h)(j) 945,000 1,055,979
===============================================================================
22,156,907
===============================================================================
PACKAGED FOODS & MEATS-0.04%
Nabisco, Inc., Notes, 6.38%, 02/01/05(h) 750,000 754,928
===============================================================================
PROPERTY & CASUALTY INSURANCE-0.45%
FGIC Corp., Sr. Unsec. Unsub. Notes, 6.00%,
01/15/34 (Acquired 12/07/04; Cost
$1,828,278)(d)(f)(h) 1,800,000 1,862,856
- -------------------------------------------------------------------------------
First American Capital Trust I, Gtd. Notes,
8.50%, 04/15/12(h) 4,295,000 4,879,592
- -------------------------------------------------------------------------------
Oil Insurance Ltd. (Bermuda), Unsec. Sub.
Deb., 5.15%, 08/15/33 (Acquired 03/23/04;
Cost $908,164)(d)(f)(h) 865,000 872,949
- -------------------------------------------------------------------------------
Travelers Property Casualty Corp., Sr. Unsec.
Notes, 6.75%, 11/15/06(h) 700,000 739,459
===============================================================================
8,354,856
===============================================================================
REAL ESTATE-0.20%
CarrAmerica Realty Corp., Sr. Unsec. Gtd.
Notes, 6.63%, 03/01/05(h) 420,000 422,453
- -------------------------------------------------------------------------------
EOP Operating L.P., Sr. Unsec. Notes, 6.63%,
02/15/05(h) 430,000 431,883
- -------------------------------------------------------------------------------
Health Care Property Investors, Inc., Sr.
Unsec. Notes, 6.88%, 06/08/05(h) 380,000 386,122
- -------------------------------------------------------------------------------
HRPT Properties Trust, Sr. Unsec. Notes,
6.70%, 02/23/05(h) 1,435,000 1,442,720
- -------------------------------------------------------------------------------
</Table>
<Table>
- -------------------------------------------------------------------------------
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
REAL ESTATE-(CONTINUED)
Spieker Properties, Inc., Medium Term Notes,
8.00%, 07/19/05(h) $ 600,000 $ 615,390
- -------------------------------------------------------------------------------
Unsec. Unsub. Notes, 6.88%, 02/01/05(h) 400,000 401,224
===============================================================================
3,699,792
===============================================================================
REAL ESTATE MANAGEMENT & DEVELOPMENT-0.04%
Southern Investments UK PLC (United Kingdom),
Sr. Unsec. Unsub. Yankee Notes, 6.80%,
12/01/06(h) 735,000 772,404
===============================================================================
REGIONAL BANKS-1.02%
Cullen/Frost Capital Trust I, Unsec. Sub.
Floating Rate Notes, 3.95%, 03/01/34(c)(h) 2,425,000 2,513,852
- -------------------------------------------------------------------------------
Greater Bay Bancorp-Series B, Sr. Notes,
5.25%, 03/31/08(h) 3,000,000 3,021,720
- -------------------------------------------------------------------------------
PNC Capital Trust C, Gtd. Floating Rate
Notes, 2.97%, 06/01/28(c)(h) 1,000,000 949,720
- -------------------------------------------------------------------------------
Popular North America, Inc., Gtd. Notes,
4.70%, 06/30/09(h) 3,125,000 3,188,250
- -------------------------------------------------------------------------------
Santander Financial Issuances (Cayman
Islands), Sec. Sub. Floating Rate Euro
Notes, 2.87%(h)(j)(k) 8,000,000 7,953,176
- -------------------------------------------------------------------------------
TCF Financial Corp., Sub. Notes, 5.00%,
06/15/14(h) 1,400,000 1,424,444
===============================================================================
19,051,162
===============================================================================
RESTAURANTS-0.05%
McDonald's Corp., Unsec. Deb., 7.05%,
11/15/25(h) 850,000 901,587
===============================================================================
SOVEREIGN DEBT-0.86%
Japan Bank for International Cooperation
(Japan), Unsec. Gtd. Euro Bonds, 6.50%,
10/06/05(h) 4,600,000 4,719,572
- -------------------------------------------------------------------------------
New Brunswick (Province of) (Canada), Sec.
Yankee Deb., 6.75%, 08/15/13(h) 830,000 968,278
- -------------------------------------------------------------------------------
Quebec (Province of) (Canada), Sr. Unsec.
Unsub. Global Deb., 5.75%, 02/15/09(h) 1,400,000 1,502,438
- -------------------------------------------------------------------------------
Russian Federation (Russia), Unsec. Unsub.
Bonds,
7.50%, 03/31/30 (Acquired 05/18/04; Cost
$1,260,875)(d)(h)(n) 1,400,000 1,446,760
- -------------------------------------------------------------------------------
8.75%, 07/24/05 (Acquired 09/10/04-
12/03/04; Cost $1,271,188)(d)(h) 1,225,000 1,259,300
- -------------------------------------------------------------------------------
Unsec. Unsub. Euro Bonds-REGS,
8.75%, 07/24/05 (Acquired 05/14/04; Cost
$2,218,650)(d)(h) 2,100,000 2,160,690
- -------------------------------------------------------------------------------
10.00%, 06/26/07 (Acquired 05/14/04-
05/18/04; Cost $1,892,475)(d)(h) 1,680,000 1,902,768
- -------------------------------------------------------------------------------
United Mexican States (Mexico)-Series A,
Medium Term Global Notes,
6.63%, 03/03/15(h) 490,000 525,819
- -------------------------------------------------------------------------------
7.50%, 04/08/33(h) 1,570,000 1,689,556
===============================================================================
16,175,181
===============================================================================
</Table>
F-5
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
- -------------------------------------------------------------------------------
THRIFTS & MORTGAGE FINANCE-0.16%
Greenpoint Capital Trust I, Gtd. Sub. Notes,
9.10%, 06/01/27(h) $ 950,000 $ 1,123,917
- -------------------------------------------------------------------------------
Washington Mutual Finance Corp., Sr. Unsec.
Notes, 8.25%, 06/15/05(h) 1,775,000 1,817,920
===============================================================================
2,941,837
===============================================================================
TOBACCO-0.17%
Altria Group, Inc.,
Sr. Unsec. Notes, 7.00%, 11/04/13(h) 450,000 486,891
- -------------------------------------------------------------------------------
Unsec. Global Notes, 7.00%, 07/15/05(h) 2,650,000 2,702,444
===============================================================================
3,189,335
===============================================================================
TRUCKING-0.16%
Roadway Corp., Sr. Unsec. Gtd. Global Notes,
8.25%, 12/01/08(h) 2,655,000 2,956,210
===============================================================================
WIRELESS TELECOMMUNICATION SERVICES-0.31%
AT&T Wireless Services Inc., Sr. Unsec.
Unsub. Global Notes, 6.88%, 04/18/05(h) 1,100,000 1,112,188
- -------------------------------------------------------------------------------
TeleCorp PCS, Inc., Sr. Unsec. Gtd. Sub.
Global Notes, 10.63%, 07/15/10(h) 4,355,000 4,764,370
===============================================================================
5,876,558
===============================================================================
Total Bonds & Notes (Cost $301,177,791) 302,692,072
===============================================================================
U.S. MORTGAGE-BACKED SECURITIES-9.36%
FEDERAL HOME LOAN MORTGAGE CORP.
(FHLMC)-1.37%
Pass Through Ctfs.,
5.50%, 05/01/13 to 12/01/33(h) 2,819,286 2,909,098
- -------------------------------------------------------------------------------
7.00%, 06/01/15 to 06/01/32(h) 7,379,632 4,643,345
- -------------------------------------------------------------------------------
6.50%, 05/01/16 to 03/01/33(h) 3,770,547 3,960,176
- -------------------------------------------------------------------------------
6.00%, 04/01/17 to 01/01/34(h) 8,861,576 9,246,465
- -------------------------------------------------------------------------------
8.00%, 01/01/27(h) 1,407,647 1,532,643
- -------------------------------------------------------------------------------
7.50%, 12/01/30 to 03/01/32(h) 806,751 864,968
- -------------------------------------------------------------------------------
Pass Through Ctfs., TBA,
5.00%, 01/01/15(o) 2,420,000 2,458,388
===============================================================================
25,615,083
===============================================================================
FEDERAL NATIONAL MORTGAGE ASSOCIATION
(FNMA)-6.99%
Pass Through Ctfs.,
8.50%, 03/01/10 to 10/01/28(h) 2,244,012 2,471,769
- -------------------------------------------------------------------------------
6.50%, 04/01/14 to 09/01/34(h) 19,928,660 20,962,643
- -------------------------------------------------------------------------------
7.50%, 11/01/15 to 05/01/32(h) 1,621,130 1,733,128
- -------------------------------------------------------------------------------
7.00%, 12/01/15 to 09/01/32(h) 5,469,257 5,800,455
- -------------------------------------------------------------------------------
6.00%, 01/01/17 to 03/01/22(h) 520,993 542,238
- -------------------------------------------------------------------------------
5.00%, 11/01/17 to 11/01/18(h) 2,953,720 3,004,906
- -------------------------------------------------------------------------------
8.00%, 08/01/21 to 10/01/30(h) 1,286,605 1,400,645
- -------------------------------------------------------------------------------
5.50%, 08/01/33 to 09/01/33(h) 3,395,457 3,451,121
- -------------------------------------------------------------------------------
</Table>
<Table>
- -------------------------------------------------------------------------------
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
FEDERAL NATIONAL MORTGAGE ASSOCIATION-(CONTINUED)
Pass Through Ctfs., TBA,
5.00%, 01/01/20 to 01/01/35(o) $ 25,346,640 $ 25,591,364
- -------------------------------------------------------------------------------
5.50%, 01/01/20 to 01/01/35(o) 44,688,574 45,546,247
- -------------------------------------------------------------------------------
6.00%, 01/01/35(o) 19,643,600 20,316,339
===============================================================================
130,820,855
===============================================================================
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
(GNMA)-1.00%
Pass Through Ctfs.,
6.50%, 10/15/08 to 02/15/33(h) 3,731,806 3,932,388
- -------------------------------------------------------------------------------
7.00%, 10/15/08 to 05/15/32(h) 2,211,242 2,349,894
- -------------------------------------------------------------------------------
6.00%, 11/15/08 to 10/15/33(h) 5,808,970 6,030,415
- -------------------------------------------------------------------------------
8.00%, 08/15/22 to 01/20/31(h) 766,023 837,419
- -------------------------------------------------------------------------------
7.50%, 06/15/23 to 05/15/32(h) 2,032,869 2,192,997
- -------------------------------------------------------------------------------
8.50%, 11/15/24 to 02/15/25(h) 122,231 134,121
- -------------------------------------------------------------------------------
5.50%, 06/15/33 to 12/15/33(h) 3,191,779 3,263,972
===============================================================================
18,741,206
===============================================================================
Total U.S. Mortgage-Backed Securities
(Cost $173,863,280) 175,177,144
===============================================================================
U.S. GOVERNMENT AGENCY SECURITIES-6.37%
FEDERAL HOME LOAN BANK-5.71%
Unsec. Disc. Notes,
1.25%, 01/03/05(p) 106,887,000 106,879,577
===============================================================================
FEDERAL NATIONAL MORTGAGE ASSOCIATION
(FNMA)-0.66%
Unsec. Floating Rate Global Notes,
3.68%, 02/17/09(h)(q) 8,675,000 8,756,372
- -------------------------------------------------------------------------------
Unsec. Global Notes,
3.38%, 12/15/08(h) 3,525,000 3,480,479
===============================================================================
12,236,851
===============================================================================
Total U.S. Government Agency Securities
(Cost $118,963,428) 119,116,428
===============================================================================
U.S. TREASURY SECURITIES-4.30%
U.S. TREASURY NOTES-3.34%
2.50%, 09/30/06(h) 2,500,000 2,478,525
- -------------------------------------------------------------------------------
6.50%, 10/15/06(h) 17,165,000 18,197,646
- -------------------------------------------------------------------------------
3.50%, 11/15/06 to 11/15/09(h) 28,850,000 28,913,486
- -------------------------------------------------------------------------------
3.13%, 10/15/08(h) 2,115,000 2,092,518
- -------------------------------------------------------------------------------
4.75%, 11/15/08(h) 5,680,000 5,951,561
- -------------------------------------------------------------------------------
5.00%, 02/15/11(h) 4,525,000 4,816,274
===============================================================================
62,450,010
===============================================================================
U.S. TREASURY BONDS-0.90%
7.25%, 05/15/16 to 08/15/22(h) 11,555,000 14,588,714
- -------------------------------------------------------------------------------
7.50%, 11/15/16(h) 60,000 76,697
- -------------------------------------------------------------------------------
5.38%, 02/15/31(h) 2,095,000 2,264,569
===============================================================================
16,929,980
===============================================================================
</Table>
F-6
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
- -------------------------------------------------------------------------------
U.S. TREASURY STRIPS-0.06%
3.03%, 02/15/07(h)(p) $ 1,175,000 $ 1,103,219
===============================================================================
Total U.S. Treasury Securities (Cost
$78,706,691) 80,483,209
===============================================================================
ASSET-BACKED SECURITIES-1.32%
OTHER DIVERSIFIED FINANCIAL SERVICES-1.09%
Citicorp Lease-Series 1999-1, Class A1, Pass
Through Ctfs., 7.22%, 06/15/05 (Acquired
05/08/02-02/25/04; Cost $5,734,000)(d)(h) 5,400,171 5,498,724
- -------------------------------------------------------------------------------
Citicorp Lease-Series 1999-1, Class A2, Pass
Through Ctfs., 8.04%, 12/15/19 (Acquired
06/01/00; Cost $3,901,297)(d)(h) 3,950,000 4,707,626
- -------------------------------------------------------------------------------
Patrons' Legacy-Series 2003-III, Ctfs.,
5.65%, 01/17/17 (Acquired 11/04/04; Cost
$2,563,525)(d)(f) 2,500,000 2,543,406
- -------------------------------------------------------------------------------
Patrons' Legacy-Series 2004-I, Ctfs., 6.67%,
02/04/17 (Acquired 04/30/04; Cost
$5,000,000)(d)(f) 5,000,000 5,097,013
- -------------------------------------------------------------------------------
Twin Reefs Pass Through Trust, Floating Rate
Pass Through Ctfs., 3.37%, (Acquired
12/07/04; Cost $1,900,000)(d)(f)(h)(j)(q) 1,900,000 1,910,811
- -------------------------------------------------------------------------------
Yorkshire Power Pass-Through Asset Trust
(Cayman Islands)-Series 2000-1, Pass
Through Ctfs., 8.25%, 02/15/05 (Acquired
11/12/03; Cost $640,800)(d)(f)(h) 600,000 603,294
===============================================================================
20,360,874
===============================================================================
PROPERTY & CASUALTY INSURANCE-0.12%
North Front Pass-Through Trust, Bonds, 5.81%,
12/15/24 (Acquired 12/08/04; Cost
$2,144,192)(d)(f)(h) 2,125,000 2,167,351
===============================================================================
</Table>
<Table>
- -------------------------------------------------------------------------------
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
THRIFTS & MORTGAGE FINANCE-0.11%
Sovereign Bank-Class A-1, Pass Through Ctfs.,
10.20%, 06/30/05 (Acquired 09/22/04; Cost
$2,352,075)(d)(f)(h) $ 2,020,308 $ 2,080,331
===============================================================================
Total Asset-Backed Securities (Cost
$23,933,783) 24,608,556
===============================================================================
TOTAL INVESTMENTS-103.61% (excluding
investments purchased with cash collateral
from securities loaned) (Cost
$1,760,597,128) 1,938,266,426
===============================================================================
<Caption>
SHARES
INVESTMENTS PURCHASED WITH CASH COLLATERAL
FROM SECURITIES LOANED
MONEY MARKET FUNDS-12.95%
Liquid Assets Portfolio-Institutional
Class(r)(s) 121,085,396 121,085,396
- -------------------------------------------------------------------------------
STIC Prime Portfolio-Institutional
Class(r)(s) 121,085,396 121,085,396
===============================================================================
Total Money Market Funds (purchased with
cash collateral from securities loaned)
(Cost $242,170,792) 242,170,792
===============================================================================
TOTAL INVESTMENTS-116.56% (Cost
$2,002,767,920) 2,180,437,218
===============================================================================
OTHER ASSETS LESS LIABILITIES-(16.56)% (309,714,704)
_______________________________________________________________________________
===============================================================================
NET ASSETS-100.00% $1,870,722,514
_______________________________________________________________________________
===============================================================================
</Table>
Investment Abbreviations:
<Table>
ADR - American Depositary Receipt
Ctfs. - Certificates
Deb. - Debentures
Disc. - Discounted
Gtd. - Guaranteed
Pfd. - Preferred
RB - Revenue Bonds
REGS - Regulation S
Sec. - Secured
Sr. - Senior
STRIPS - Separately Traded Registered Interest and Principal Security
Sub. - Subordinated
TBA - To Be Announced
Unsec. - Unsecured
Unsub. - Unsubordinated
</Table>
F-7
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) All or a portion of this security has been pledged as collateral for
securities lending transactions at December 31, 2004.
(c) Interest rate is redetermined quarterly. Rate shown is the rate in effect on
December 31, 2004.
(d) Security not registered under the Securities Act of 1933, as amended (e.g.,
the security was purchased in a Rule 144A transaction or a Regulation D
transaction). The security may be resold only pursuant to an exemption from
registration under the 1933 Act, typically to qualified institutional
buyers. The Fund has no rights to demand registration of these securities.
The aggregate market value of these securities at December 31, 2004 was
$75,643,050, which represented 4.04% of the Fund's Net Assets. Unless
otherwise indicated, these securities are not considered illiquid.
(e) Interest rate is redetermined annually. Rate shown is the rate in effect on
December 31, 2004.
(f) Security considered to be illiquid. The aggregate market value of these
securities considered illiquid at December 31, 2004 was $46,657,917, which
represented 2.49% of the Fund's Net Assets.
(g) In accordance with the procedures established by the Board of Trustees, the
foreign security is fair valued using adjusted closing market prices. The
market value of this security at December 31, 2004 represented 1.94% 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 December
31, 2004 was $497,865,734, which represented 22.83% of the Fund's Total
Investments. See Note 1A.
(i) A portion of the principal balance was pledged as collateral to cover margin
requirements for open futures contracts. See Note 1K and Note 9.
(j) Perpetual bond with no specified maturity date.
(k) Interest rate is redetermined semi-annually. Rate shown is the rate in
effect on December 31, 2004.
(l) Principal and interest payments are secured by bond insurance provided by
one of the following companies: Ambac Assurance Corp., Financial Guaranty
Insurance Co., Financial Security Assurance Inc., or MBIA Insurance Corp.
(m) Zero coupon bond issued at a discount. The interest rate shown represents
the current yield on December 31, 2004. Bond will convert to a fixed coupon
rate at a specified future date.
(n) Step coupon bond at issue. The interest rate represents the coupon rate at
which the bond will accrue at a specified future date.
(o) Security purchased on forward commitment basis. This security is subject to
dollar roll transactions. See Note 1G.
(p) Security is traded on a discount basis. The interest rate shown represents
the discount rate at the time of purchase by the Fund.
(q) Interest rate is redetermined monthly. Rate shown is the rate in effect on
December 31, 2004.
(r) The money market fund and the Fund are affiliated by having the same
investment advisor. See Note 3.
(s) 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-8
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2004
<Table>
ASSETS:
Investments, at market value (cost
$1,760,597,128)* $1,938,266,426
- ------------------------------------------------------------
Investments in affiliated money market funds
(cost $242,170,792) 242,170,792
============================================================
Total investments (cost $2,002,767,920) 2,180,437,218
============================================================
Cash 48,740
- ------------------------------------------------------------
Foreign currencies, at market value (cost
$61) 74
- ------------------------------------------------------------
Receivables for:
Investments sold 34,642,388
- ------------------------------------------------------------
Variation margin 231,360
- ------------------------------------------------------------
Fund shares sold 896,040
- ------------------------------------------------------------
Dividends and interest 7,924,723
- ------------------------------------------------------------
Investments matured (Note 11) 1,535,737
- ------------------------------------------------------------
Principal paydowns 211,796
- ------------------------------------------------------------
Investment for trustee deferred compensation
and retirement plans 198,595
- ------------------------------------------------------------
Other assets 42,274
============================================================
Total assets 2,226,168,945
____________________________________________________________
============================================================
LIABILITIES:
Payables for:
Investments purchased 98,246,293
- ------------------------------------------------------------
Fund shares reacquired 13,131,602
- ------------------------------------------------------------
Trustee deferred compensation and
retirement plans 306,986
- ------------------------------------------------------------
Collateral upon return of securities
loaned 242,170,792
- ------------------------------------------------------------
Accrued distribution fees 750,548
- ------------------------------------------------------------
Accrued transfer agent fees 580,773
- ------------------------------------------------------------
Accrued operating expenses 259,437
============================================================
Total liabilities 355,446,431
============================================================
Net assets applicable to shares outstanding $1,870,722,514
____________________________________________________________
============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $2,360,571,857
- ------------------------------------------------------------
Undistributed net investment income (loss) (5,141,012)
- ------------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities, foreign currencies
and futures contracts (663,161,487)
- ------------------------------------------------------------
Unrealized appreciation of investment
securities, foreign currencies and futures
contracts 178,453,156
============================================================
$1,870,722,514
____________________________________________________________
============================================================
NET ASSETS:
Class A $1,049,415,157
____________________________________________________________
============================================================
Class B $ 604,378,457
____________________________________________________________
============================================================
Class C $ 211,297,376
____________________________________________________________
============================================================
Class R $ 5,620,985
____________________________________________________________
============================================================
Institutional Class $ 10,539
____________________________________________________________
============================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER
SHARE, UNLIMITED NUMBER OF SHARES
AUTHORIZED:
Class A 41,473,872
____________________________________________________________
============================================================
Class B 23,938,724
____________________________________________________________
============================================================
Class C 8,356,529
____________________________________________________________
============================================================
Class R 221,893
____________________________________________________________
============================================================
Institutional Class 416.3
____________________________________________________________
============================================================
Class A:
Net asset value per share $ 25.30
- ------------------------------------------------------------
Offering price per share:
(Net asset value of $25.30 divided by
95.25%) $ 26.56
____________________________________________________________
============================================================
Class B:
Net asset value and offering price per
share $ 25.25
____________________________________________________________
============================================================
Class C:
Net asset value and offering price per
share $ 25.29
____________________________________________________________
============================================================
Class R:
Net asset value and offering price per
share $ 25.33
____________________________________________________________
============================================================
Institutional Class:
Net asset value and offering price per
share $ 25.32
____________________________________________________________
============================================================
</Table>
* At December 31, 2004, securities with an aggregate market value of
$236,707,159 were on loan to brokers.
See accompanying notes which are an integral part of the financial statements.
F-9
STATEMENT OF OPERATIONS
For the year ended December 31, 2004
<Table>
INVESTMENT INCOME:
Interest $ 30,801,224
- --------------------------------------------------------------------------
Dividends (net of foreign withholding tax of $285,253) 19,345,706
- --------------------------------------------------------------------------
Dividends from affiliated money market funds (including
securities lending income of $323,468*) 323,468
==========================================================================
Total investment income 50,470,398
==========================================================================
EXPENSES:
Advisory fees 10,703,307
- --------------------------------------------------------------------------
Administrative services fees 458,536
- --------------------------------------------------------------------------
Custodian fees 302,990
- --------------------------------------------------------------------------
Distribution fees:
Class A 2,887,535
- --------------------------------------------------------------------------
Class B 6,710,792
- --------------------------------------------------------------------------
Class C 2,349,482
- --------------------------------------------------------------------------
Class R 23,049
- --------------------------------------------------------------------------
Transfer agent fees -- Class A, B, C and R 4,790,611
- --------------------------------------------------------------------------
Transfer agent fees -- Institutional Class 23
- --------------------------------------------------------------------------
Trustees' fees and retirement benefits 68,735
- --------------------------------------------------------------------------
Other 742,795
==========================================================================
Total expenses 29,037,855
==========================================================================
Less: Fees waived, expenses reimbursed and expense offset
arrangement (258,923)
==========================================================================
Net expenses 28,778,932
==========================================================================
Net investment income 21,691,466
==========================================================================
REALIZED AND UNREALIZED GAIN FROM INVESTMENT SECURITIES,
FOREIGN CURRENCIES AND FUTURES CONTRACTS:
Net realized gain from:
Investment securities 90,280,637
- --------------------------------------------------------------------------
Foreign currencies 7,933
- --------------------------------------------------------------------------
Futures contracts 1,430,062
==========================================================================
91,718,632
==========================================================================
Change in net unrealized appreciation of:
Investment securities 25,925,592
- --------------------------------------------------------------------------
Foreign currencies 44,599
- --------------------------------------------------------------------------
Futures contracts 783,890
==========================================================================
26,754,081
==========================================================================
Net gain from investment securities, foreign currencies and
futures contracts 118,472,713
==========================================================================
Net increase in net assets resulting from operations $140,164,179
__________________________________________________________________________
==========================================================================
</Table>
* Dividends from affiliated money market funds are net of income rebate paid to
securities lending counterparties.
See accompanying notes which are an integral part of the financial statements.
F-10
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 2004 and 2003
<Table>
<Caption>
2004 2003
- ----------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 21,691,466 $ 30,431,107
- ----------------------------------------------------------------------------------------------
Net realized gain from investment securities, foreign
currencies and futures contracts 91,718,632 107,782,700
- ----------------------------------------------------------------------------------------------
Change in net unrealized appreciation of investment
securities, foreign currencies, futures contracts and
option contracts 26,754,081 228,117,385
==============================================================================================
Net increase in net assets resulting from operations 140,164,179 366,331,192
==============================================================================================
Distributions to shareholders from net investment income:
Class A (20,418,776) (26,240,036)
- ----------------------------------------------------------------------------------------------
Class B (6,979,759) (8,673,183)
- ----------------------------------------------------------------------------------------------
Class C (2,425,648) (3,288,903)
- ----------------------------------------------------------------------------------------------
Class R (75,777) (48,722)
- ----------------------------------------------------------------------------------------------
Institutional Class (220) (209)
==============================================================================================
Decrease in net assets resulting from distributions (29,900,180) (38,251,053)
==============================================================================================
Share transactions-net:
Class A (310,464,020) (325,786,055)
- ----------------------------------------------------------------------------------------------
Class B (170,136,078) (127,772,946)
- ----------------------------------------------------------------------------------------------
Class C (65,588,422) (75,676,154)
- ----------------------------------------------------------------------------------------------
Class R 1,510,478 3,149,619
- ----------------------------------------------------------------------------------------------
Institutional Class 220 209
==============================================================================================
Net increase (decrease) in net assets resulting from
share transactions (544,677,822) (526,085,327)
==============================================================================================
Net increase (decrease) in net assets (434,413,823) (198,005,188)
==============================================================================================
NET ASSETS:
Beginning of year 2,305,136,337 2,503,141,525
==============================================================================================
End of year (including undistributed net investment income
(loss) of $(5,141,012) and $(2,977,290), respectively) $1,870,722,514 $2,305,136,337
______________________________________________________________________________________________
==============================================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
F-11
NOTES TO FINANCIAL STATEMENTS
December 31, 2004
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Balanced Fund (the "Fund") is a series portfolio of AIM Funds Group (the
"Trust"). The Trust is a Delaware statutory trust registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
series management investment company consisting of nine separate portfolios,
each authorized to issue an unlimited number of shares of beneficial interest.
The Fund currently offers multiple classes of shares. Matters affecting each
portfolio or class will be voted on exclusively by the shareholders of such
portfolio or class. The assets, liabilities and operations of each portfolio are
accounted for separately. Information presented in these financial statements
pertains only to the Fund.
The Fund's investment objective is to achieve as high a total return as
possible, consistent with preservation of capital. Each company listed in the
Schedule of Investments is organized in the United States of America unless
otherwise noted.
Under the Trust's organizational documents, each Trustee, officer, employee
or other agent of the Trust (including the Trust's investment manager) is
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-12
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 are declared and paid quarterly
and are recorded on ex-dividend date. Distributions from net realized
capital gain, if any, are generally paid annually and recorded on
ex-dividend date. The Fund may elect to use a portion of the proceeds from
redemptions as distributions for federal income tax purposes.
D. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of
Subchapter M of the Internal Revenue Code necessary to qualify as a
regulated investment company and, as such, will not be subject to federal
income taxes on otherwise taxable income (including net realized capital
gain) which is distributed to shareholders. Therefore, no provision for
federal income taxes is recorded in the financial statements.
E. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund are charged to the operations of such class. Transfer
agency fees and expenses and other shareholder recordkeeping fees and
expenses attributable to the Institutional Class are charged to such class.
Transfer agency fees and expenses 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. REPURCHASE AGREEMENTS -- The Fund may enter into repurchase agreements.
Collateral on repurchase agreements, including the Fund's pro-rata interest
in joint repurchase agreements, is taken into possession by the Fund upon
entering into the repurchase agreement. Eligible securities for collateral
are U.S. Government Securities, U.S. Government Agency Securities and/or
Investment Grade Debt Securities. Collateral consisting of U.S. Government
Securities and U.S. Government Agency Securities is marked to market daily
to ensure its market value is at least 102% of the sales price of the
repurchase agreement. Collateral consisting of Investment Grade Debt
Securities is marked to market daily to ensure its market value is at least
105% of the sales price of the repurchase agreement. The investments in
some repurchase agreements, pursuant to an exemptive order from the
Securities and Exchange Commission, are through participation with other
mutual funds, private accounts and certain non-registered investment
companies managed by the investment advisor or its affiliates ("Joint
repurchase agreements"). If the seller of a repurchase agreement fails to
repurchase the security in accordance with the terms of the agreement, the
Fund might incur expenses in enforcing its rights, and could experience
losses, including a decline in the value of the underlying security and
loss of income.
G. DOLLAR ROLL TRANSACTIONS -- The Fund may engage in dollar roll transactions
with respect to mortgage-backed securities issued by GNMA, FNMA and FHLMC.
In a dollar roll transaction, the Fund sells a mortgage-backed security
held in the Fund to a financial institution such as a bank or
broker-dealer, and simultaneously agrees to purchase a substantially
similar security (same type, coupon and maturity) from the institution at
an agreed upon price and future date. The mortgage-backed securities to be
purchased will bear the same interest rate as those sold, but generally
will be collateralized by different pools of mortgages with different
prepayment histories. The difference between the selling price and the
future purchase price is generally amortized to income between the date of
the sell and the future purchase date. During the period between the sale
and purchase, the Fund will not be entitled to receive interest and
principal payments on securities sold. Proceeds of the sale may be invested
in short-term instruments, and the income from these investments, together
with any additional fee income received on the sale, could generate income
for the Fund exceeding the yield on the security sold. Dollar roll
transactions are considered borrowings under the 1940 Act. At the time the
Fund enters into the dollar roll, it will segregate liquid assets having a
dollar value equal to the purchase price.
Dollar roll transactions involve the risk that the market value of the
securities retained by the Fund may decline below the price of the
securities that the Fund has sold but is obligated to purchase under the
agreement. In the event that the buyer of securities in a dollar roll
transaction files for bankruptcy or becomes insolvent, the Fund's use of
the proceeds from the sale of the securities may be restricted pending a
determination by the other party, or its trustee or receiver, whether to
enforce the Fund's obligation to purchase the securities. The return earned
by the Fund with the proceeds of the dollar roll transaction may not exceed
transaction costs.
H. FOREIGN CURRENCY TRANSLATIONS -- Foreign currency is valued at the close of
the NYSE based on quotations posted by banks and major currency dealers.
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
F-13
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.
I. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to attempt
to minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency
contract for the purchase or sale of a security denominated in a foreign
currency in order to "lock in" the U.S. dollar price of that security. The
Fund could be exposed to risk if counterparties to the contracts are unable
to meet the terms of their contracts or if the value of the foreign
currency changes unfavorably.
J. COVERED CALL OPTIONS -- The Fund may write call options, on a covered
basis; that is, the Fund will own the underlying security. When the Fund
writes a covered call option, an amount equal to the premium received by
the Fund is recorded as an asset and an equivalent liability. The amount of
the liability is subsequently "marked-to-market" to reflect the current
market value of the option written. The current market value of a written
option is the mean between the last bid and asked prices on that day. If a
written call option expires on the stipulated expiration date, or if the
Fund enters into a closing purchase transaction, the Fund realizes a gain
(or a loss if the closing purchase transaction exceeds the premium received
when the option was written) without regard to any unrealized gain or loss
on the underlying security, and the liability related to such option is
extinguished. If a written option is exercised, the Fund realizes a gain or
a loss from the sale of the underlying security and the proceeds of the
sale are increased by the premium originally received. A risk in writing a
call option is that the Fund gives up the opportunity for profit if the
market price of the security increases and the option is exercised.
K. FUTURES CONTRACTS -- The Fund may purchase or sell futures contracts as a
hedge against changes in market conditions. Initial margin deposits
required upon entering into futures contracts are satisfied by the
segregation of specific securities as collateral for the account of the
broker (the Fund's agent in acquiring the futures position). During the
period the futures contracts are open, changes in the value of the
contracts are recognized as unrealized gains or losses by "marking to
market" on a daily basis to reflect the market value of the contracts at
the end of each day's trading. Variation margin payments are made or
received depending upon whether unrealized gains or losses are incurred.
When the contracts are closed, the Fund recognizes a realized gain or loss
equal to the difference between the proceeds from, or cost of, the closing
transaction and the Fund's basis in the contract. If the Fund were unable
to liquidate a futures contract and/or enter into an offsetting closing
transaction, the Fund would continue to be subject to market risk with
respect to the value of the contracts and continue to be required to
maintain the margin deposits on the futures contracts.
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement,
the Fund pays an advisory fee to AIM at the annual rate of 0.75% of the first
$150 million of the Fund's average daily net assets, plus 0.50% of the Fund's
average daily net assets in excess of $150 million. AIM has voluntarily agreed
to waive advisory fees of the Fund in the amount of 25% of the advisory fee AIM
receives from the affiliated money market funds on investments by the Fund in
such affiliated money market funds (excluding investments made in affiliated
money market funds with cash collateral from securities loaned by the Fund).
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 December 31, 2004, AIM waived fees of $3,064.
For the year ended December 31, 2004, at the request of the Trustees of the
Trust, AMVESCAP PLC ("AMVESCAP") agreed to reimburse $228,813 of expenses
incurred by the Fund related to market timing matters 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 December 31, 2004, AIM was
paid $458,536 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 year ended December 31, 2004,
the Fund paid AISI $4,790,611 for Class A, Class B, Class C and Class R shares
and $10 for Institutional Class shares after AISI reimbursed fees for the
Institutional Class shares of $13. AISI may make payments to intermediaries that
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 0.25% of the Fund's average daily net assets
of Class A shares, 1.00% of the average daily net assets of Class B and
F-14
Class C shares and 0.50% of the average daily net assets of Class R shares. Of
these amounts, up to 0.25% of the average daily net assets of the Class A, Class
B, Class C or Class R shares may be paid to furnish continuing personal
shareholder services to customers who purchase and own shares of such classes.
Any amounts not paid as a service fee under the Plans would constitute an
asset-based sales charge. NASD Rules also impose a cap on the total sales
charges, including asset-based sales charges that may be paid by any class of
shares of the Fund. Pursuant to the Plans, for the year ended December 31, 2004,
the Class A, Class B, Class C and Class R shares paid $2,887,535, $6,710,792,
$2,349,482 and $23,049, respectively.
Front-end sales commissions and contingent deferred sales charges ("CDSC")
(collectively the "sales charges") are not recorded as expenses of the Fund.
Front-end sales commissions are deducted from proceeds from the sales of Fund
shares prior to investment in Class A shares of the Fund. CDSC are deducted from
redemption proceeds prior to remittance to the shareholder. During year ended
December 31, 2004, AIM Distributors advised the Fund that it retained $164,698
in front-end sales commissions from the sale of Class A shares and $39,022,
$70,788, $11,262 and $0 from Class A, Class B, Class C and Class R shares,
respectively, for CDSC imposed upon redemptions by shareholders.
Certain officers and trustees of the Trust are officers and directors of
AIM, AISI and/or AIM Distributors.
NOTE 3--INVESTMENTS IN AFFILIATES
The Fund is permitted, pursuant to an exemptive order from the Securities and
Exchange Commission ("SEC"), to invest 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 December 31,
2004.
INVESTMENTS OF CASH COLLATERAL FROM SECURITIES LENDING TRANSACTIONS:
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 12/31/03 AT COST FROM SALES (DEPRECIATION) 12/31/04 INCOME* GAIN (LOSS)
- ------------------------------------------------------------------------------------------------------------------------------------
Liquid Assets Portfolio-
Institutional Class $ 60,195,599 $494,830,149 $(433,940,352) $ -- $121,085,396 $162,566 $ --
- ------------------------------------------------------------------------------------------------------------------------------------
STIC Prime Portfolio-
Institutional Class 60,195,599 493,356,038 (432,466,241) -- 121,085,396 160,902 --
====================================================================================================================================
Total $120,391,198 $988,186,187 $(866,406,593) $ -- $242,170,792 $323,468 $ --
____________________________________________________________________________________________________________________________________
====================================================================================================================================
</Table>
* Dividend income is net of income rebate paid to securities 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 December 31, 2004, the Fund
engaged in purchases and sales of securities of $13,409,798 and $11,680,665,
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 December 31, 2004, the
Fund received credits in transfer agency fees of $27,033 under an expense offset
arrangement, which resulted in a reduction of the Fund's total expenses of
$27,033.
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 December 31, 2004, the Fund paid legal fees of $7,707
for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the
Independent Trustees. A member of that firm is a Trustee of the Trust.
F-15
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 December 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 December 31, 2004, securities with an aggregate value of $236,707,159
were on loan to brokers. The loans were secured by cash collateral of
$242,170,792, received by the Fund and subsequently invested in affiliated money
market funds. For the year ended December 31, 2004, the Fund received dividends
on cash collateral net of income rebate paid to counterparties of $323,468 for
securities lending transactions.
NOTE 9--FUTURES CONTRACTS
On December 31, 2004, $4,150,000 principal amount of corporate obligations were
pledged as collateral to cover margin requirements for open futures contracts.
<Table>
<Caption>
OPEN FUTURES CONTRACTS AT PERIOD END
- ------------------------------------------------------------------------------------------------------------------------------
UNREALIZED
NO. OF MONTH/ MARKET APPRECIATION
CONTRACT CONTRACTS COMMITMENT VALUE (DEPRECIATION)
- ------------------------------------------------------------------------------------------------------------------------------
U.S. Treasury 2 Year Notes 335 Mar-05/Long $ 70,213,906 $ 98,528
- ------------------------------------------------------------------------------------------------------------------------------
U.S. Treasury 5 Year Notes 1,075 Mar-05/Long 117,746,094 711,482
- ------------------------------------------------------------------------------------------------------------------------------
U.S. Treasury 10 Year Notes 85 Mar-05/Long 9,514,688 (53,550)
- ------------------------------------------------------------------------------------------------------------------------------
U.S. Treasury 30 Year Bond 14 Mar-05/Long 1,575,000 27,430
==============================================================================================================================
$199,049,688 $783,890
______________________________________________________________________________________________________________________________
==============================================================================================================================
</Table>
NOTE 10--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
DISTRIBUTIONS TO SHAREHOLDERS:
The tax character of distributions paid during the years ended December 31, 2004
and 2003 was as follows:
<Table>
<Caption>
2004 2003
- ----------------------------------------------------------------------------------------
Distributions paid from ordinary income $29,900,180 $38,251,053
________________________________________________________________________________________
========================================================================================
</Table>
F-16
TAX COMPONENTS OF NET ASSETS:
As of December 31, 2004, the components of net assets on a tax basis were as
follows:
<Table>
<Caption>
2004
- ------------------------------------------------------------------------------
Undistributed ordinary income $ 875,650
- ------------------------------------------------------------------------------
Unrealized appreciation -- investments 151,278,938
- ------------------------------------------------------------------------------
Temporary book/tax differences (215,634)
- ------------------------------------------------------------------------------
Capital loss carryforward (641,788,297)
- ------------------------------------------------------------------------------
Shares of beneficial interest 2,360,571,857
==============================================================================
Total net assets $1,870,722,514
______________________________________________________________________________
==============================================================================
</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, bond premium amortization and the treatment of defaulted bonds. The
tax-basis unrealized appreciation on investments amount includes appreciation
(depreciation) on foreign currencies of $(32).
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, bond premium amortization and the treatment of
defaulted bonds.
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 utilized $86,385,387 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 December 31, 2004 which expires as
follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD*
- -----------------------------------------------
December 31, 2009 $107,895,455
- -----------------------------------------------
December 31, 2010 533,892,842
===============================================
Total capital loss carryforward $641,788,297
_______________________________________________
===============================================
</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 11--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities
and money market funds) purchased and sold by the Fund during the year ended
December 31, 2004 was $784,347,274 and $1,435,293,929, respectively.
Receivable for investments matured represents the estimated proceeds to the
Fund by Candescent Technologies Corp., which is in default with respect to the
principal payments on $25,012,000 par value, Senior Unsecured Subordinated
Debentures, 8.00%, which was due May 1, 2003. This estimate was determined in
accordance with the fair valuation procedures authorized by the Board of
Trustees.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- ------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $184,437,932
- ------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (33,158,962)
==============================================================================
Net unrealized appreciation of investment securities $151,278,970
______________________________________________________________________________
==============================================================================
Cost of investments for tax purposes is $2,029,158,248.
</Table>
NOTE 12--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of foreign currency
transactions, paydowns on mortgage-backed securities and bond premium
amortization, on December 31, 2004, undistributed net investment income was
increased by $6,044,992 and undistributed net realized gain was decreased by
$6,044,996 and shares of beneficial interest increased by $4. This
reclassification had no effect on the net assets of the Fund.
F-17
NOTE 13--SHARE INFORMATION
The Fund currently offers five different classes of shares: Class A shares,
Class B shares, Class C shares, Class R shares and 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)
- --------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------
2004 2003
------------------------------ ------------------------------
SHARES AMOUNT SHARES AMOUNT
- --------------------------------------------------------------------------------------------------------------------------------
Sold:
Class A 6,838,794 $ 166,219,511 14,724,408 $ 317,421,511
- --------------------------------------------------------------------------------------------------------------------------------
Class B 1,882,739 45,641,148 2,822,623 61,571,171
- --------------------------------------------------------------------------------------------------------------------------------
Class C 657,550 15,991,892 1,078,856 23,496,738
- --------------------------------------------------------------------------------------------------------------------------------
Class R 114,119 2,778,219 184,779 4,039,188
- --------------------------------------------------------------------------------------------------------------------------------
Institutional Class -- -- -- --
================================================================================================================================
Issued as reinvestment of dividends:
Class A 797,987 19,482,748 1,155,459 25,548,489
- --------------------------------------------------------------------------------------------------------------------------------
Class B 261,464 6,372,168 362,180 7,982,445
- --------------------------------------------------------------------------------------------------------------------------------
Class C 89,256 2,177,540 134,213 2,951,526
- --------------------------------------------------------------------------------------------------------------------------------
Class R 3,073 75,238 2,176 48,722
- --------------------------------------------------------------------------------------------------------------------------------
Institutional Class 9 220 9 209
================================================================================================================================
Automatic conversion of Class B shares to Class A shares:
Class A 2,252,935 54,796,120 1,104,079 24,477,117
- --------------------------------------------------------------------------------------------------------------------------------
Class B (2,259,121) (54,796,120) (1,106,931) (24,477,117)
================================================================================================================================
Reacquired:
Class A (22,639,799) (550,962,399) (31,672,931) (693,233,172)
- --------------------------------------------------------------------------------------------------------------------------------
Class B (6,917,270) (167,353,274) (8,005,292) (172,849,445)
- --------------------------------------------------------------------------------------------------------------------------------
Class C (3,452,796) (83,757,854) (4,686,941) (102,124,418)
- --------------------------------------------------------------------------------------------------------------------------------
Class R (54,447) (1,342,979) (41,885) (938,291)
- --------------------------------------------------------------------------------------------------------------------------------
Institutional Class -- -- -- --
================================================================================================================================
(22,425,507) $(544,677,822) (23,945,198) $(526,085,327)
________________________________________________________________________________________________________________________________
================================================================================================================================
</Table>
(a) There is one entity that is a record owner of more than 5% of the
outstanding shares of the Fund and it owns 7% of the outstanding shares of
the Fund. AIM has an agreement with this entity to sell 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 is also owned beneficially.
F-18
NOTE 14--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
CLASS A
--------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------
2004 2003 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 23.93 $ 20.81 $ 25.94 $ 30.10 $ 32.69
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.32 0.35(a) 0.49(a) 0.71(a)(b) 0.92(a)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 1.49 3.20 (5.09) (4.14) (2.23)
=================================================================================================================================
Total from investment operations 1.81 3.55 (4.60) (3.43) (1.31)
=================================================================================================================================
Less distributions:
Dividends from net investment income (0.44) (0.43) (0.53) (0.73) (0.79)
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- -- -- -- (0.49)
=================================================================================================================================
Total distributions (0.44) (0.43) (0.53) (0.73) (1.28)
=================================================================================================================================
Net asset value, end of period $ 25.30 $ 23.93 $ 20.81 $ 25.94 $ 30.10
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(c) 7.65% 17.23% (17.85)% (11.36)% (4.18)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $1,049,415 $1,297,378 $1,434,164 $2,284,776 $2,507,641
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets 1.07%(d)(e) 1.10% 1.06% 1.01% 0.96%
=================================================================================================================================
Ratio of net investment income to average net assets 1.38%(d) 1.60% 2.11% 2.60%(b) 2.80%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate 39% 114% 78% 73% 55%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) As required, effective January 1, 2001, the Fund adopted the provisions
of the AICPA Audit and Accounting Guide for Investment Companies and
began amortizing premiums on debt securities. Had the Fund not amortized
premiums on debt securities, the net investment income per share would
have been $0.73 and the ratio of net investment income to average net
assets would have been 2.67%. In accordance with the AICPA Audit and
Accounting Guide for Investment Companies, Per share and ratios for
periods prior to January 1, 2001 have not been restated to reflect this
change in presentation.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Does not include sales charges.
(d) Ratios are based on average daily net assets of $1,155,013,999.
(e) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements is
1.08%.
F-19
NOTE 14--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS B
--------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------
2004 2003 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 23.87 $ 20.77 $ 25.88 $ 30.01 $ 32.61
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.14 0.19(a) 0.31(a) 0.50(a)(b) 0.66(a)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 1.50 3.17 (5.06) (4.11) (2.23)
=================================================================================================================================
Total from investment operations 1.64 3.36 (4.75) (3.61) (1.57)
=================================================================================================================================
Less distributions:
Dividends from net investment income (0.26) (0.26) (0.36) (0.52) (0.54)
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- -- -- -- (0.49)
=================================================================================================================================
Total distributions (0.26) (0.26) (0.36) (0.52) (1.03)
=================================================================================================================================
Net asset value, end of period $ 25.25 $ 23.87 $ 20.77 $ 25.88 $ 30.01
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(c) 6.91% 16.29% (18.46)% (12.01)% (4.93)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $604,378 $739,424 $766,330 $1,176,679 $1,358,823
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets 1.82%(d)(e) 1.85% 1.81% 1.76% 1.73%
=================================================================================================================================
Ratio of net investment income to average net assets 0.63%(d) 0.85% 1.36% 1.86%(b) 2.03%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate 39% 114% 78% 73% 55%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) As required, effective January 1, 2001, the Fund adopted the provisions
of the AICPA Audit and Accounting Guide for Investment Companies and
began amortizing premiums on debt securities. Had the Fund not amortized
premiums on debt securities, the net investment income per share would
have been $0.52 and the ratio of net investment income to average net
assets would have been 1.93%. In accordance with the AICPA Audit and
Accounting Guide for Investment Companies, per share and ratios for
periods prior to January 1, 2001 have not been restated to reflect this
change in presentation.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Does not include sales charges.
(d) Ratios are based on average daily net assets of $671,079,230.
(e) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements is
1.83%.
F-20
NOTE 14--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS C
----------------------------------------------------------------
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------
2004 2003 2002 2001 2000
- ------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 23.91 $ 20.80 $ 25.92 $ 30.05 $ 32.65
- ------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.14 0.19(a) 0.31(a) 0.50(a)(b) 0.66(a)
- ------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 1.50 3.18 (5.07) (4.11) (2.23)
==============================================================================================================================
Total from investment operations 1.64 3.37 (4.76) (3.61) (1.57)
==============================================================================================================================
Less distributions:
Dividends from net investment income (0.26) (0.26) (0.36) (0.52) (0.54)
- ------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- -- -- -- (0.49)
==============================================================================================================================
Total distributions (0.26) (0.26) (0.36) (0.52) (1.03)
==============================================================================================================================
Net asset value, end of period $ 25.29 $ 23.91 $ 20.80 $ 25.92 $ 30.05
______________________________________________________________________________________________________________________________
==============================================================================================================================
Total return(c) 6.90% 16.32% (18.46)% (11.99)% (4.93)%
______________________________________________________________________________________________________________________________
==============================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $211,297 $264,513 $302,346 $483,644 $365,510
______________________________________________________________________________________________________________________________
==============================================================================================================================
Ratio of expenses to average net assets 1.82%(d)(e) 1.85% 1.81% 1.76% 1.73%
==============================================================================================================================
Ratio of net investment income to average net assets 0.63%(d) 0.85% 1.36% 1.85%(b) 2.03%
______________________________________________________________________________________________________________________________
==============================================================================================================================
Portfolio turnover rate 39% 114% 78% 73% 55%
______________________________________________________________________________________________________________________________
==============================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) As required, effective January 1, 2001, the Fund adopted the provisions
of the AICPA Audit and Accounting Guide for Investment Companies and
began amortizing premiums on debt securities. Had the Fund not amortized
premiums on debt securities, the net investment income per share would
have been $0.52 and the ratio of net investment income to average net
assets would have been 1.92%. In accordance with the AICPA Audit and
Accounting Guide for Investment Companies, per share and ratios for
periods prior to January 1, 2001 have not been restated to reflect this
change in presentation.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Does not include sales charges.
(d) Ratios are based on average daily net assets of $234,948,213.
(e) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements is
1.83%.
F-21
NOTE 14--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS R
--------------------------------------
JUNE 3, 2002
YEAR ENDED (DATE SALES
DECEMBER 31, COMMENCED) TO
--------------------- DECEMBER 31,
2004 2003 2002
- ----------------------------------------------------------------------------------------------------
Net asset value, beginning of period $23.95 $20.83 $ 23.73
- ----------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.29 0.30(a) 0.22(a)
- ----------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 1.47 3.19 (2.78)
====================================================================================================
Total from investment operations 1.76 3.49 (2.56)
====================================================================================================
Less distributions from net investment income (0.38) (0.37) (0.34)
====================================================================================================
Net asset value, end of period $25.33 $23.95 $ 20.83
____________________________________________________________________________________________________
====================================================================================================
Total return(b) 7.43% 16.92% (10.82)%
____________________________________________________________________________________________________
====================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $5,621 $3,812 $ 293
____________________________________________________________________________________________________
====================================================================================================
Ratio of expenses to average net assets 1.32%(c)(d) 1.35% 1.33%(e)
====================================================================================================
Ratio of net investment income to average net assets 1.13%(c) 1.35% 1.83%(e)
____________________________________________________________________________________________________
====================================================================================================
Portfolio turnover rate(f) 39% 114% 78%
____________________________________________________________________________________________________
====================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Not annualized for periods less than one year.
(c) Ratios are based on average daily net assets of $4,609,890.
(d) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements is
1.33%.
(e) Annualized.
(f) Not annualized for periods less than one year.
F-22
NOTE 14--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
INSTITUTIONAL CLASS
------------------------------------
MARCH 15,
2002
YEAR ENDED (DATE SALES
DECEMBER 31, COMMENCED) TO
------------------- DECEMBER 31,
2004 2003 2002
- --------------------------------------------------------------------------------------------------
Net asset value, beginning of period $23.94 $20.82 $ 25.81
- --------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.43 0.44(a) 0.44(a)
- --------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 1.49 3.20 (4.83)
==================================================================================================
Total from investment operations 1.92 3.64 (4.39)
==================================================================================================
Less dividends from net investment income (0.54) (0.52) (0.60)
==================================================================================================
Net asset value, end of period $25.32 $23.94 $ 20.82
__________________________________________________________________________________________________
==================================================================================================
Total return(b) 8.10% 17.71% (17.16)%
__________________________________________________________________________________________________
==================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 11 $ 10 $ 8
__________________________________________________________________________________________________
==================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 0.68%(c) 0.68% 0.67%(d)
- --------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 0.83%(c) 1.13% 0.80%(d)
==================================================================================================
Ratio of net investment income to average net assets 1.77%(c) 2.02% 2.50%(d)
__________________________________________________________________________________________________
==================================================================================================
Portfolio turnover rate(e) 39% 114% 78%
__________________________________________________________________________________________________
==================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Not annualized for periods less than one year.
(c) Ratios are based on average daily net assets of $9,981.
(d) Annualized.
(e) Not annualized for periods less than one year.
NOTE 15--LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
SETTLED ENFORCEMENT ACTIONS AND INVESTIGATIONS RELATED TO MARKET TIMING
On October 8, 2004, INVESCO Funds Group, Inc. ("IFG") (the former investment
advisor to certain AIM Funds) and A I M Advisors, Inc. ("AIM") (the Fund's
investment advisor) reached final settlements with certain regulators, including
without limitation the Securities and Exchange Commission ("SEC"), the New York
Attorney General ("NYAG") and the Colorado Attorney General ("COAG"), 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.
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 they 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 and
AIM breached various Federal and state securities, business and consumer
protection laws. On the same date, A I M Distributors, Inc. ("ADI") (the
distributor of the retail AIM Funds) reached a final settlement with the SEC to
resolve an investigation relating to market timing activity and related issues
in the AIM Funds. The SEC also alleged that ADI violated various Federal
securities laws. The SEC also has settled related market timing enforcement
actions brought against certain former officers and employees of IFG.
Under the terms of the settlements, IFG agreed to pay a total of $325 million,
of which $110 million is civil penalties. Of this $325 million total payment,
half has been paid 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, all of which has been paid. The entire $325 million IFG
settlement payment will be made 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
made 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. 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 certain
equity and balanced 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.
F-23
NOTE 15--LEGAL PROCEEDINGS (CONTINUED)
Under the terms of the settlements, AIM will make certain governance and
compliance reforms, including maintaining an internal controls committee and
retaining an independent compliance consultant and a corporate ombudsman. 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.
At the request of the trustees of the AIM Funds, AMVESCAP PLC ("AMVESCAP"),
the parent company of IFG and AIM, has agreed to pay expenses incurred by such
Funds related to market timing matters.
The SEC has also settled market timing enforcement actions 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),
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 these settlements, the SEC ordered these individuals to
pay restitution and civil penalties in various amounts and prohibited them from
associating with, or serving as an officer or director of, an investment
advisor, broker, dealer and/or investment company, as applicable, for certain
periods of time.
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 certain equity and balanced 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 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 payments 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 Regulatory Inquiries and Pending
Litigation described below may have on AIM, ADI or the Fund.
REGULATORY INQUIRIES AND PENDING LITIGATION
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 but not limited to revenue sharing and directed-brokerage
arrangements, investments in securities of other registered investment
companies, contractual plans, issues related to Section 529 college savings
plans, procedures for locating lost security holders and participation in class
action settlements.
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.
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 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, the U.S. Postal
F-24
NOTE 15--LEGAL PROCEEDINGS (CONTINUED)
Inspection Service and the Commodity Futures Trading Commission, 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, 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 ("ERISA")
purportedly brought on behalf of participants in AMVESCAP's 401(k) plan. The
plaintiffs in one of the underlying lawsuits continue to seek remand of their
lawsuit 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. ("IINA"), ADI
and/or INVESCO Distributors, Inc. ("INVESCO Distributors")) 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. All of these lawsuits have been transferred to
the United States District Court for the Southern District of Texas, Houston
Division by order of the applicable United States District Court in which they
were initially filed. The plaintiff in one of these lawsuits has challenged this
order.
Private Civil Actions Alleging Improper Charging of Distribution Fees on Limited
Offering Funds or Share Classes
Multiple civil lawsuits, including 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. ("AIS")
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-25
NOTE 15--LEGAL PROCEEDINGS (CONTINUED)
Private Civil Action Alleging Failure to Ensure Participation in Class Action
Settlements
A civil lawsuit, purporting to be a class action lawsuit, has been filed
against AIM, IINA, A I M Capital Management, Inc. and the trustees of the AIM
Funds alleging that the defendants breached their fiduciary duties by failing to
ensure that the AIM Funds participated in class action settlements in which the
AIM Funds were eligible to participate. This lawsuit alleges as theories of
recovery: (i) violation of various provisions of the Federal securities laws;
(ii) common law breach of fiduciary duty; and (iii) common law negligence. This
lawsuit has been filed in Federal court and seeks such remedies as compensatory
and punitive damages; forfeiture of all commissions and fees paid by the class
of plaintiffs; and costs and attorneys' fees.
* * *
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
As a result of the matters discussed above, 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-26
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees and Shareholders of
AIM Balanced Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of AIM Balanced Fund (one of the funds
constituting AIM Funds Group hereafter referred to as the "Fund") at December
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 December 31, 2004 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
/S/ PRICEWATERHOUSECOOPERS LLP
February 18, 2005
Houston, Texas
F-27
OTHER INFORMATION
TRUSTEES AND OFFICERS
As of December 31, 2004
The address of each trustee and officer of AIM Funds Group (the "Trust"), is 11
Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee oversees 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 1992 Director and Chairman, A I M Management None
Trustee, Vice Chair and Group Inc. (financial services holding
President 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 1987 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 2001 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 2000 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 1998 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 1997 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 December 31, 2004
The address of each trustee and officer of AIM Funds Group (the "Trust"), is 11
Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee oversees 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 1993 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 1998 Formerly: Chief Executive Officer, YWCA None
Trustee of the USA
- -----------------------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 1992 Partner, law firm of Pennock & Cooper None
Trustee
- -----------------------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2001 Retired None
Trustee
- -----------------------------------------------------------------------------------------------------------------------------------
Louis S. Sklar(4) -- 1939 1993 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(5) -- 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.; and Senior Vice
President and General Counsel, Liberty
Funds Group, LLC and Vice President,
A I M Distributors, Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
Robert G. Alley -- 1948 1992 Managing Director, Chief Fixed Income N/A
Vice President Officer and Senior Investment Officer,
A I M Capital Management, Inc. and Vice
President, A I M Advisors, Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
Stuart W. Coco -- 1955 1992 Managing Director and 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 1992 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(4) -- 1940 1999 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. (See footnote (4)
below.)
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) Mr. Sklar and Mr. Larsen retired effective December 31, 2004.
(5) 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 Street
Houston, TX 77046-1173 Suite 100 Suite 2900
Houston, TX 77046-1173 Houston, Texas
77002-5678
COUNSEL TO THE FUND COUNSEL TO THE TRANSFER AGENT CUSTODIAN
INDEPENDENT TRUSTEES
Ballard Spahr AIM Investment State Street Bank and
Andrews & Ingersoll, LLP Kramer, Levin, Naftalis Services, Inc. Trust Company
1735 Market Street & Frankel LLP P.O. Box 4739 225 Franklin Street
Philadelphia, PA 19103-7599 919 Third Avenue Houston, TX 77210-4739 Boston, MA 02110-2801
New York, NY 10022-3852
</Table>
REQUIRED FEDERAL INCOME TAX INFORMATION (UNAUDITED)
Of ordinary dividends paid to shareholders during the Fund's tax year ended
December 31, 2004, 49.67% is eligible for the dividends received deduction for
corporations.
For its tax year ended December 31, 2004, the Fund designates 56.0% of 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 the amounts.
REQUIRED STATE INCOME TAX INFORMATION (UNAUDITED)
Of the ordinary dividends paid, 9.31% was derived from U.S. Treasury
Obligations.
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 Growth Fund AIM Total Return Bond Fund
AIM Diversified Dividend Fund AIM International Small Company Fund(7) 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
* 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) Effective December 30, 2004, AIM
International Emerging Growth Fund was renamed AIM International Small Company
Fund. The fund will close to new investors when net assets reach $500 million.
If used after April 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 $138 billion in assets. AIM is a subsidiary of
AMVESCAP PLC, one of the world's largest independent financial services
companies with $382 billion in assets under management. Data as of December 31,
2004.
AIMinvestments.com BAL-AR-1 A I M Distributors, Inc.
[YOUR GOALS. OUR SOLUTIONS.] --Registered Trademark--
- --------------------------------------------------------------------------------
Mutual Retirement Annuities College Separately Offshore Cash [AIM INVESTMENTS LOGO]
Funds Products Savings Managed Products Management --Registered Trademark--
Plans Accounts
- --------------------------------------------------------------------------------
AIM BASIC BALANCED FUND
Annual Report to Shareholders o December 31, 2004
[COVER IMAGE]
YOUR GOALS. OUR SOLUTIONS. [AIM INVESTMENT LOGO APPEARS HERE]
- --Registered Trademark-- --Registered Trademark--
<Table>
====================================================================================================================================
AIM BASIC BALANCED FUND SEEKS TO ACHIEVE LONG-TERM GROWTH OF CAPITAL AND CURRENT INCOME.
o Unless otherwise stated, information presented in this report is as of 12/31/04 and is based on total net assets.
====================================================================================================================================
ABOUT SHARE CLASSES
o Effective 9/30/03, Class B shares are o The unmanaged Lipper Balanced Fund o Industry classifications used in this
not available as an investment for Index represents an average of the 30 report are generally according to the
retirement plans maintained pursuant to largest balanced funds tracked by Global Industry Classification Standard,
Section 401 of the Internal Revenue Lipper, Inc., an independent mutual fund which was developed by and is the
Code, including 401(k) plans, money performance monitor. It is calculated exclusive property and a service mark of
purchase pension plans and profit daily, with adjustments for Morgan Stanley Capital International
sharing plans. Plans that have existing distributions as of the ex-dividend Inc. and Standard & Poor's.
accounts invested in Class B shares will dates.
continue to be allowed to make o Commonality measures the similarity of
additional purchases. o The style-specific index used in this holdings between two portfolios using
report is composed of 60% Russell the lowest common percentage method.
o Class R shares are available only to 1000--Registered Trademark-- Value Index This method compares each security's
certain retirement plans. Please see the and 40% Lehman U.S. Aggregate Bond percentage of total net assets in both
prospectus for more information. Index. The unmanaged Russell portfolios and adds the lower
1000--Registered Trademark-- Index percentages of the two portfolios to
PRINCIPAL RISKS OF INVESTING IN THE FUND represents the performance of the stocks determine commonality.
of large- capitalization companies; the
o The fund may invest up to 25% of its Value segment measures the performance o The average credit quality of the
assets in the securities of non-U.S. of Russell 1000 companies with lower fund's holdings as of the close of the
issuers. International investing price/book ratios and lower forecasted reporting period represents the weighted
presents certain risks not associated growth values. average quality rating of the
with investing solely in the United fixed-income holdings in the portfolio
States. These include risks relating to o The unmanaged Lehman U.S. Aggregate as assigned by Nationally Recognized
fluctuations in the value of the U.S. Bond Index, which represents the U.S. Statistical Rating Organizations based
dollar relative to the values of other investment-grade fixed-rate bond market on assessment of the credit quality of
currencies, the custody arrangements (including government and corporate the individual securities.
made for the fund's foreign holdings, securities, mortgage pass-through
differences in accounting, political securities and asset-backed securities), The fund files its complete schedule of
risks and the lesser degree of public is compiled by Lehman Brothers, a global portfolio holdings with the Securities
information required to be provided by investment bank. and Exchange Commission ("SEC") for the
non-U.S. companies. 1st and 3rd quarters of each fiscal year
o The fund is not managed to track the on Form N-Q. The fund's Form N-Q filings
o U.S. Treasury securities such as performance of any particular index, are available on the SEC's Web site at
bills, notes and bonds offer a high including the indexes defined here, and sec.gov. Copies of the fund's Forms N-Q
degree of safety, and they guarantee the consequently, the performance of the may be reviewed and copied at the SEC's
payment of principal and any applicable fund may deviate significantly from the Public Reference Room at 450 Fifth
interest if held to maturity. Fund performance of the indexes. Street, N.W., Washington, D.C. 20549-
shares are not insured, and their value 0102. You can obtain information on the
and yield will vary with market o A direct investment cannot be made in operation of the Public Reference Room,
conditions. an index. Unless otherwise indicated, including information about duplicating
index results include reinvested fee charges, by calling 1-202-942-8090
o The fund may participate in the dividends, and they do not reflect sales or by electronic request at the
initial public offering (IPO) market in charges. Performance of an index of following e-mail address:
some market cycles. Because of the funds reflects fund expenses; publicinfo@sec.gov. The SEC file numbers
fund's small asset base, any investment performance of a market index does not. for the fund are 811-1540 and 2-27334.
the fund may make in IPOs may The fund's most recent portfolio
significantly affect the fun's total OTHER INFORMATION holdings, as filed on Form N-Q, are also
return. As the fund's assets grow, the available at AIMinvestments.com.
impact of IPO investments will decline, o The returns shown in the Management's
which may reduce the effect of IPO Discussion of Fund Performance are based A description of the policies and
investments on the fund's total return. on net asset values calculated for procedures that the fund uses to
shareholder transactions. Generally determine how to vote proxies relating
ABOUT INDEXES USED IN THIS REPORT accepted accounting principles require to portfolio securities is available
adjustments to be made to the net assets without charge, upon request, from our
o The unmanaged Standard & Poor's of the fund at period end for financial Client Services department at
Composite Index of 500 Stocks (the S&P reporting purposes, and as such, the net 800-959-4246 or on the AIM Web site,
500--Registered Trademark-- Index) is an asset values for shareholder AIMinvestments.com. On the home page,
index of common stocks frequently used transactions and the returns based on scroll down and click on AIM Funds Proxy
as a general measure of U.S. stock those net asset values may differ from Policy. The information is also
market performance. the net asset values and returns available on the Securities and Exchange
reported in the Financial Highlights. 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
AIM BASIC BALANCED FUND
<Table>
DEAR FELLOW SHAREHOLDER OF THE AIM FAMILY OF
FUNDS--Registered Trademark--:
NEW BOARD CHAIRMAN
It is our pleasure to introduce you to Bruce Crockett, the
[GRAHAM new Chairman of the Board of Trustees of the AIM Funds. Bob
PHOTO] 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.
ROBERT H. GRAHAM 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
[WILLIAMSON Advisors' recent settlements with certain regulators.
PHOTO] Accordingly, the AIM Funds' Board recently elected Mr.
Crockett, one of the 14 independent trustees on the AIM
Funds' Board, as Chairman. His appointment became effective
MARK H. WILLIAMSON 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--.
[CROCKETT Mr. Crockett has been a member of the AIM Funds' Board
PHOTO] 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
BRUCE L. CROCKETT 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
After nine months of slow growth, equity markets rallied
late in the year to produce solid results for 2004. The S&P
500 Index was up 10.87% for the year as a whole, but that
includes the 9.23% total return for the fourth quarter
alone. For bonds, the turning point came earlier. Almost all
of the 4.34% return produced by the Lehman U.S. Aggregate
Bond Index came during the second half of the year, despite
the fact that the Federal Reserve had begun raising
short-term interest rates about halfway through the year.
Overseas markets followed a similar pattern, with quite
robust double-digit performance across the board, most of it
produced during the second half of the year.
All in all, 2004 was a good year for American investors,
with the decline in the dollar over the course of the year
lending a boost to returns from foreign holdings. And there
were a number of solid economic numbers to report as of the
end of the year:
o U.S. gross domestic product (GDP) rose each quarter
during 2004. And respondents to the BusinessWeek
magazine survey foresaw 2005 GDP growth at 3.5%,
above the post-World War II average of 3.4%.
o The Institute for Supply Management's manufacturing
and nonmanufacturing indexes--based on surveys of
purchasing managers in industries that together cover
more than 70% of the U.S. economy--both continued to
rise during December and remained in very strong
territory.
o Thomson First Call, which tracks corporate earnings
and other information for clients in financial
service industries, estimated S&P 500 earnings to be
up 10.5% in 2005.
Of course, none of this can guarantee that 2005 will be
another good year. Over the short term, the only sure thing
about the investment markets is their unpredictability.
Hence, we have always urged shareholders to keep a long-term
perspective on all their investments.
YOUR FUND
The following pages present a discussion of how your fund
invests, how it performed compared to pertinent benchmarks
during the fiscal year and how it has performed over the
long term. We hope you find this information helpful. We
also encourage you to visit AIMinvestments.com often.
Updated information on your fund is always available there,
as well as general information on a variety of investing
topics.
As always, AIM is committed to building solutions for
your investment goals, and we thank you for your
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
January 28, 2005
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.
</Table>
AIM BASIC BALANCED FUND
<Table>
MANAGEMENT'S DISCUSSION Decker, CIT Group, DuPont and SPX
OF FUND PERFORMANCE Corporation.
Following a strong fourth quarter in the surprise that energy was the equity Fixed-income holdings were managed
equity markets, AIM Basic Balanced Fund market's best-performing sector for the with a bias toward higher interest rates
registered a positive return for 2004 year. Oil service and equipment during the period. We maintained our
but fell short of beating its providers Transocean and Halliburton average credit quality rating of AA in
broad-market, style-specific and peer were among the most significant an effort to manage risk. The fund's
group indexes. contributors to fund performance. The duration remained shorter than that of
combination of attractive valuations at the Lehman U.S. Aggregate Bond Index,
======================================== the beginning of the year and favorable which means the fund had less
FUND VS. INDEXES supply and demand trends translated into sensitivity to rising rates than its
returns of more than 50% for these benchmark. As the year progressed, we
TOTAL RETURNS, 12/31/03-12/31/04, energy investments. Other significant also reduced the fund's exposure to
EXCLUDING APPLICABLE SALES CHARGES. IF drivers of performance were Tyco government agency, corporate and
SALES CHARGES WERE INCLUDED, RETURNS International, Target and Masco. mortgage-backed securities. These risk
WOULD BE LOWER. sectors outperformed in 2004, with
Tyco was one the fund's corporate bonds being the
Class A Shares 6.89% top-performing stocks for the second best-performing sector for a second
Class B Shares 6.12 year in a row, validating the magnitude consecutive year. By year-end, the fund
Class C Shares 6.21 of the investment opportunity created was underweight all non-U.S. Treasury
Class R Shares 6.80 during the 2002 scandal. As we believed assets, as we believed in aggregate that
S&P 500 Index (Broad Market Index) 10.87 at the time, the market position and investors were not being appropriately
60% Russell 1000 Value estimated intrinsic value of Tyco proved compensated for their increasing risk.
Index/40% Lehman U.S. far more durable than most investors
Aggregate Bond Index believed in the midst of the malfeasance
(Style-specific Index) 11.54 charges levied against the company's Since our application of
Lipper Balanced Fund Index former CEO. We continued to believe Tyco this strategy is highly
(Peer Group Index) 8.99 was one of the better investment disciplined and
opportunities within the industrial relatively unique,
SOURCE: LIPPER,INC. sector of the economy, although the it is important to
valuation was not as compelling after understand the benefits
======================================== rising more than 200% since 2002 lows. and limitations
Consequently we reduced our position in of our process.
We underperformed the S&P 500 Index the company during the year, but it
because of single-digit returns in the remained a top holding.
fund's investment-grade bond holdings, INVESTMENT PROCESS AND EVALUATION
which failed to match the nearly 11% Our largest detractors from
return of stocks as measured by the S&P performance were Pfizer, Interpublic In this section, we will provide greater
500 Index. The fund would not normally Group and Ceridian. Pfizer was a new insight into how we manage the fund's
be expected to outperform the S&P 500 investment in 2004 and, as is often the equity investments. As a reminder, our
Index when stocks post positive case, the stock declined initially as we investment strategy is designed to
double-digit returns, as bonds typically continued to wait for the market to create wealth by maintaining a long-term
lag stocks in such periods. Fund returns recognize the long-term valuation investment horizon and investing in
also trailed those of the Lipper opportunity we see in the world's companies that are significantly
Balanced Fund Index, due in large part largest drug company. Pfizer faces undervalued on an absolute basis or said
to the underperformance of the fund's several challenges including patent another way, selling at a significant
equity holdings. The relative strength expirations, generic substitution, discount to their estimated intrinsic
of both small-cap stocks and high-yield diminished pricing power and more value.
debt also hurt performance in the period recently, declining demand for its Cox-2
given the fund's emphasis on large-cap anti-inflammatory drugs, Celebrex and The fund's equity philosophy is based on
stocks and investment-grade debt. Bextra. We believe these challenges may two concepts that we believe are
make it difficult for Pfizer to grow supported by empirical evidence:
CURRENT PERIOD ANALYSIS earnings in the near term. But we see a
long-term opportunity as we believe o We believe companies have a measurable
The domestic economy continued to these and other issues are already estimated intrinsic value that is based
recover throughout the fiscal year, with discounted in the company's historically on future cash flows generated by the
the broader markets responding favorably low valuation. business. Importantly, this estimated
during the period. Higher commodity intrinsic value is independent of the
prices, a more restrictive monetary We made several changes to the company's stock price.
policy and concerns about the portfolio during 2004. Pfizer, General
sustainability of economic growth were Electric, Illinois Tool Works and Masco
key issues during the period. were among the list of new stocks
purchased in the year. We also sold
With the price of oil rising as much several of our holdings, including Black &
as 75% at its peak during the period, it
came as no
</Table>
2
<Table>
o In our opinion, market prices are more optimally constructed to preserve PORTFOLIO ASSESSMENT
volatile than business values partly capital and create wealth, even if they
because investors regularly overreact to are difficult to beat in certain market When we assess our ability to grow your
negative news. environments. In short, we believe their capital, we believe the single most
composition has been more risky than our important measure of AIM Basic Balanced
We believe a diversified portfolio historical portfolios, largely because Fund is not our historical investment
with greater estimated intrinsic value of lower value content and greater results or popular statistical measures,
content versus the market provides the concentration in certain sectors. but rather the equity portfolio's
opportunity for attractive long-term estimated intrinsic value. Since we
investment results. Since our Our careful stock selection and estimate the intrinsic value of each
application of this strategy is highly portfolio construction resulted in only equity holding in the portfolio, we can
disciplined and relatively unique, it is about 10%-15% commonality with the S&P also estimate the intrinsic value of the
important to understand the benefits and 500 Index or Russell 1000 Value Index. equity portion of the fund. The fund's
limitations of our process. This low portfolio commonality is an estimated intrinsic value is at about
important element of any strategy that its average compared with the fund's
First, the goal of our investment seeks to achieve significant long-term history for the past several years.
strategy is to preserve your capital outperformance but is too low to expect While there is no assurance that market
while growing it at above-market rates short-term results to be in line with value will ever reflect our estimate of
over the long term. the market for the simple reason that intrinsic value, as managers we believe
your fund does not own exactly the same this provides the best indicator of
Second, we have little portfolio stocks as the indexes. Of course, this achieving the fund's objective of
commonality with popular benchmarks and creates a diversification benefit but long-term growth of capital.
most of our peers. Commonality measures also suggests more variability in
the similarity of holdings between two short-term results versus the market IN CLOSING
portfolios using the lowest common averages.
percentage method. This method compares Market-relative results during this
each security's percentage of total net ======================================== period were unfavorable, but normal
assets in both portfolios and adds the The domestic economy market volatility predominates in the
lower percentages of the two portfolios continued to recover short run. As managers, we know a
to determine commonality. throughout the fiscal long-term investment horizon and
year, with the broader attractive portfolio estimated intrinsic
Third, we believe this strategy markets responding value content are critical to creating
creates the potential for the fund to favorably during wealth. We continued to work hard on
outperform over the long-term but the period. your behalf to protect and grow the
realize that short-term results may lag ======================================== fund's equity portfolio estimated
the market. intrinsic value. Thank you for your
Our fixed-income portfolio investment investment and for sharing our long-term
Our process is absolute in nature, process is accomplished through the use horizon.
which means that investment decisions of top-down strategies involving
are predicated on a company's estimated duration management, yield-curve The views and opinions expressed in
intrinsic value, not a target price position and sector allocation. Management's Discussion of Fund
dependent on stock market valuation (Duration is the measure of a debt Performance are those of A I M Advisors,
levels. This is one of the key reasons security's sensitivity to interest rate Inc. These views and opinions are
for our strong long-term results but has changes, expressed in terms of years. subject to change at any time based on
important differences compared to Longer durations usually are more factors such as market and economic
relative performance objectives. Funds sensitive to interest rate movements. conditions. These views and opinions may
with relative performance objectives do The yield curve traces the yields on not be relied upon as investment advice
not emphasize capital preservation to debt securities of the same quality but or recommendations, or as an offer for a
the same degree and commonly are more different maturities from the shortest particular security. The information is
closely tied to market benchmarks. We to the longest available.) In addition, not a complete analysis of every aspect
emphasize capital preservation by we use bottom-up strategies involving of any market, country, industry,
requiring a large cushion between price credit analysis and selection of security or the Fund. Statements of fact
and estimated intrinsic value. Although specific securities. By combining are from sources considered reliable,
a large cushion between price and perspectives from both the portfolio and but A I M Advisors, Inc. makes no
estimated intrinsic value does not the security level, we seek to representation or warranty as to their
guarantee the portfolio won't experience consistently add value over time while completeness or accuracy. Although
a decline in market price, it does minimizing portfolio risk. historical performance is no guarantee
lessen the probability of a permanent of future results, these insights may
loss of capital. When market price help you understand our investment
exceeds estimated intrinsic value, the management philosophy.
absence of portfolio value content
places capital at risk of permanent See important fund and index
loss, as was the case with many disclosures inside front cover.
technology stocks in 1999-2000.
It is our requirement for a large
margin between market price and our
estimated intrinsic value that has
resulted in little portfolio commonality
with market indexes. We believe popular
benchmarks are not
</Table>
3
AIM BASIC BALANCED FUND
YOUR FUND'S LONG-TERM PERFORMANCE
<Table>
====================================================================================================================================
Past performance cannot guarantee comparable RESULTS OF A $10,000 INVESTMENT
future results. 9/28/01-12/31/04 Index results from 9/30/01
Your fund's total return includes [MOUNTAIN CHART]
reinvested distributions, applicable
sales charges, fund expenses and 60% RUSSELL
management fees. Results for Class B 1000 VALUE
shares are calculated as if a AIM BASIC AIM BASIC AIM BASIC INDEX/ 40%
hypothetical shareholder had liquidated BALANCED BALANCED BALANCED LEHMAN U.S. LIPPER
his entire investment in the fund at the FUND CLASS FUND CLASS FUND CLASS S&P 500 AGGREGATE BALANCED
close of the reporting period and paid DATE A SHARES B SHARES C SHARES INDEX BOND INDEX FUND INDEX
the applicable contingent deferred sales
charges. Index results include 9/28/01 $ 9525 $10000 $10000
reinvested dividends, but they do not 9/01 9525 10000 10000 $10000 $10000 $10000
reflect sales charges. Performance of an 10/01 9696 10180 10180 10191 10032 10167
index of funds reflects fund expenses 11/01 10135 10630 10630 10972 10326 10572
and management fees; performance of a 12/01 10281 10776 10776 11068 10446 10648
market index does not. Performance shown 01/02 10214 10706 10706 10907 10432 10555
in the chart does not reflect deduction 02/02 10137 10616 10616 10697 10482 10483
of taxes a shareholder would pay on fund 03/02 10503 10992 10992 11099 10710 10713
distributions or sale of fund shares. 04/02 10350 10822 10822 10426 10573 10455
Performance of the indexes does not 05/02 10330 10802 10812 10350 10640 10451
reflect the effects of taxes. 06/02 9771 10219 10221 9613 10311 10005
07/02 9156 9566 9568 8864 9785 9492
AVERAGE ANNUAL TOTAL RETURNS 08/02 9290 9697 9708 8922 9896 9589
09/02 8635 9008 9008 7953 9300 9017
As of 12/31/04, including applicable sales 10/02 8992 9380 9381 8652 9696 9393
charges 11/02 9464 9862 9863 9161 10062 9774
12/02 9152 9531 9531 8623 9883 9510
CLASS A SHARES 1/03 8987 9359 9360 8398 9743 9368
Inception (9/28/2001) 5.67% 2/03 8813 9168 9178 8272 9641 9298
1 Year 1.84 3/03 8740 9088 9097 8352 9647 9335
4/03 9263 9632 9642 9039 10189 9841
CLASS B SHARES 5/03 9933 10318 10328 9515 10659 10276
Inception (9/28/2001) 5.76% 6/03 10010 10392 10402 9637 10731 10354
1 Year 1.12 7/03 10059 10443 10443 9807 10683 10378
8/03 10312 10696 10696 9997 10811 10553
CLASS C SHARES 9/03 10269 10645 10645 9892 10862 10566
Inception (9/28/2001) 6.59% 10/03 10542 10927 10938 10451 11220 10915
1 Year 5.21 11/03 10726 11109 11120 10543 11323 11012
12/03 11195 11593 11593 11095 11787 11406
CLASS R SHARES 1/04 11340 11735 11745 11299 11949 11577
Inception 7.12% 2/04 11525 11916 11927 11456 12154 11734
1 Year 6.80 3/04 11523 11916 11916 11283 12127 11678
4/04 11318 11684 11695 11106 11823 11433
Class R shares' inception date is 5/04 11308 11674 11684 11258 11877 11483
4/30/04. Returns since that date are 6/04 11535 11908 11909 11477 12072 11663
historical returns. All other returns 7/04 11095 11444 11455 11097 12017 11443
are blended returns of historical Class 8/04 11115 11464 11465 11142 12212 11513
R share performance and restated Class A 9/04 11184 11517 11528 11262 12338 11684
share performance (for periods prior to 10/04 11263 11598 11609 11435 12503 11810
the inception date of Class R shares) at 11/04 11644 11982 11992 11897 12842 12129
net asset value, adjusted to reflect the 12/04 $11969 $12001 $12311 $12302 $13148 $12431
higher Rule 12b-1 fees applicable to
Class R shares. Class A shares' SOURCE: LIPPER, INC.
inception date is 9/28/01.
The performance data quoted represent deferred sales charge (CDSC) for the
past performance and cannot guarantee period involved. The CDSC on Class B
comparable future results; current shares declines from 5% beginning at the
performance may be lower or higher. time of purchase to 0% at the beginning
Please visit AIMinvestments.com for the of the seventh year. The CDSC on Class C
most recent month-end performance. shares is 1% for the first year after
Performance figures reflect reinvested purchase. Class R shares do not have a
distributions, changes in net asset front-end sales charge; returns shown
value and the effect of the maximum are at net asset value and do not
sales charge unless otherwise stated. reflect a 0.75% CDSC that may be imposed
Investment return and principal value on a total redemption of retirement plan
will fluctuate so that you may have a assets within the first year.
gain or loss when you sell shares.
The performance of the fund's share
Class A share performance reflects classes will differ due to different
the maximum 4.75% sales charge, and sales charge structures and class
Class B and Class C share performance expenses.
reflects the applicable contingent
====================================================================================================================================
</Table>
4
AIM BASIC BALANCED FUND
<Table>
CALCULATING YOUR ONGOING FUND EXPENSES together with the amount you invested, compare the ongoing costs of investing
to estimate the expenses that you paid in the fund and other funds. To do so,
EXAMPLE over the period. Simply divide your compare this 5% hypothetical example
account value by $1,000 (for example, an with the 5% hypothetical examples that
As a shareholder of the fund, you incur $8,600 account value divided by $1,000 = appear in the shareholder reports of the
two types of costs: (1) transaction 8.6), then multiply the result by the other funds.
costs, which may include sales charges number in the table under the heading
(loads) on purchase payments; contingent entitled "Actual Expenses Paid During Please note that the expenses shown
deferred sales charges on redemptions; Period" to estimate the expenses you in the table are meant to highlight your
and redemption fees, if any; and (2) paid on your account during this period. ongoing costs only and do not reflect
ongoing costs, including management any transactional costs, such as sales
fees; distribution and/or service fees HYPOTHETICAL EXAMPLE FOR COMPARISON charges (loads) on purchase payments,
(12b-1); and other fund expenses. PURPOSES contingent deferred sales charges on
redemptions, and redemption fees, if
This example is intended to help you The table below also provides any. Therefore, the hypothetical
understand your ongoing costs (in information about hypothetical account information is useful in comparing
dollars) of investing in the fund and to values and hypothetical expenses based ongoing costs only, and will not help
compare these costs with ongoing costs on the fund's actual expense ratio and you determine the relative total costs
of investing in other mutual funds. an assumed rate of return of 5% per year of owning different funds. In addition,
The example is based on an investment before expenses, which is not the fund's if these transactional costs were
of $1,000 invested at the beginning of actual return. The hypothetical account included, your costs would have been
the period and held for the entire values and expenses may not be used to higher.
period, July 1, 2004 - December 31, estimate your actual ending account
2004. balance or expenses you paid for the
period. You may use this information to
ACTUAL EXPENSES
The table below provides information
about actual account values and actual
expenses. You may use the information in
this table,
====================================================================================================================================
ACTUAL HYPOTHETICAL
(5% ANNUAL RETURN BEFORE EXPENSES)
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES ENDING ACCOUNT EXPENSES
SHARE VALUE VALUE PAID DURING VALUE PAID DURING
CLASS (7/1/04) (12/31/04)(1) PERIOD(2) (12/31/04) PERIOD(2)
Class A $1,000.00 $1,037.30 $7.53 $1,017.75 $7.46
Class B 1,000.00 1,033.10 10.83 1,014.48 10.74
Class C 1,000.00 1,034.00 10.84 1,014.48 10.74
Class R 1,000.00 1,036.50 8.29 1,016.99 8.21
(1) The actual ending account value is based on the actual total return of the fund for the period July 1, 2004, to December 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 July 1, 2004,
to December 31, 2004, was 3.73%, 3.31%, 3.40% and 3.65% for Class A, B, C and R shares, respectively.
(2) Expenses are equal to the fund's annualized expense ratio (1.47%, 2.12%, 2.12% and 1.62% 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).
====================================================================================================================================
</Table>
5
AIM BASIC BALANCED FUND
<Table>
================================== =========================================
TOP 10 EQUITY HOLDINGS TOP 10 INDUSTRIES
1. Tyco International Ltd.
(Bermuda) 2.7% 1. U.S. Mortgage-Backed Securities 8.1% BRET W. STANLEY, Chartered
[STANLEY Financial Analyst, senior
2. Cardinal Health, Inc. 2.6 2. U.S. Treasury Securities 5.5 PHOTO] portfolio manager, is lead manager
of AIM Basic Balanced Fund and the
3. Sanofi-Aventis S.A. 3. U.S. Government Agency Securities 5.3 head of AIM's Value Investment
(France) 2.2 Management Unit. He received a B.B.A. in finance
4. Other Diversified Financial 6.4 from The University of Texas at Austin and an M.S.
4. Computer Associates Securities in finance from the University of Houston.
International, Inc. 2.2
5. Pharmaceuticals 5.0 R. CANON COLEMAN II,
5. JPMorgan Chase & Co. 2.1 [COLEMAN Chartered Financial Analyst,
6. Industrial Conglomerates 4.4 PHOTO] portfolio manager, is manager
6. Fannie Mae 2.0 of AIM Basic Balanced Fund. He
7. Health Care Distributors 3.8 earned a B.S. and an M.S. in
7. First Data Corp. 2.0 accounting from the University
8. Consumer Finance 3.6 of Florida. He also has an M.B.A. from The Wharton
8. Waste Management, Inc. 2.0 School at the University of Pennsylvania.
9. Data Processing & Outsourced
9. Citigroup Inc. 1.9 Services 2.9 JAN H. FRIEDLI, senior
[FRIEDLI portfolio manager, is manager of
10. WellPoint Inc. 1.9 10. Investment Banking & Brokerage 2.9 PHOTO] AIM Basic Balanced Fund. He joined
AIM in 1999. He graduated cum laude
================================== ========================================= from Villanova University with a
B.S. in computer science and earned an M.B.A. with
PORTFOLIO COMPOSITION The fund's holdings are subject to honors from the University of Chicago.
change, and there is no assurance that
By security type the fund will continue to hold any SCOT W. JOHNSON,
particular security. [JOHNSON Chartered Financial Analyst, senior
1. Stocks 66.0% PHOTO] portfolio manager, is manager of
AIM Basic Balanced Fund. He
2. Corporate Bond & Notes 16.0 received both his bachelor's degree
in economics and an M.B.A. in finance from
3. Government Bonds 10.8 Vanderbilt University.
4. Mortgage-Backed MATTHEW W. SEINSHEIMER,
Securities 9.5 [SEINSHEIMER Chartered Financial Analyst, senior
[PHOTO] portfolio manager, is manager of
5. Other Assets Less AIM Basic Balanced Fund. He
Liabilities -2.3 received a B.B.A. from
Southern Methodist University and an M.B.A. from
================================== The University of Texas at Austin.
TOTAL NET ASSETS $176.7 MILLION
MICHAEL J. SIMON,
TOTAL NUMBER OF HOLDINGS 308 [SIMON Chartered Financial Analyst, senior
================================== PHOTO] portfolio manager, is manager of
AIM Basic Balanced Fund. He
received a B.B.A. in finance from
Texas Christian University and an M.B.A. from the
University of Chicago.
Assisted by the Basic Value Team and
Investment Grade Team
</Table>
SUPPLEMENT TO ANNUAL REPORT DATED 12/31/04
AIM BASIC BALANCED FUND
<Table>
===================================
INSTITUTIONAL CLASS SHARES AVERAGE ANNUAL TOTAL RETURNS Please note that past performance
For periods ended 12/31/04 is not indicative of future
The following information has been Inception 7.40% results. More recent returns may be
prepared to provide Institutional 1 Year 7.33 more or less than those shown. All
Class shareholders with a returns assume reinvestment of
performance overview specific to =================================== distributions at net asset value.
their holdings. Institutional Class Investment return and principal
shares are offered exclusively to Institutional Class shares' value will fluctuate so your
institutional investors, including inception date is 4/30/04. Returns shares, when redeemed, may be worth
defined contribution plans that since that date are historical more or less than their original
meet certain criteria. returns. All other returns are cost. See full report for
blended returns of historical information on comparative
Institutional Class share benchmarks. Please consult your
performance and restated Class A fund prospectus for more
share performance (for periods information. For the most current
prior to the inception date of month-end performance, please call
Institutional Class shares) at net 800-451-4246 or visit
asset value and reflect the higher AIMinvestments.com.
Rule 12b-1 fees applicable to Class
A shares. Class A shares' inception
date is 9/28/01. Institutional
Class shares would have had
different returns due to
differences in the expense
structure of the Institutional
Class.
Institutional Class shares have no
sales charge; therefore,
performance is at net asset value.
Performance of Institutional Class
shares will differ from performance
of other share classes due to
differing sales charges and class
expenses.
</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.
<Table>
AIMinvestments.com BBA-INS-1 12/04 [YOUR GOALS. OUR SOLUTIONS.] [AIM INVESTMENTS LOGO APPEARS HERE]
--Registered Trademark-- --Registered Trademark--
</Table>
INFORMATION ABOUT YOUR FUND'S EXPENSES
CALCULATING YOUR ONGOING FUND EXPENSES
<Table>
EXAMPLE period. Simply divide your account You may use this information to
value by $1,000 (for example, an compare the ongoing costs of
As a shareholder of the fund, you $8,600 account value divided by investing in the fund and other
incur ongoing costs, including $1,000 = 8.6), then multiply the funds. To do so, compare this 5%
management fees; and other fund result by the number in the table hypothetical example with the 5%
expenses. This example is intended under the heading entitled "Actual hypothetical examples that appear
to help you understand your ongoing Expenses Paid During Period" to in the shareholder reports of the
costs (in dollars) of investing in estimate the expenses you paid on other funds.
the fund and to compare these costs your account during this period.
with ongoing costs of investing in Please note that the expenses
other mutual funds. The example is HYPOTHETICAL EXAMPLE FOR COMPARISON shown in the table are meant to
based on an investment of $1,000 PURPOSES highlight your ongoing costs only.
invested at the beginning of the Therefore, the hypothetical
period and held for the entire The table below also provides information is useful in comparing
period July 1, 2004-December 31, information about hypothetical ongoing costs only, and will not
2004. account values and hypothetical help you determine the relative
expenses based on the fund's actual total costs of owning different
ACTUAL EXPENSES expense ratio and an assumed rate funds.
of return of 5% per year before
The table below provides expenses, which is not the fund's
information about actual account actual return. The hypothetical
values and actual expenses. You may account values and expenses may not
use the information in this table, be used to estimate the actual
together with the amount you ending account balance or expenses
invested, to estimate the expenses you paid for the period.
that you paid over the
</Table>
<Table>
====================================================================================================================================
ACTUAL HYPOTHETICAL
(5% ANNUAL RETURN BEFORE EXPENSES)
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES ENDING ACCOUNT EXPENSES
VALUE VALUE PAID DURING VALUE PAID DURING
(07/01/04) (12/31/04)(1) PERIOD(2) (12/31/04) PERIOD(2)
Institutional Class $1,000.00 $1,039.40 $4.77 $1,020.46 $4.72
(1) The actual ending account value is based on the actual total return of the fund for the period July 1, 2004, to December 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 July 1, 2004,
to December 31, 2004, was 3.94% for the Institutional Class.
(2) Expenses are equal to the fund's annualized expense ratio, 0.93% 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 BBA-INS-1 12/04
FINANCIALS
SCHEDULE OF INVESTMENTS
December 31, 2004
<Table>
<Caption>
MARKET
SHARES VALUE
- ---------------------------------------------------------------------------
STOCKS & OTHER EQUITY INTERESTS-66.09%
ADVERTISING-2.80%
Interpublic Group of Cos., Inc. (The)(a) 168,000 $ 2,251,200
- ---------------------------------------------------------------------------
Omnicom Group Inc. 31,900 2,689,808
===========================================================================
4,941,008
===========================================================================
AEROSPACE & DEFENSE-1.03%
Honeywell International Inc. 51,500 1,823,615
===========================================================================
ALUMINUM-0.90%
Alcoa Inc. 50,900 1,599,278
===========================================================================
APPAREL RETAIL-1.17%
Gap, Inc. (The) 97,800 2,065,536
===========================================================================
ASSET MANAGEMENT & CUSTODY BANKS-1.54%
Bank of New York Co., Inc. (The) 81,200 2,713,704
===========================================================================
BUILDING PRODUCTS-2.37%
American Standard Cos. Inc.(a) 35,800 1,479,256
- ---------------------------------------------------------------------------
Masco Corp. 74,000 2,703,220
===========================================================================
4,182,476
===========================================================================
COMMUNICATIONS EQUIPMENT-0.64%
Motorola, Inc. 66,300 1,140,360
===========================================================================
CONSTRUCTION & FARM MACHINERY & HEAVY
TRUCKS-0.50%
Deere & Co. 11,900 885,360
===========================================================================
CONSUMER ELECTRONICS-2.08%
Koninklijke (Royal) Philips Electronics
N.V.-New York Shares (Netherlands) 58,700 1,555,550
- ---------------------------------------------------------------------------
Sony Corp.-ADR (Japan) 54,500 2,123,320
===========================================================================
3,678,870
===========================================================================
DATA PROCESSING & OUTSOURCED SERVICES-2.90%
Ceridian Corp.(a) 88,300 1,614,124
- ---------------------------------------------------------------------------
First Data Corp. 82,600 3,513,804
===========================================================================
5,127,928
===========================================================================
DEPARTMENT STORES-0.85%
May Department Stores Co. (The) 51,100 1,502,340
===========================================================================
DIVERSIFIED CHEMICALS-0.52%
Dow Chemical Co. (The) 18,500 915,935
===========================================================================
DIVERSIFIED COMMERCIAL SERVICES-1.77%
Cendant Corp. 133,600 3,123,568
===========================================================================
ENVIRONMENTAL SERVICES-1.97%
Waste Management, Inc. 116,100 3,476,034
===========================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- ---------------------------------------------------------------------------
FOOD RETAIL-1.97%
Kroger Co. (The)(a) 120,400 $ 2,111,816
- ---------------------------------------------------------------------------
Safeway Inc.(a) 69,000 1,362,060
===========================================================================
3,473,876
===========================================================================
GENERAL MERCHANDISE STORES-1.67%
Target Corp. 56,700 2,944,431
===========================================================================
HEALTH CARE DISTRIBUTORS-3.80%
Cardinal Health, Inc. 78,300 4,553,145
- ---------------------------------------------------------------------------
McKesson Corp. 69,000 2,170,740
===========================================================================
6,723,885
===========================================================================
HEALTH CARE EQUIPMENT-1.33%
Baxter International Inc. 50,500 1,744,270
- ---------------------------------------------------------------------------
Waters Corp.(a) 12,800 598,912
===========================================================================
2,343,182
===========================================================================
HEALTH CARE FACILITIES-1.17%
HCA, Inc. 51,800 2,069,928
===========================================================================
HEALTH CARE SERVICES-0.31%
IMS Health Inc. 24,000 557,040
===========================================================================
INDUSTRIAL CONGLOMERATES-4.13%
General Electric Co. 70,300 2,565,950
- ---------------------------------------------------------------------------
Tyco International Ltd. (Bermuda) 132,600 4,739,124
===========================================================================
7,305,074
===========================================================================
INDUSTRIAL MACHINERY-1.53%
Illinois Tool Works Inc. 29,100 2,696,988
===========================================================================
INSURANCE BROKERS-0.59%
Aon Corp. 43,500 1,037,910
===========================================================================
INTEGRATED OIL & GAS-0.11%
Shell Frontier Oil & Gas Inc.-Series B, 2.91%
Floating Rate Pfd(b) 2 200,000
===========================================================================
INVESTMENT BANKING & BROKERAGE-2.77%
Merrill Lynch & Co., Inc. 39,000 2,331,030
- ---------------------------------------------------------------------------
Morgan Stanley 46,200 2,565,024
===========================================================================
4,896,054
===========================================================================
MANAGED HEALTH CARE-1.89%
WellPoint Inc.(a) 29,100 3,346,500
===========================================================================
MOVIES & ENTERTAINMENT-1.66%
Walt Disney Co. (The) 105,500 2,932,900
===========================================================================
</Table>
F-1
<Table>
<Caption>
MARKET
SHARES VALUE
- ---------------------------------------------------------------------------
MULTI-LINE INSURANCE-1.00%
Hartford Financial Services Group, Inc. (The) 25,500 $ 1,767,405
===========================================================================
OIL & GAS DRILLING-2.03%
Pride International, Inc.(a) 43,100 885,274
- ---------------------------------------------------------------------------
Transocean Inc. (Cayman Islands)(a) 63,700 2,700,243
===========================================================================
3,585,517
===========================================================================
OIL & GAS EQUIPMENT & SERVICES-2.54%
Halliburton Co. 85,000 3,335,400
- ---------------------------------------------------------------------------
Schlumberger Ltd. (Netherlands) 17,100 1,144,845
===========================================================================
4,480,245
===========================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES-4.53%
ABN AMRO XVIII Custodial Receipts-Series
MM18, 2.79% Floating Rate Pfd. (Acquired
09/10/04-09/13/04; Cost $199,995)(c)(d)(e) 2 200,000
- ---------------------------------------------------------------------------
Citigroup Inc. 70,200 3,382,236
- ---------------------------------------------------------------------------
JPMorgan Chase & Co. 96,928 3,781,161
- ---------------------------------------------------------------------------
Zurich RegCaPS Funding Trust III, 2.75%
Floating Rate Pfd. (Acquired 06/03/04-
09/28/04; Cost $635,805)(b)(d)(e) 650 641,550
===========================================================================
8,004,947
===========================================================================
PACKAGED FOODS & MEATS-1.05%
Kraft Foods Inc.-Class A 51,900 1,848,159
===========================================================================
PHARMACEUTICALS-4.96%
Pfizer Inc. 95,500 2,567,995
- ---------------------------------------------------------------------------
Sanofi-Aventis S.A. (France)(a)(f) 49,212 3,926,609
- ---------------------------------------------------------------------------
Wyeth 53,200 2,265,788
===========================================================================
8,760,392
===========================================================================
PROPERTY & CASUALTY INSURANCE-1.50%
ACE Ltd. (Cayman Islands) 62,100 2,654,775
===========================================================================
SYSTEMS SOFTWARE-2.21%
Computer Associates International, Inc. 125,900 3,910,454
===========================================================================
THRIFTS & MORTGAGE FINANCE-2.30%
Fannie Mae 50,100 3,567,621
- ---------------------------------------------------------------------------
Fannie Mae-Series J, 4.72% Pfd(g) 4,850 244,925
- ---------------------------------------------------------------------------
Fannie Mae-Series K, 3.00% Pfd(g) 4,850 245,380
===========================================================================
4,057,926
===========================================================================
Total Stocks & Other Equity Interests
(Cost $94,667,867) 116,773,600
===========================================================================
<Caption>
PRINCIPAL
AMOUNT
BONDS & NOTES-15.95%
ADVERTISING-0.03%
Interpublic Group of Cos., Inc. (The), Sr.
Unsec. Notes, 7.88%, 10/15/05(g) $ 48,000 49,521
===========================================================================
</Table>
<Table>
- ---------------------------------------------------------------------------
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
AEROSPACE & DEFENSE-0.02%
Lockheed Martin Corp.-Series A, Medium Term
Notes, 8.66%, 11/30/06(g) $ 35,000 $ 38,289
===========================================================================
AUTO PARTS & EQUIPMENT-0.08%
Lear Corp.-Series B, Sr. Unsec. Gtd Notes,
7.96%, 05/15/05(g) 145,000 147,968
===========================================================================
AUTOMOBILE MANUFACTURERS-0.12%
DaimlerChrysler N.A. Holding Corp., Unsec.
Gtd. Global Notes, 7.40%, 01/20/05(g) 110,000 110,245
- ---------------------------------------------------------------------------
General Motors Corp., Unsec. Global Notes,
6.25%, 05/01/05(g) 100,000 100,945
===========================================================================
211,190
===========================================================================
BROADCASTING & CABLE TV-1.08%
Continental Cablevision, Inc., Sr. Unsec.
Deb.,
8.88%, 09/15/05(g) 500,000 518,950
- ---------------------------------------------------------------------------
9.50%, 08/01/13(g) 100,000 106,645
- ---------------------------------------------------------------------------
Cox Communications, Inc., Unsec. Notes,
6.88%, 06/15/05(g) 65,000 66,105
- ---------------------------------------------------------------------------
Cox Radio, Inc., Sr. Unsec. Notes, 6.63%,
02/15/06(g) 75,000 77,321
- ---------------------------------------------------------------------------
Lenfest Communications, Inc., Sr. Unsec.
Notes, 8.38%, 11/01/05(g) 120,000 125,490
- ---------------------------------------------------------------------------
TCI Communications, Inc.,
Sr. Notes, 7.25%, 08/01/05(g) 175,000 179,195
- ---------------------------------------------------------------------------
Sr. Unsec. Notes, 8.00%, 08/01/05(g) 125,000 128,524
- ---------------------------------------------------------------------------
Time Warner Cos., Inc.,
Sr. Unsec. Gtd. Deb., 7.57%, 02/01/24(g) 65,000 76,461
- ---------------------------------------------------------------------------
Unsec. Deb., 9.15%, 02/01/23(g) 350,000 467,939
- ---------------------------------------------------------------------------
Unsec. Notes, 7.75%, 06/15/05(g) 150,000 153,076
===========================================================================
1,899,706
===========================================================================
CONSUMER FINANCE-3.59%
Associates Corp. of North America, Sr. Global
Deb., 6.95%, 11/01/18(g) 175,000 202,986
- ---------------------------------------------------------------------------
Capital One Bank, Sr. Global Notes, 8.25%,
06/15/05(g) 325,000 332,208
- ---------------------------------------------------------------------------
Capital One Capital I, Sub. Floating Rate
Bonds, 3.71%, 02/01/27 (Acquired 09/16/04;
Cost $433,245)(b)(d)(e)(g) 425,000 432,085
- ---------------------------------------------------------------------------
Capital One Financial Corp.,
Sr. Unsec. Notes, 7.25%, 05/01/06(g) 275,000 288,128
- ---------------------------------------------------------------------------
Unsec. Notes, 7.13%, 08/01/08(g) 150,000 164,296
- ---------------------------------------------------------------------------
Ford Motor Credit Co.,
Global Notes, 7.60%, 08/01/05(g) 600,000 613,674
- ---------------------------------------------------------------------------
Notes, 6.75%, 05/15/05(g) 300,000 303,762
- ---------------------------------------------------------------------------
Unsec. Floating Rate Global Notes, 2.31%,
04/28/05(b)(g) 350,000 349,877
- ---------------------------------------------------------------------------
Unsec. Global Notes,
6.50%, 01/25/07(g) 200,000 208,070
- ---------------------------------------------------------------------------
6.88%, 02/01/06(g) 450,000 464,008
- ---------------------------------------------------------------------------
7.50%, 03/15/05(g) 275,000 277,467
- ---------------------------------------------------------------------------
Unsec. Notes, 7.75%, 03/15/05(g) 370,000 373,415
- ---------------------------------------------------------------------------
</Table>
F-2
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
- ---------------------------------------------------------------------------
CONSUMER FINANCE-(CONTINUED)
General Motors Acceptance Corp., Floating
Rate Medium Term Notes,
4.23%, 05/19/05(b)(g) $ 550,000 $ 551,947
- ---------------------------------------------------------------------------
4.44%, 03/04/05(b)(g) 625,000 626,344
- ---------------------------------------------------------------------------
Global Notes,
4.50%, 07/15/06(g) 190,000 190,410
- ---------------------------------------------------------------------------
7.50%, 07/15/05(g) 100,000(h) 102,122
- ---------------------------------------------------------------------------
Medium Term Notes,
4.15%, 02/07/05(g) 150,000 150,169
- ---------------------------------------------------------------------------
5.25%, 05/16/05(g) 405,000 407,835
- ---------------------------------------------------------------------------
Unsec. Unsub. Global Notes, 6.75%,
01/15/06(g) 300,000(h) 307,914
===========================================================================
6,346,717
===========================================================================
DIVERSIFIED BANKS-1.67%
AB Spintab (Sweden), Bonds, 7.50% (Acquired
02/12/04; Cost $245,524)(d)(g)(i) 220,000 233,684
- ---------------------------------------------------------------------------
American Savings Bank, Notes, 6.63%, 02/15/06
(Acquired 03/05/03; Cost $27,726)(d)(e)(g) 25,000 25,721
- ---------------------------------------------------------------------------
Banco Nacional de Comercio Exterior S.N.C.
(Mexico), Notes, 3.88%, 01/21/09 (Acquired
02/25/04; Cost $98,375)(d)(e)(g) 100,000 96,381
- ---------------------------------------------------------------------------
BankBoston Capital Trust IV, Gtd. Floating
Rate Notes, 3.04%, 06/08/28(b)(g) 250,000 241,402
- ---------------------------------------------------------------------------
Barclays Bank PLC (United Kingdom), Bonds,
8.55% (Acquired 11/05/03; Cost
$123,064)(d)(g)(i) 100,000 121,188
- ---------------------------------------------------------------------------
Centura Capital Trust I, Gtd. Notes, 8.85%,
06/01/27 (Acquired 05/22/03; Cost
$75,926)(d)(e)(g) 60,000 70,801
- ---------------------------------------------------------------------------
Chohung Bank (South Korea), Unsec. Sub.
Second Tier Notes, 11.50%, 04/01/10
(Acquired 07/01/04; Cost $266,173)(d)(e)(g) 250,000 254,740
- ---------------------------------------------------------------------------
Corporacion Andina de Fomento (Venezuela),
Unsec. Global Notes, 6.88%, 03/15/12(g) 150,000 167,397
- ---------------------------------------------------------------------------
Unsec. Yankee Notes, 8.88%, 06/01/05(g) 200,000 204,376
- ---------------------------------------------------------------------------
Daiwa P.B. Ltd. (Cayman Islands), Gtd. Sub.
Floating Rate Medium Term Euro Notes,
3.09%(j)(i) 100,000 99,000
- ---------------------------------------------------------------------------
Danske Bank A/S (Denmark), First Tier Bonds,
5.91% (Acquired 06/07/04; Cost
$100,000)(d)(g)(i) 100,000 106,039
- ---------------------------------------------------------------------------
HSBC Capital Funding L.P. (United Kingdom),
Gtd. Bonds, 4.61% (Acquired 11/05/03; Cost
$46,626)(d)(g)(i) 50,000 47,438
- ---------------------------------------------------------------------------
Lloyds Bank PLC-Series 1, Unsec. Sub. Euro
Dollar Notes, 2.94%(g)(i)(j) 140,000 124,862
- ---------------------------------------------------------------------------
National Bank of Canada (Canada), Floating
Rate Euro Deb., 2.13%, 08/29/87(g)(j) 80,000 65,855
- ---------------------------------------------------------------------------
National Westminster Bank PLC (United
Kingdom)-Series B, Unsec. Sub. Floating
Rate Euro Notes, 2.13%(g)(i)(j) 150,000 132,425
- ---------------------------------------------------------------------------
NBD Bank N.A. Michigan, Unsec. Sub. Deb.,
8.25%, 11/01/24(g) 100,000 130,513
- ---------------------------------------------------------------------------
</Table>
<Table>
- ---------------------------------------------------------------------------
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
DIVERSIFIED BANKS-(CONTINUED)
RBS Capital Trust I, Bonds, 4.71%(g)(i) $ 50,000 $ 47,869
- ---------------------------------------------------------------------------
Wells Fargo & Co., Sr. Unsec. Global Notes,
3.75%, 10/15/07(g) 275,000 276,282
- ---------------------------------------------------------------------------
Wells Fargo Bank, N.A., Unsec. Sub. Global
Notes, 7.80%, 06/15/10(g) 250,000 255,750
- ---------------------------------------------------------------------------
Woori Bank (South Korea), Unsec. Sub. Second
Tier Notes, 11.75%, 03/01/10 (Acquired
07/01/04; Cost $264,725)(d)(e)(g) 250,000 256,550
===========================================================================
2,958,273
===========================================================================
DIVERSIFIED CAPITAL MARKETS-0.13%
UBS Preferred Funding Trust I, Gtd. Global
Bonds, 8.62%(g)(i) 185,000 221,758
===========================================================================
ELECTRIC UTILITIES-0.58%
AmerenEnergy Generating Co.-Series C, Sr.
Unsec. Global Notes, 7.75%, 11/01/05(g) 20,000 20,777
- ---------------------------------------------------------------------------
Consolidated Edison Co. of New York-Series
96A, Unsec. Deb., 7.75%, 06/01/26(g) 55,000 59,851
- ---------------------------------------------------------------------------
Kansas City Power & Light Co., Sr. Unsec.
Notes, 7.13%, 12/15/05(g) 350,000 362,418
- ---------------------------------------------------------------------------
MidAmerican Energy Holdings Co., Sr. Unsec.
Notes, 7.23%, 09/15/05(g) 300,000 307,902
- ---------------------------------------------------------------------------
Pacific Gas & Electric Co., First Mortgage
Floating Rate Notes, 2.72%, 04/03/06(b)(g) 87,000 87,078
- ---------------------------------------------------------------------------
Yorkshire Power Finance (Cayman Islands)-
Series B, Sr. Unsec. Gtd. Unsub. Global
Notes, 6.50%, 02/25/08(g) 175,000 184,804
===========================================================================
1,022,830
===========================================================================
FOOD RETAIL-0.06%
Safeway Inc., Sr. Unsec. Notes, 2.50%,
11/01/05(g) 100,000 99,343
===========================================================================
GAS UTILITIES-0.32%
CenterPoint Energy Resources Corp., Unsec.
Deb., 6.50%, 02/01/08(g) 165,000 176,824
- ---------------------------------------------------------------------------
Columbia Energy Group-Series C, Notes, 6.80%,
11/28/05(g) 225,000 231,732
- ---------------------------------------------------------------------------
NiSource Capital Markets, Inc., Medium Term
Notes, 7.68%, 04/15/05(g) 150,000 151,920
===========================================================================
560,476
===========================================================================
HOMEBUILDING-0.43%
D.R. Horton, Inc., Sr. Unsec. Notes, 7.88%,
08/15/11(g) 200,000 230,250
- ---------------------------------------------------------------------------
Lennar Corp.-Series B, Sr. Unsec. Gtd. Global
Notes, 9.95%, 05/01/10(g) 275,000 294,888
- ---------------------------------------------------------------------------
Pulte Homes, Inc., Unsec. Gtd. Notes, 7.30%,
10/24/05(g) 150,000 154,338
- ---------------------------------------------------------------------------
Ryland Group, Inc. (The), Sr. Unsec. Unsub.
Notes, 9.75%, 09/01/10(g) 75,000 81,746
===========================================================================
761,222
===========================================================================
</Table>
F-3
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
- ------------------------------------------------------------------------
INDUSTRIAL CONGLOMERATES-0.25%
Tyco International Group S.A. (Luxembourg),
Unsec. Unsub. Gtd. Yankee Notes, 6.38%,
06/15/05(g) $ 375,000 $ 380,636
- ------------------------------------------------------------------------
URC Holdings Corp., Sr. Notes, 7.88%,
06/30/06 (Acquired 10/08/03; Cost
$56,614)(d)(e)(g) 50,000 53,237
========================================================================
433,873
========================================================================
INTEGRATED OIL & GAS-0.31%
Amerada Hess Corp., Unsec. Notes, 7.13%,
03/15/33(g) 150,000 165,122
- ------------------------------------------------------------------------
ConocoPhillips, Unsec. Deb., 7.13%,
03/15/28(g) 100,000 107,458
- ------------------------------------------------------------------------
Husky Oil Ltd. (Canada), Yankee Bonds, 8.90%,
08/15/28(g) 200,000 228,020
- ------------------------------------------------------------------------
Repsol International Finance B.V.
(Netherlands), Unsec. Gtd. Global Notes,
7.45%, 07/15/05(g) 45,000 46,162
========================================================================
546,762
========================================================================
INTEGRATED TELECOMMUNICATION SERVICES-1.67%
Deutsche Telekom International Finance B.V.
(Netherlands), Unsec. Unsub. Gtd. Global
Bonds, 8.25%, 06/15/05(g) 350,000 358,211
- ------------------------------------------------------------------------
France Telecom S.A. (France), Sr. Unsec.
Global Notes, 8.50%, 03/01/31(g) 60,000 81,419
- ------------------------------------------------------------------------
SBC Communications Inc., Notes, 4.21%,
06/05/05 (Acquired 12/10/04; Cost
$100,602)(d)(e)(g) 100,000 100,585
- ------------------------------------------------------------------------
Southwestern Bell Telephone Co.-Series B,
Medium Term Notes, 6.25%, 07/07/05(g) 100,000 101,623
- ------------------------------------------------------------------------
Sprint Capital Corp.,
Sr. Unsec. Gtd. Global Notes, 7.13%,
01/30/06(g) 275,000 286,047
- ------------------------------------------------------------------------
Unsec. Gtd. Global Notes, 7.90%,
03/15/05(g) 480,000 485,054
- ------------------------------------------------------------------------
Sprint Corp., Deb., 9.25%, 04/15/22(g) 90,000 119,930
- ------------------------------------------------------------------------
TELUS Corp. (Canada), Yankee Notes,
7.50%, 06/01/07(g) 250,000 271,683
- ------------------------------------------------------------------------
8.00%, 06/01/11(g) 60,000 71,093
- ------------------------------------------------------------------------
Verizon California Inc.-Series F, Unsec.
Deb., 6.75%, 05/15/27(g) 100,000 104,107
- ------------------------------------------------------------------------
Verizon Communications Inc.,
Unsec. Deb.,
6.36%, 04/15/06(g) 400,000 415,184
- ------------------------------------------------------------------------
8.75%, 11/01/21(g) 85,000 107,369
- ------------------------------------------------------------------------
Unsec. Gtd. Deb., 6.94%, 04/15/28(g) 125,000 139,570
- ------------------------------------------------------------------------
Verizon Florida Inc.-Series F, Sr. Unsec.
Deb., 6.13%, 01/15/13(g) 200,000 213,126
- ------------------------------------------------------------------------
Verizon Virginia Inc.-Series A, Unsec. Global
Deb., 4.63%, 03/15/13(g) 100,000 97,847
========================================================================
2,952,848
========================================================================
</Table>
<Table>
- ------------------------------------------------------------------------
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
INVESTMENT BANKING & BROKERAGE-0.10%
Lehman Brothers Inc.,
Sr. Sub. Deb., 11.63%, 05/15/05(g) $ 75,000 $ 77,158
- ------------------------------------------------------------------------
Sr. Unsec. Sub. Notes, 7.63%, 06/01/06(g) 50,000 53,001
- ------------------------------------------------------------------------
Merrill Lynch & Co., Inc.-Series B, Medium
Term Notes, 4.54%, 03/08/05(g) 40,000 40,163
========================================================================
170,322
========================================================================
LIFE & HEALTH INSURANCE-0.20%
Prudential Holdings, LLC-Series B, Bonds,
7.25%, 12/18/23 (Acquired
01/22/04-01/29/04; Cost $324,231)(d)(g)(k) 275,000 328,028
- ------------------------------------------------------------------------
ReliaStar Financial Corp., Unsec. Notes,
8.00%, 10/30/06(g) 25,000 26,989
========================================================================
355,017
========================================================================
MOVIES & ENTERTAINMENT-0.20%
Time Warner Inc., Sr. Unsec. Gtd. Global
Notes, 5.63%, 05/01/05(g) 350,000 353,112
========================================================================
MULTI-UTILITIES & UNREGULATED POWER-0.07%
Dominion Resources, Inc.-Series B, Sr. Unsec.
Unsub. Global Notes, 7.63%, 07/15/05(g) 125,000 128,136
========================================================================
MUNICIPALITIES-0.59%
Chicago (City of), Illinois O'Hare
International Airport; Refunding Taxable
General Airport Third Lien Series 2004 E
RB, 3.88%, 01/01/08(g)(k) 350,000 350,728
- ------------------------------------------------------------------------
Industry (City of), California Urban
Development Agency (Project 3); Taxable
Allocation Series 2003 Bonds, 6.10%,
05/01/24(g)(k) 150,000 154,500
- ------------------------------------------------------------------------
Phoenix (City of), Arizona Civic Improvement
Corp.; Taxable Rental Car Facility
Series 2004 RB,
3.69%, 07/01/07(g)(k) 80,000 80,132
- ------------------------------------------------------------------------
4.21%, 07/01/08(g)(k) 100,000 100,750
- ------------------------------------------------------------------------
Sacramento (County of), California; Taxable
Pension Funding Series 2004 C-1 RB, 0.27%,
07/10/30(g)(k)(l) 375,000 355,125
========================================================================
1,041,235
========================================================================
OIL & GAS EXPLORATION & PRODUCTION-0.34%
Pemex Project Funding Master Trust, Unsec.
Gtd. Unsub. Global Notes,
7.38%, 12/15/14(g) 300,000 332,850
- ------------------------------------------------------------------------
8.63%, 02/01/22(g) 225,000 261,608
========================================================================
594,458
========================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES-0.77%
General Electric Capital Corp.-Series A,
Medium Term Global Notes, 2.85%,
01/30/06(g) 20,000 19,951
- ------------------------------------------------------------------------
Heller Financial, Inc., Sr. Unsec. Global
Notes, 8.00%, 06/15/05(g) 100,000 102,320
- ------------------------------------------------------------------------
</Table>
F-4
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
- ------------------------------------------------------------------------
OTHER DIVERSIFIED FINANCIAL SERVICES-(CONTINUED)
ING Capital Funding Trust III, Gtd. Global
Bonds, 8.44%(g)(i) $ 125,000 $ 149,075
- ------------------------------------------------------------------------
Mizuho JGB Investment LLC-Series A, Bonds,
9.87% (Acquired 06/16/04; Cost
$141,406)(d)(g)(i) 125,000 144,864
- ------------------------------------------------------------------------
Pemex Finance Ltd. (Cayman Islands),
Sr. Unsec. Global Notes, 8.02%, 05/15/07(g) 125,000 132,310
- ------------------------------------------------------------------------
Series 1999-2, Class A1, Global Bonds,
9.69%, 08/15/09(g) 171,000 191,691
- ------------------------------------------------------------------------
Premium Asset Trust-Series 2004-04, Sr.
Notes, 4.13%, 03/12/09 (Acquired 03/04/04;
Cost $249,833)(d)(e)(g) 250,000 244,698
- ------------------------------------------------------------------------
Regional Diversified Funding (Cayman
Islands), Sr. Notes, 9.25%, 03/15/30
(Acquired 09/22/04; Cost $282,629)(d)(e)(g) 238,889 284,603
- ------------------------------------------------------------------------
UFJ Finance Aruba AEC (Aruba), Gtd. Sub.
Second Tier Euro Bonds, 8.75%(g)(i) 75,000 83,808
========================================================================
1,353,320
========================================================================
PACKAGED FOODS & MEATS-0.07%
Nabisco, Inc., Notes, 6.38%, 02/01/05(g) 125,000 125,821
========================================================================
PROPERTY & CASUALTY INSURANCE-0.35%
FGIC Corp., Sr. Unsec. Unsub. Notes, 6.00%,
01/15/34 (Acquired 12/07/04; Cost
$177,749)(d)(e)(g) 175,000 181,111
- ------------------------------------------------------------------------
First American Capital Trust I, Gtd. Notes,
8.50%, 04/15/12(g) 325,000 369,236
- ------------------------------------------------------------------------
Oil Insurance Ltd. (Bermuda), Unsec. Sub.
Deb., 5.15%, 08/15/33 (Acquired 03/23/04;
Cost $78,743)(d)(e)(g) 75,000 75,689
========================================================================
626,036
========================================================================
REAL ESTATE-0.39%
CarrAmerica Realty Corp., Sr. Unsec. Gtd.
Notes, 6.63%, 03/01/05(g) 50,000 50,292
- ------------------------------------------------------------------------
EOP Operating L.P., Sr. Unsec. Notes, 6.63%,
02/15/05(g) 200,000 200,876
- ------------------------------------------------------------------------
Health Care Property Investors, Inc., Sr.
Unsec. Notes, 6.88%, 06/08/05(g) 150,000 152,417
- ------------------------------------------------------------------------
HRPT Properties Trust, Sr. Unsec. Notes,
6.70%, 02/23/05(g) 125,000 125,673
- ------------------------------------------------------------------------
Spieker Properties, Inc., Medium Term Notes,
8.00%, 07/19/05(g) 50,000 51,283
- ------------------------------------------------------------------------
Spieker Properties, L.P., Unsec. Unsub.
Notes, 6.88%, 02/01/05(g) 100,000 100,306
========================================================================
680,847
========================================================================
REAL ESTATE MANAGEMENT & DEVELOPMENT-0.04%
Southern Investments UK PLC (United Kingdom),
Sr. Unsec. Unsub. Yankee Notes, 6.80%,
12/01/06(g) 75,000 78,817
========================================================================
</Table>
<Table>
- ------------------------------------------------------------------------
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
REGIONAL BANKS-1.15%
Cullen/Frost Capital Trust I, Unsec. Sub.
Floating Rate Notes, 3.95%, 03/01/34(b)(g) $ 325,000 $ 336,908
- ------------------------------------------------------------------------
Greater Bay Bancorp-Series B, Sr. Notes,
5.25%, 03/31/08(g) 350,000 352,534
- ------------------------------------------------------------------------
PNC Capital Trust C, Gtd. Floating Rate
Notes, 2.97%, 06/01/28(b)(g) 175,000 166,201
- ------------------------------------------------------------------------
Popular North America, Inc., Gtd. Notes,
4.70%, 06/30/09(g) 325,000 331,578
- ------------------------------------------------------------------------
Santander Financial Issuances (Cayman
Islands), Sec. Sub. Floating Rate Euro
Notes, 2.87%(g)(i)(j) 750,000 745,610
- ------------------------------------------------------------------------
TCF Financial Corp., Sub. Notes, 5.00%,
06/15/14(g) 100,000 101,746
========================================================================
2,034,577
========================================================================
RESTAURANTS-0.03%
McDonald's Corp., Unsec. Deb., 7.05%,
11/15/25(g) 55,000 58,338
========================================================================
SOVEREIGN DEBT-0.59%
Japan Bank for International Cooperation
(Japan), Unsec. Gtd. Euro Bonds, 6.50%,
10/06/05(g) 100,000 102,599
- ------------------------------------------------------------------------
New Brunswick (Province of) (Canada), Sec.
Yankee Deb., 6.75%, 08/15/13(g) 40,000 46,664
- ------------------------------------------------------------------------
Quebec (Province of) (Canada), Sr. Unsec.
Unsub. Global Deb., 5.75%, 02/15/09(g) 55,000 59,024
- ------------------------------------------------------------------------
Russian Federation (Russia),
Unsec. Unsub. Bonds,
5.00%, 03/31/30 (Acquired 05/18/04, Cost
$103,572)(d)(g) 115,000 118,841
- ------------------------------------------------------------------------
8.75%, 07/24/05 (Acquired 09/10/04-
12/03/04; Cost $181,963)(d)(g) 175,000 179,900
- ------------------------------------------------------------------------
Unsec. Unsub. Euro Bonds-REGS,
8.75%, 07/24/05 (Acquired 05/14/04; Cost
$184,888)(d)(g) 175,000 180,058
- ------------------------------------------------------------------------
10.00%, 06/26/07 (Acquired 05/14/04-
05/18/04; Cost $157,706)(d)(g) 140,000 158,564
- ------------------------------------------------------------------------
United Mexican States (Mexico)-Series A,
Medium Term Global Notes,
6.63%, 03/03/15(g) 60,000 64,386
- ------------------------------------------------------------------------
7.50%, 04/08/33(g) 120,000 129,138
========================================================================
1,039,174
========================================================================
THRIFTS & MORTGAGE FINANCE-0.11%
Greenpoint Capital Trust I, Gtd. Sub. Notes,
9.10%, 06/01/27(g) 75,000 88,730
- ------------------------------------------------------------------------
Washington Mutual Finance Corp., Sr. Unsec.
Notes, 8.25%, 06/15/05(g) 100,000 102,418
========================================================================
191,148
========================================================================
TOBACCO-0.15%
Altria Group, Inc.,
Sr. Unsec. Notes, 7.00%, 11/04/13(g) 40,000 43,279
- ------------------------------------------------------------------------
Unsec. Global Notes, 7.00%, 07/15/05(g) 200,000 203,958
- ------------------------------------------------------------------------
Unsec. Notes, 6.38%, 02/01/06(g) 20,000 20,529
========================================================================
267,766
========================================================================
</Table>
F-5
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
- ------------------------------------------------------------------------
TRUCKING-0.09%
Roadway Corp., Sr. Unsec. Gtd. Global Notes,
8.25%, 12/01/08(g) $ 150,000 $ 167,018
========================================================================
WIRELESS TELECOMMUNICATION SERVICES-0.37%
AT&T Wireless Services Inc., Sr. Unsec.
Unsub. Global Notes, 6.88%, 04/18/05(g) 200,000 202,216
- ------------------------------------------------------------------------
TeleCorp PCS, Inc., Sr. Unsec. Gtd. Sub.
Global Notes, 10.63%, 07/15/10(g) 420,000 459,480
========================================================================
661,696
========================================================================
Total Bonds & Notes (Cost $28,084,250) 28,177,614
========================================================================
U.S. MORTGAGE-BACKED SECURITIES-8.10%
FEDERAL HOME LOAN MORTGAGE CORP.
(FHLMC)-2.88%
Pass Through Ctfs.,
6.50%, 01/01/16 to 08/01/29(g) 100,196 105,568
- ------------------------------------------------------------------------
6.00%, 03/01/17 to 11/01/33(g) 1,714,523 1,778,672
- ------------------------------------------------------------------------
5.50%, 12/01/17 to 12/01/33(g) 1,144,266 1,166,380
- ------------------------------------------------------------------------
4.50%, 10/01/18(g) 355,851 355,621
- ------------------------------------------------------------------------
7.00%, 07/01/29 to 06/01/32(g) 293,660 311,335
- ------------------------------------------------------------------------
7.50%, 11/01/30 to 12/01/30(g) 19,391 20,791
- ------------------------------------------------------------------------
5.00%, 10/01/33(g) 416,383 414,491
- ------------------------------------------------------------------------
Pass Through Ctfs., TBA,
5.00%, 01/01/15(m) 924,000 938,657
========================================================================
5,091,515
========================================================================
FEDERAL NATIONAL MORTGAGE ASSOCIATION
(FNMA)-4.22%
Pass Through Ctfs.,
7.50%, 11/01/15 to 05/01/32(g) 95,262 102,042
- ------------------------------------------------------------------------
7.00%, 02/01/16 to 03/01/32(g) 169,559 179,846
- ------------------------------------------------------------------------
6.50%, 10/01/16 to 09/01/34(g) 1,643,060 1,725,924
- ------------------------------------------------------------------------
6.00%, 05/01/17 to 07/01/17(g) 589,576 618,339
- ------------------------------------------------------------------------
5.00%, 02/01/18(g) 18,568 18,889
- ------------------------------------------------------------------------
8.00%, 10/01/30(g) 17,694 19,192
- ------------------------------------------------------------------------
5.50%, 06/01/33 to 11/01/33(g) 299,748 304,662
- ------------------------------------------------------------------------
Pass Through Ctfs., TBA,
5.00%, 01/01/20 to 01/01/35(m) 1,210,520 1,220,855
- ------------------------------------------------------------------------
5.50%, 01/01/20 to 01/01/35(m) 1,994,234 2,046,822
- ------------------------------------------------------------------------
6.00%, 01/01/35(m) 1,171,300 1,211,414
========================================================================
7,447,985
========================================================================
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
(GNMA)-1.00%
Pass Through Ctfs.,
7.50%, 06/15/23 to 10/15/31(g) 67,864 73,196
- ------------------------------------------------------------------------
8.50%, 02/15/25(g) 35,448 38,873
- ------------------------------------------------------------------------
8.00%, 08/15/25(g) 17,904 19,530
- ------------------------------------------------------------------------
7.00%, 02/15/31 to 05/15/32(g) 174,644 185,679
- ------------------------------------------------------------------------
</Table>
<Table>
- ------------------------------------------------------------------------
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION-(CONTINUED)
Pass Through Ctfs.,
6.50%, 05/15/31 to 12/15/33(g) $ 376,742 $ 397,003
- ------------------------------------------------------------------------
6.00%, 12/15/31 to 02/15/33(g) 597,397 619,880
- ------------------------------------------------------------------------
5.50%, 09/15/33 to 02/15/34(g) 429,358 438,947
========================================================================
1,773,108
========================================================================
Total U.S. Mortgage-Backed Securities
(Cost $14,255,013) 14,312,608
========================================================================
U.S. GOVERNMENT AGENCY SECURITIES-5.34%
FEDERAL HOME LOAN BANK (FHLB)-4.91%
Unsec. Disc. Notes,
1.25%, 01/03/05(n) 8,670,000 8,669,398
========================================================================
FEDERAL NATIONAL MORTGAGE ASSOCIATION
(FNMA)-0.43%
Unsec. Floating Rate Global Notes,
3.68%, 02/17/09(g)(o) 460,000 464,315
- ------------------------------------------------------------------------
Unsec. Global Notes,
3.38%, 12/15/08(g) 300,000 296,211
========================================================================
760,526
========================================================================
Total U.S. Government Agency Securities
(Cost $9,419,513) 9,429,924
========================================================================
ASSET-BACKED SECURITIES-1.39%
OTHER DIVERSIFIED FINANCIAL SERVICES--1.14%
Citicorp Lease-Series 1999-1, Pass Through
Ctfs., Class A1, 7.22%, 06/15/05 (Acquired
05/08/02-
02/25/04; Cost $480,954)(d)(g) 450,014 458,227
- ------------------------------------------------------------------------
Class A2, 8.04%, 12/15/19 (Acquired
08/20/02; Cost $166,614)(d)(g) 150,000 178,771
- ------------------------------------------------------------------------
Patrons' Legacy,
Series 2003-III, Ctfs., 5.65%, 01/17/17
(Acquired 11/04/04; Cost $512,705)(d)(e) 500,000 508,681
- ------------------------------------------------------------------------
Series 2004-I, Ctfs., 6.67%, 02/04/17
(Acquired 04/30/04; Cost $500,000)(d)(e) 500,000 509,701
- ------------------------------------------------------------------------
PLC Trust 2003-1, Sec. Notes, 2.71%, 03/31/06
(Acquired 03/23/04; Cost $116,625)(d)(e)(g) 111,655 111,218
- ------------------------------------------------------------------------
Twin Reefs Pass-Through Trust, Floating Rate
Pass Through Ctfs., 3.37% (Acquired
12/07/04; Cost $200,000)(d)(e)(g)(i)(o) 200,000 201,138
- ------------------------------------------------------------------------
Yorkshire Power Pass-Through Asset Trust
(Cayman Islands)-Series 2000-1, Pass
Through Ctfs., 8.25%, 02/15/05 (Acquired
11/12/03; Cost $53,400)(d)(e)(g) 50,000 50,274
========================================================================
2,018,010
========================================================================
PROPERTY & CASUALTY INSURANCE-0.13%
North Front Pass-Through Trust, Bonds, 5.81%,
12/15/24 (Acquired 12/08/04; Cost
$225,748)(d)(e)(g) 225,000 229,484
========================================================================
</Table>
F-6
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
- ------------------------------------------------------------------------
THRIFTS & MORTGAGE FINANCE-0.12%
Sovereign Bank-Class A-1, Pass Through Ctfs.,
10.20%, 06/30/05 (Acquired 09/22/04; Cost
$227,097)(d)(e)(g) $ 195,064 $ 200,860
========================================================================
Total Asset-Backed Securities (Cost
$2,426,908) 2,448,354
========================================================================
U.S. TREASURY SECURITIES-5.46%
U.S. TREASURY NOTES-4.16%
2.50%, 09/30/06(g) 600,000 594,846
- ------------------------------------------------------------------------
6.50%, 10/15/06(g) 2,500,000 2,650,400
- ------------------------------------------------------------------------
3.50%, 11/15/06 to 11/15/09(g) 1,100,000 1,100,265
- ------------------------------------------------------------------------
3.13%, 10/15/08(g) 760,000 751,921
- ------------------------------------------------------------------------
4.75%, 11/15/08(g) 2,100,000 2,200,401
- ------------------------------------------------------------------------
5.00%, 02/15/11(g) 50,000 53,219
========================================================================
7,351,052
========================================================================
</Table>
<Table>
- ------------------------------------------------------------------------
<Caption>
PRINCIPAL MARKET
AMOUNT VALUE
U.S. TREASURY BONDS-1.19%
7.25%, 05/15/16 to 08/15/22(g) $1,000,000 $ 1,265,722
- ------------------------------------------------------------------------
7.50%, 11/15/16(g) 160,000 204,525
- ------------------------------------------------------------------------
5.38%, 02/15/31(g) 595,000 643,159
========================================================================
2,113,406
========================================================================
U.S. TREASURY STRIPS-0.11%
3.03%, 02/15/07(g)(n) 200,000 187,782
========================================================================
Total U.S. Treasury Securities (Cost
$9,672,462) 9,652,240
========================================================================
TOTAL INVESTMENTS-102.33% (Cost $158,526,013) 180,794,340
========================================================================
OTHER ASSETS LESS LIABILITIES-(2.33%) (4,116,913)
========================================================================
NET ASSETS-100.00% $176,677,427
________________________________________________________________________
========================================================================
</Table>
Investment Abbreviations:
<Table>
ADR - American Depositary Receipt
Ctfs - Certificates
Deb. - Debentures
Disc. - Discounted
Gtd. - Guaranteed
Pfd. - Preferred
RB - Revenue Bonds
REGS - Regulation S
Sec. - Secured
Sr. - Senior
STRIPS - Separately Traded Registered Interest and Principal Security
Sub. - Subordinated
TBA - To Be Announced
Unsec. - Unsecured
Unsub. - Unsubordinated
</Table>
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) Interest rate is redetermined quarterly. Rate shown is the rate in effect on
December 31, 2004.
(c) Interest rate is redetermined annually. Rate shown is the rate in effect on
December 31, 2004.
(d) Security not registered under the Securities Act of 1933, as amended (e.g.,
the security was purchased in a Rule 144A transaction or a Regulation D
transaction). The security may be resold only pursuant to an exemption from
registration under the 1933 Act, typically to qualified institutional
buyers. The Fund has no rights to demand registration of these securities.
The aggregate market value of these securities at December 31, 2004 was
$6,984,710 which represented 3.95% of the Fund's Net Assets. Unless
otherwise indicated, these securities are not considered to be illiquid.
(e) Security considered to be illiquid. The aggregate market value of these
securities considered illiquid at December 31, 2004 was $4,729,108, which
represented 2.68% of the Fund's Net Assets.
(f) In accordance with the procedures established by the Board of Trustees, the
foreign security is fair valued using adjusted closing market prices. The
market value of this security at December 31, 2004 represented 2.17 % of the
Fund's Total Investments. See Note 1A.
(g) 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 December
31, 2004 was $49,306,517, which represented 27.27% of the Fund's Total
Investments. See Note 1A.
(h) A portion of the principal balance was pledged as collateral to cover margin
requirements for open futures contracts. See Note 1I and Note 7.
(i) Perpetual bond with no specified maturity date.
(j) Interest rate is redetermined semi-annually. Rate shown is the rate in
effect on December 31, 2004.
(k) Principal and interest payments are secured by bond insurance provided by
one of the following companies: Financial Guaranty Insurance Co., Financial
Security Assurance Inc., or MBIA Insurance Corp.
(l) Zero coupon bond issued at a discount. The interest rate shown represents
the current yield on December 31, 2004. Bond will convert to a fixed coupon
rate at a specific future date.
(m) Security purchased on forward commitment basis. This security is subject to
dollar roll transactions. See Note 1F.
(n) Security traded on a discount basis. The interest rate shown represents the
discount rate at the time of purchase by the Fund.
(o) Interest rate is redetermined monthly. Rate shown is the rate in effect on
December 31, 2004.
See accompanying notes which are an integral part of the financial statements.
F-7
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2004
<Table>
ASSETS:
Investments, at market value (cost
$158,526,013) $180,794,340
- -----------------------------------------------------------
Cash 5,044
- -----------------------------------------------------------
Receivables for:
Investments sold 1,292,519
- -----------------------------------------------------------
Variation margin 16,828
- -----------------------------------------------------------
Fund shares sold 126,374
- -----------------------------------------------------------
Dividends and interest 764,644
- -----------------------------------------------------------
Principal paydowns 20,449
- -----------------------------------------------------------
Investment for trustee deferred compensation
and retirement plans 14,393
- -----------------------------------------------------------
Other assets 22,312
===========================================================
Total assets 183,056,903
___________________________________________________________
===========================================================
LIABILITIES:
Payables for:
Investments purchased 5,844,826
- -----------------------------------------------------------
Fund shares reacquired 277,086
- -----------------------------------------------------------
Trustee deferred compensation and
retirement plans 18,052
- -----------------------------------------------------------
Accrued distribution fees 107,326
- -----------------------------------------------------------
Accrued transfer agent fees 85,508
- -----------------------------------------------------------
Accrued operating expenses 46,678
===========================================================
Total liabilities 6,379,476
===========================================================
Net assets applicable to shares outstanding $176,677,427
___________________________________________________________
===========================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $154,792,290
- -----------------------------------------------------------
Undistributed net investment income 38,788
- -----------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities, foreign currencies
and futures contracts (471,776)
- -----------------------------------------------------------
Unrealized appreciation of investment
securities and futures contracts 22,318,125
===========================================================
$176,677,427
___________________________________________________________
===========================================================
NET ASSETS:
Class A $ 68,951,179
___________________________________________________________
===========================================================
Class B $ 79,967,801
___________________________________________________________
===========================================================
Class C $ 27,728,863
___________________________________________________________
===========================================================
Class R $ 18,972
___________________________________________________________
===========================================================
Institutional Class $ 10,612
___________________________________________________________
===========================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER
SHARE, UNLIMITED NUMBER OF SHARES
AUTHORIZED:
Class A 5,815,514
___________________________________________________________
===========================================================
Class B 6,754,534
___________________________________________________________
===========================================================
Class C 2,340,704
___________________________________________________________
===========================================================
Class R 1,598
___________________________________________________________
===========================================================
Institutional Class 895
___________________________________________________________
===========================================================
Class A:
Net asset value per share $ 11.86
- -----------------------------------------------------------
Offering price per share:
(Net asset value of $11.86 divided by
95.25%) $ 12.45
___________________________________________________________
===========================================================
Class B:
Net asset value and offering price per
share $ 11.84
___________________________________________________________
===========================================================
Class C:
Net asset value and offering price per
share $ 11.85
___________________________________________________________
===========================================================
Class R:
Net asset value and offering price per
share $ 11.87
___________________________________________________________
===========================================================
Institutional Class:
Net asset value and offering price per
share $ 11.86
___________________________________________________________
===========================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
F-8
STATEMENT OF OPERATIONS
For the year ended December 31, 2004
<Table>
INVESTMENT INCOME:
Interest $ 2,180,680
- -------------------------------------------------------------------------
Dividends (net of foreign withholding tax of $19,571) 1,533,906
=========================================================================
Total investment income 3,714,586
=========================================================================
EXPENSES:
Advisory fees 1,094,829
- -------------------------------------------------------------------------
Administrative services fees 50,000
- -------------------------------------------------------------------------
Custodian fees 32,443
- -------------------------------------------------------------------------
Distribution fees:
Class A 217,699
- -------------------------------------------------------------------------
Class B 796,944
- -------------------------------------------------------------------------
Class C 265,274
- -------------------------------------------------------------------------
Class R 35
- -------------------------------------------------------------------------
Transfer agent fees -- Class A, B, C, and R 493,477
- -------------------------------------------------------------------------
Transfer agent fees--Institutional Class 7
- -------------------------------------------------------------------------
Trustees' fees and retirement benefits 17,423
- -------------------------------------------------------------------------
Other 240,236
=========================================================================
Total expenses 3,208,367
=========================================================================
Less: Fees waived, expenses reimbursed and expense offset
arrangement (37,052)
=========================================================================
Net expenses 3,171,315
=========================================================================
Net investment income 543,271
=========================================================================
REALIZED AND UNREALIZED GAIN FROM INVESTMENT SECURITIES,
FOREIGN CURRENCIES AND FUTURES CONTRACTS:
Net realized gain from:
Investment securities 8,095,387
- -------------------------------------------------------------------------
Foreign currencies 3,430
- -------------------------------------------------------------------------
Futures contracts 165,646
=========================================================================
8,264,463
=========================================================================
Change in net unrealized appreciation of:
Investment securities 1,548,687
- -------------------------------------------------------------------------
Futures contracts 49,798
=========================================================================
1,598,485
=========================================================================
Net gain from investment securities, foreign currencies and
futures contracts 9,862,948
=========================================================================
Net increase in net assets resulting from operations $10,406,219
_________________________________________________________________________
=========================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
F-9
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 2004 and 2003
<Table>
<Caption>
2004 2003
- ------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 543,271 $ 43,727
- ------------------------------------------------------------------------------------------
Net realized gain from investment securities, foreign
currencies and futures contracts 8,264,463 204,356
- ------------------------------------------------------------------------------------------
Change in net unrealized appreciation of investment
securities and futures contracts 1,598,485 24,575,727
==========================================================================================
Net increase in net assets resulting from operations 10,406,219 24,823,810
==========================================================================================
Distributions to shareholders from net investment income:
Class A (518,829) (252,338)
- ------------------------------------------------------------------------------------------
Class B (130,939) (76,078)
- ------------------------------------------------------------------------------------------
Class C (44,341) (23,549)
- ------------------------------------------------------------------------------------------
Class R (56) --
- ------------------------------------------------------------------------------------------
Institutional Class (108) --
==========================================================================================
Total distributions from net investment income (694,273) (351,965)
==========================================================================================
Distributions to shareholders from net realized gains:
Class A (1,852,910) --
- ------------------------------------------------------------------------------------------
Class B (2,168,137) --
- ------------------------------------------------------------------------------------------
Class C (738,028) --
- ------------------------------------------------------------------------------------------
Class R (292) --
- ------------------------------------------------------------------------------------------
Institutional Class (285) --
==========================================================================================
Total distributions from net realized gains (4,759,652) --
==========================================================================================
Decrease in net assets resulting from distributions (5,453,925) (351,965)
==========================================================================================
Share transactions-net:
Class A 13,392,670 12,879,782
- ------------------------------------------------------------------------------------------
Class B 1,380,840 16,497,602
- ------------------------------------------------------------------------------------------
Class C 2,153,156 5,182,557
- ------------------------------------------------------------------------------------------
Class R 18,638 --
- ------------------------------------------------------------------------------------------
Institutional Class 10,394 --
==========================================================================================
Net increase in net assets resulting from share
transactions 16,955,698 34,559,941
==========================================================================================
Net increase in net assets 21,907,992 59,031,786
==========================================================================================
NET ASSETS:
Beginning of year 154,769,435 95,737,649
==========================================================================================
End of year (including undistributed net investment income
(loss) of $38,788 and $(9,211), respectively) $176,677,427 $154,769,435
__________________________________________________________________________________________
==========================================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
F-10
NOTES TO FINANCIAL STATEMENTS
December 31, 2004
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Basic Balanced Fund (the "Fund") is a series portfolio of AIM Funds Group
(the "Trust"). The Trust is a Delaware statutory trust registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
series management investment company consisting of nine separate portfolios,
each authorized to issue an unlimited number of shares of beneficial interest.
The Fund currently offers multiple classes of shares. Matters affecting each
portfolio or class will be voted on exclusively by the shareholders of such
portfolio or class. The assets, liabilities and operations of each portfolio are
accounted for separately. Information presented in these financial statements
pertains only to the Fund.
The Fund's investment objective is long-term growth of capital and current
income. Each company listed in the Schedule of Investments is organized in the
United States of America unless otherwise noted.
Under the Trust's organizational documents, each Trustee, officer, employee
or other agent of the Trust (including the Trust's investment manager) is
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-11
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 are declared and paid quarterly
and are recorded on ex-dividend date. Distributions from net realized
capital gain, if any, are generally paid annually and recorded on
ex-dividend date. The Fund may elect to use a portion of the proceeds from
redemptions as distributions for federal income tax purposes.
D. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of
Subchapter M of the Internal Revenue Code necessary to qualify as a
regulated investment company and, as such, will not be subject to federal
income taxes on otherwise taxable income (including net realized capital
gain) which is distributed to shareholders. Therefore, no provision for
federal income taxes is recorded in the financial statements.
E. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund are charged to the operations of such class. Transfer
agency fees and expenses and other shareholder recordkeeping fees and
expenses attributable to the Institutional Class are charged to such class.
Transfer agency fees and expenses 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. DOLLAR ROLL TRANSACTIONS -- The Fund may engage in dollar roll transactions
with respect to mortgage-backed securities issued by GNMA, FNMA and FHLMC.
In a dollar roll transaction, the Fund sells a mortgage-backed security
held in the Fund to a financial institution such as a bank or
broker-dealer, and simultaneously agrees to purchase a substantially
similar security (same type, coupon and maturity) from the institution at
an agreed upon price and future date. The mortgage-backed securities to be
purchased will bear the same interest rate as those sold, but generally
will be collateralized by different pools of mortgages with different
prepayment histories. The difference between the selling price and the
future purchase price is generally amortized to income between the date of
the sell and the future purchase date. During the period between the sale
and purchase, the Fund will not be entitled to receive interest and
principal payments on securities sold. Proceeds of the sale may be invested
in short-term instruments, and the income from these investments, together
with any additional fee income received on the sale, could generate income
for the Fund exceeding the yield on the security sold. Dollar roll
transactions are considered borrowings under the 1940 Act. At the time the
Fund enters into the dollar roll, it will segregate liquid assets having a
dollar value equal to the purchase price.
Dollar roll transactions involve the risk that the market value of the
securities retained by the Fund may decline below the price of the
securities that the Fund has sold but is obligated to purchase under the
agreement. In the event that the buyer of securities in a dollar roll
transaction files for bankruptcy or becomes insolvent, the Fund's use of
the proceeds from the sale of the securities may be restricted pending a
determination by the other party, or its trustee or receiver, whether to
enforce the Fund's obligation to purchase the securities. The return earned
by the Fund with the proceeds of the dollar roll transaction may not exceed
transaction costs.
G. FOREIGN CURRENCY TRANSLATIONS -- Foreign currency is valued at the close of
the NYSE based on quotations posted by banks and major currency dealers.
Portfolio securities and other assets and liabilities denominated in
foreign currencies are translated into U.S. dollar amounts at date of
valuation. Purchases and sales of portfolio securities (net of foreign
taxes withheld on disposition) and income items denominated in foreign
currencies are translated into U.S. dollar amounts on the respective dates
of such transactions. The Fund does not separately account for the portion
of the results of operations resulting from changes in foreign exchange
rates on investments and the fluctuations arising from changes in market
prices of securities held. The combined results of changes in foreign
exchange rates and the fluctuation of market prices on investments (net of
estimated foreign tax withholding) are included with the net realized and
unrealized gain or loss from investments in the Statement of Operations.
Reported net realized foreign currency gains or losses arise from, (i)
sales of foreign currencies, (ii) currency gains or losses realized between
the trade and settlement dates on securities transactions, and (iii) the
difference between the amounts of dividends, interest, and foreign
withholding taxes recorded on the Fund's books and the U.S. dollar
equivalent of the amounts actually received or paid. Net unrealized foreign
currency gains and losses arise from changes in the fair values of assets
and liabilities, other than investments in securities at fiscal period end,
resulting from changes in exchange rates.
H. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to attempt
to minimize the risk to the Fund from adverse changes in the
F-12
relationship between currencies. The Fund may also enter into a foreign
currency contract for the purchase or sale of a security denominated in a
foreign currency in order to "lock in" the U.S. dollar price of that
security. The Fund could be exposed to risk if counterparties to the
contracts are unable to meet the terms of their contracts or if the value
of the foreign currency changes unfavorably.
I. FUTURES CONTRACTS -- The Fund may purchase or sell futures contracts as a
hedge against changes in market conditions. Initial margin deposits
required upon entering into futures contracts are satisfied by the
segregation of specific securities as collateral for the account of the
broker (the Fund's agent in acquiring the futures position). During the
period the futures contracts are open, changes in the value of the
contracts are recognized as unrealized gains or losses by "marking to
market" on a daily basis to reflect the market value of the contracts at
the end of each day's trading. Variation margin payments are made or
received depending upon whether unrealized gains or losses are incurred.
When the contracts are closed, the Fund recognizes a realized gain or loss
equal to the difference between the proceeds from, or cost of, the closing
transaction and the Fund's basis in the contract. If the Fund were unable
to liquidate a futures contract and/or enter into an offsetting closing
transaction, the Fund would continue to be subject to market risk with
respect to the value of the contracts and continue to be required to
maintain the margin deposits on the futures contracts.
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement,
the Fund pays an advisory fee to AIM at the annual rate of 0.65% of the first $1
billion of the Fund's average daily net assets, plus 0.60% of the next $4
billion of the Fund's average daily net assets, plus 0.55% of the Fund's average
daily net assets in excess of $5 billion. Effective January 1, 2005 through
December 31, 2009, AIM has contractually agreed to waive advisory fees to the
extent necessary so that the advisory fees payable by the Fund (based on the
Fund's average daily net assets) do not exceed the annual rate of 0.62% of the
first $250 million, plus 0.605% of the next $250 million, plus 0.59% of the next
$500 million, plus 0.575% of the next $1.5 billion, plus 0.56% of the next $2.5
billion, plus 0.545% of the next $2.5 billion, plus 0.53% of the next $2.5
billion, plus 0.515% of the Fund's average daily net assets in excess of $10
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, Class C, Class R
and Institutional Class shares to 1.50%, 2.15%, 2.15%, 1.65% and 1.15% 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 limits 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. AIM
did not waive fees and/or reimburse expenses during the period under this
expense limitation. 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 December 31, 2004, AIM waived
fees of $292.
For the year ended December 31, 2004, at the request of the Trustees of the
Trust, AMVESCAP PLC ("AMVESCAP") agreed to reimburse $34,433 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 December 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. AISI did not reimburse fees during the
period under this expense limitation. For the year ended December 31, 2004, the
Fund paid AISI $493,477 for Class A, Class B, Class C and Class R shares and $7
for Institutional Class shares. AISI may make payments to intermediaries that
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 year ended December 31, 2004, the Class A, Class
B, Class C and Class R shares paid $217,699, $796,944, $265,274 and $35,
respectively.
F-13
Front-end sales commissions and contingent deferred sales charges ("CDSC")
(collectively the "sales charges") are not recorded as expenses of the Fund.
Front-end sales commissions are deducted from proceeds from the sales of Fund
shares prior to investment in Class A shares of the Fund. CDSC are deducted from
redemption proceeds prior to remittance to the shareholder. During the year
ended December 31, 2004, AIM Distributors advised the Fund that it retained
$44,826 in front-end sales commissions from the sale of Class A shares and $24,
$8,790, $2,603 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--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 December 31, 2004, the Fund
engaged in purchases and sales of securities of $784,320 and $854,856,
respectively.
NOTE 4--EXPENSE OFFSET ARRANGEMENT
The expense offset arrangement is comprised of transfer agency credits which
result from balances in Demand Deposit Accounts (DDA) used by the transfer agent
for clearing shareholder transactions. For the year ended December 31, 2004, the
Fund received credits in transfer agency fees of $2,327 under an expense offset
arrangement, which resulted in a reduction of the Fund's total expenses of
$2,327.
NOTE 5--TRUSTEES' FEES
Trustees' fees represent remuneration paid to each Trustee of the Trust who is
not an "interested person" of AIM. Trustees have the option to defer
compensation payable by the Trust. Those Trustees who defer compensation have
the option to select various AIM Funds 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 December 31, 2004, the Fund paid legal fees of $3,004
for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the
Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 6--BORROWINGS
Pursuant to an exemptive order from the SEC, the Fund may participate in an
interfund lending facility that AIM has established for temporary borrowings by
the AIM Funds. 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 December 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.
F-14
NOTE 7--FUTURES CONTRACTS
On December 31, 2004, $400,000 principal amount of investment grade corporate
securities were pledged as collateral to cover margin requirements for open
futures contracts.
<Table>
<Caption>
OPEN FUTURES CONTRACTS AT PERIOD END
- -----------------------------------------------------------------------------------------------------------------------
UNREALIZED
NUMBER OF MONTH/ MARKET APPRECIATION
CONTRACT CONTRACTS COMMITMENT VALUE (DEPRECIATION)
- -----------------------------------------------------------------------------------------------------------------------
U. S. Treasury 2 Year Notes 29 Mar-05/Long $ 6,078,219 $ 7,652
- -----------------------------------------------------------------------------------------------------------------------
U. S. Treasury 5 Year Notes 63 Mar-05/Long 6,900,469 43,982
- -----------------------------------------------------------------------------------------------------------------------
U.S. Treasury 10 Year Notes 9 Mar-05/Long 1,007,437 (5,670)
- -----------------------------------------------------------------------------------------------------------------------
U.S. Treasury 30 Year Bonds 2 Mar-05/Long 225,000 3,834
=======================================================================================================================
$14,211,125 $49,798
_______________________________________________________________________________________________________________________
=======================================================================================================================
</Table>
NOTE 8--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
DISTRIBUTIONS TO SHAREHOLDERS:
The tax character of distributions paid during the years ended December 31, 2004
and 2003 was as follows:
<Table>
<Caption>
2004 2003
- ------------------------------------------------------------------------------------
Distributions paid from:
Ordinary income $ 694,273 $351,965
- ------------------------------------------------------------------------------------
Long-term capital gain 4,759,652 --
====================================================================================
Total distributions $5,453,925 $351,965
____________________________________________________________________________________
====================================================================================
</Table>
TAX COMPONENTS OF NET ASSETS:
As of December 31, 2004, the components of net assets on a tax basis were as
follows:
<Table>
<Caption>
2004
- --------------------------------------------------------------------------
Undistributed ordinary income $ 53,848
- --------------------------------------------------------------------------
Unrealized appreciation -- investments 22,152,211
- --------------------------------------------------------------------------
Temporary book/tax differences (15,060)
- --------------------------------------------------------------------------
Post-October capital loss deferral (305,862)
- --------------------------------------------------------------------------
Shares of beneficial interest 154,792,290
==========================================================================
Total net assets $176,677,427
__________________________________________________________________________
==========================================================================
</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 gains and losses on certain
future contracts.
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 $3,344,634 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 December 31, 2004.
F-15
NOTE 9--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities
and money market funds) purchased and sold by the Fund during the year ended
December 31, 2004 was $111,987,123 and $102,680,901, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- -------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $24,552,170
- -------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (2,399,959)
===============================================================================
Net unrealized appreciation of investment securities $22,152,211
_______________________________________________________________________________
===============================================================================
Cost of investments for tax purposes is $158,642,129.
</Table>
NOTE 10--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of distributions, foreign
currency transactions and paydowns on mortgage-backed securities on December 31,
2004, undistributed net investment income (loss) was increased by $199,001 and
undistributed net realized gain (loss) decreased by $555,344 and shares of
beneficial interest was increased by 356,343. This reclassification had no
effect on the net assets of the Fund.
NOTE 11--SHARE INFORMATION
The Fund currently offers five different classes of shares: Class A shares,
Class B shares, Class C shares, Class R shares and Institutional Class shares.
Class A shares are sold with a front-end sales charge. Class B shares and Class
C shares are sold with CDSC. Class R shares and Institutional Class shares are
sold at net asset value. Under 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
- --------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
------------------------------------------------------
2004 2003
------------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT
- --------------------------------------------------------------------------------------------------------------------
Sold:
Class A 1,841,128 $21,407,747 2,121,267 $21,472,774
- --------------------------------------------------------------------------------------------------------------------
Class B 2,136,603 24,825,439 3,415,758 34,619,858
- --------------------------------------------------------------------------------------------------------------------
Class C 849,151 9,883,030 1,191,376 12,127,632
- --------------------------------------------------------------------------------------------------------------------
Class R(a) 1,570 18,300 -- --
- --------------------------------------------------------------------------------------------------------------------
Institutional Class(a) 861 10,000 -- --
====================================================================================================================
Issued as reinvestment of dividends:
Class A 192,162 2,246,590 23,304 235,426
- --------------------------------------------------------------------------------------------------------------------
Class B 184,791 2,174,085 7,181 68,294
- --------------------------------------------------------------------------------------------------------------------
Class C 62,525 731,457 2,103 20,060
- --------------------------------------------------------------------------------------------------------------------
Class R(a) 29 348 -- --
- --------------------------------------------------------------------------------------------------------------------
Institutional Class(a) 34 394 -- --
====================================================================================================================
Automatic conversion of Class B shares to Class A shares:
Class A 547,870 6,394,392 298,876 3,122,514
- --------------------------------------------------------------------------------------------------------------------
Class B (548,916) (6,394,392) (299,162) (3,122,514)
====================================================================================================================
Reacquired:
Class A (1,432,534) (16,656,059) (1,204,717) (11,950,932)
- --------------------------------------------------------------------------------------------------------------------
Class B (1,661,318) (19,224,292) (1,513,543) (15,068,036)
- --------------------------------------------------------------------------------------------------------------------
Class C (727,975) (8,461,331) (698,766) (6,965,135)
- --------------------------------------------------------------------------------------------------------------------
Class R(a) (1) (10) -- --
====================================================================================================================
1,445,980 $16,955,698 3,343,677 $34,559,941
____________________________________________________________________________________________________________________
====================================================================================================================
</Table>
(a)Class R shares and Institutional Class shares commenced sales on April
30, 2004.
F-16
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
------------------------------------------------------
SEPTEMBER 28, 2001
(DATE OPERATIONS
YEAR ENDED DECEMBER 31, COMMENCED) TO
-------------------------------- DECEMBER 31,
2004 2003 2002 2001
- --------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 11.50 $ 9.46 $ 10.75 $ 10.00
- --------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.08 0.05 0.11(a) 0.03(a)
- --------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.71 2.05 (1.28) 0.76
====================================================================================================================
Total from investment operations 0.79 2.10 (1.17) 0.79
====================================================================================================================
Less distributions:
Dividends from net investment income (0.10) (0.06) (0.12) (0.04)
- --------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains (0.33) -- -- --
====================================================================================================================
Total distributions (0.43) (0.06) (0.12) (0.04)
====================================================================================================================
Net asset value, end of period $ 11.86 $ 11.50 $ 9.46 $ 10.75
____________________________________________________________________________________________________________________
====================================================================================================================
Total return(b) 6.89% 22.35% (10.97)% 7.94%
____________________________________________________________________________________________________________________
====================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $68,951 $53,675 $32,414 $10,753
____________________________________________________________________________________________________________________
====================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.47%(c) 1.50% 1.48% 1.43%(d)
- --------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.49%(c) 1.57% 1.67% 2.89%(d)
====================================================================================================================
Ratio of net investment income to average net assets 0.73%(c) 0.46% 1.15% 1.16%(d)
____________________________________________________________________________________________________________________
====================================================================================================================
Portfolio turnover rate(e) 64% 51% 42% 7%
____________________________________________________________________________________________________________________
====================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Does not include sales charges and is not
annualized for periods less than one year.
(c) Ratios are based on average daily net assets of $62,199,733.
(d) Annualized.
(e) Not annualized for periods less than one year.
F-17
NOTE 12--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS B
------------------------------------------------------
SEPTEMBER 28, 2001
(DATE OPERATIONS
YEAR ENDED DECEMBER 31, COMMENCED) TO
-------------------------------- DECEMBER 31,
2004 2003 2002 2001
- --------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 11.49 $ 9.46 $ 10.75 $ 10.00
- --------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.01 (0.02) 0.05(a) 0.01(a)
- --------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.69 2.06 (1.29) 0.77
====================================================================================================================
Total from investment operations 0.70 2.04 (1.24) 0.78
====================================================================================================================
Less distributions:
Dividends from net investment income (0.02) (0.01) (0.05) (0.03)
- --------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains (0.33) -- -- --
====================================================================================================================
Total distributions (0.35) (0.01) (0.05) (0.03)
====================================================================================================================
Net asset value, end of period $ 11.84 $ 11.49 $ 9.46 $ 10.75
____________________________________________________________________________________________________________________
====================================================================================================================
Total return(b) 6.12% 21.64% (11.56)% 7.76%
____________________________________________________________________________________________________________________
====================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $79,968 $76,304 $47,597 $16,067
____________________________________________________________________________________________________________________
====================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 2.12%(c) 2.15% 2.13% 2.08%(d)
- --------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 2.14%(c) 2.22% 2.32% 3.54%(d)
====================================================================================================================
Ratio of net investment income (loss) to average net assets 0.08%(c) (0.19)% 0.50% 0.52%(d)
____________________________________________________________________________________________________________________
====================================================================================================================
Portfolio turnover rate(e) 64% 51% 42% 7%
____________________________________________________________________________________________________________________
====================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Does not include sales charges and is not
annualized for periods less than one year.
(c) Ratios are based on average net assets of $79,694,417.
(d) Annualized.
(e) Not annualized for periods less than one year.
F-18
NOTE 12--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS C
------------------------------------------------------
SEPTEMBER 28, 2001
(DATE OPERATIONS
YEAR ENDED DECEMBER 31, COMMENCED) TO
-------------------------------- DECEMBER 31,
2004 2003 2002 2001
- --------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 11.49 $ 9.46 $ 10.75 $10.00
- --------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.01 (0.02) 0.05(a) 0.01(a)
- --------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.70 2.06 (1.29) 0.77
====================================================================================================================
Total from investment operations 0.71 2.04 (1.24) 0.78
====================================================================================================================
Less distributions:
Dividends from net investment income (0.02) (0.01) (0.05) (0.03)
- --------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains (0.33) -- -- --
====================================================================================================================
Total distributions (0.35) (0.01) (0.05) (0.03)
====================================================================================================================
Net asset value, end of period $ 11.85 $ 11.49 $ 9.46 $10.75
____________________________________________________________________________________________________________________
====================================================================================================================
Total return(b) 6.21% 21.64% (11.57)% 7.76%
____________________________________________________________________________________________________________________
====================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $27,729 $24,790 $15,727 $5,168
____________________________________________________________________________________________________________________
====================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 2.12%(c) 2.15% 2.13% 2.08%(d)
- --------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 2.14%(c) 2.22% 2.32% 3.54%(d)
====================================================================================================================
Ratio of net investment income (loss) to average net assets 0.08%(c) (0.19)% 0.50% 0.52%(d)
____________________________________________________________________________________________________________________
====================================================================================================================
Portfolio turnover rate(e) 64% 51% 42% 7%
____________________________________________________________________________________________________________________
====================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Does not include sales charges and is not
annualized for periods less than one year.
(c) Ratios are based on average net assets of $26,527,387.
(d) Annualized.
(e) Not annualized for periods less than one year.
F-19
NOTE 12--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS R
--------------
APRIL 30, 2004
(DATE SALES
COMMENCED) TO
DECEMBER 31,
2004
- ------------------------------------------------------------------------------
Net asset value, beginning of period $11.61
- ------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.05(a)
- ------------------------------------------------------------------------------
Net gains on securities (both realized and unrealized) 0.60
==============================================================================
Total from investment operations 0.65
==============================================================================
Less distributions:
Dividends from net investment income (0.06)
- ------------------------------------------------------------------------------
Distributions from net realized gains (0.33)
==============================================================================
Total distributions (0.39)
==============================================================================
Net asset value, end of period $11.87
______________________________________________________________________________
==============================================================================
Total return(b) 5.68%
______________________________________________________________________________
==============================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 19
______________________________________________________________________________
==============================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.62%(c)
- ------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.64%(c)
==============================================================================
Ratio of net investment income to average net assets 0.58%(c)
______________________________________________________________________________
==============================================================================
Portfolio turnover rate(d) 64%
______________________________________________________________________________
==============================================================================
</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 return based upon that
net asset value may differ from the net asset value and return for
shareholder transactions. Not annualized for periods less than one year.
(c) Ratios are annualized and based on average daily net assets of $10,434.
(d) Not annualized for periods less than one year.
F-20
NOTE 12--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
INSTITUTIONAL CLASS
-------------------
APRIL 30, 2004
(DATE SALES
COMMENCED) TO
DECEMBER 31,
2004
- -----------------------------------------------------------------------------------
Net asset value, beginning of period $11.61
- -----------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.10(a)
- -----------------------------------------------------------------------------------
Net gains on securities (both realized and unrealized) 0.61
===================================================================================
Total from investment operations 0.71
===================================================================================
Less distributions:
Dividends from net investment income (0.13)
- -----------------------------------------------------------------------------------
Distributions from net realized gains (0.33)
===================================================================================
Total distributions (0.46)
===================================================================================
Net asset value, end of period $11.86
___________________________________________________________________________________
===================================================================================
Total return(b) 6.15%
___________________________________________________________________________________
===================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 11
___________________________________________________________________________________
===================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 0.93%(c)
- -----------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 0.95%(c)
===================================================================================
Ratio of net investment income to average net assets 1.27%(c)
___________________________________________________________________________________
===================================================================================
Portfolio turnover rate(d) 64%
___________________________________________________________________________________
===================================================================================
</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 return based upon that
net asset value may differ from the net asset value and return for
shareholder transactions. Not annualized for periods less than one year.
(c) Ratios are annualized and based on average net assets of $10,030.
(d) Not annualized for periods less than one year.
NOTE 13--LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
Settled Enforcement Actions and Investigations Related to Market Timing
On October 8, 2004, INVESCO Funds Group, Inc. ("IFG") (the former investment
advisor to certain AIM Funds) and A I M Advisors, Inc. ("AIM") (the Fund's
investment advisor) reached final settlements with certain regulators, including
without limitation the Securities and Exchange Commission ("SEC"), the New York
Attorney General ("NYAG") and the Colorado Attorney General ("COAG"), 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.
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 they 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 and
AIM breached various Federal and state securities, business and consumer
protection laws. On the same date, A I M Distributors, Inc. ("ADI") (the
distributor of the retail AIM Funds) reached a final settlement with the SEC to
resolve an investigation relating to market timing activity and related issues
in the AIM Funds. The SEC also alleged that ADI violated various Federal
securities laws. The SEC also has settled related market timing enforcement
actions brought against certain former officers and employees of IFG.
Under the terms of the settlements, IFG agreed to pay a total of $325
million, of which $110 million is civil penalties. Of this $325 million total
payment, half has been paid 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, all of which has been paid. The entire $325
million IFG settlement payment will be made 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 made 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. 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 certain
F-21
NOTE 13--LEGAL PROCEEDINGS (CONTINUED)
equity and balanced 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.
Under the terms of the settlements, AIM will make certain governance and
compliance reforms, including maintaining an internal controls committee and
retaining an independent compliance consultant and a corporate ombudsman. 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.
At the request of the trustees of the AIM Funds, AMVESCAP PLC ("AMVESCAP"),
the parent company of IFG and AIM, has agreed to pay expenses incurred by such
Funds related to market timing matters.
The SEC has also settled market timing enforcement actions 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), 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 these settlements, the SEC ordered these individuals to
pay restitution and civil penalties in various amounts and prohibited them from
associating with, or serving as an officer or director of, an investment
advisor, broker, dealer and/or investment company, as applicable, for certain
periods of time.
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 certain equity and balanced 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 Regulatory Inquiries and Pending
Litigation described below may have on AIM, ADI or the Fund.
REGULATORY INQUIRIES AND PENDING LITIGATION
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 but not limited to revenue sharing and directed-brokerage
arrangements, investments in securities of other registered investment
companies, contractual plans, issues related to Section 529 college savings
plans, procedures for locating lost security holders and participation in class
action settlements.
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.
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,
F-22
NOTE 13--LEGAL PROCEEDINGS (CONTINUED)
the DOL, the Internal Revenue Service, the United States Attorney's Office for
the Southern District of New York, the United States Attorney's Office for the
Central District of California, the United States Attorney's Office for the
District of Massachusetts, the Massachusetts Securities Division, the U.S.
Postal Inspection Service and the Commodity Futures Trading Commission, 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, AIM Management, AMVESCAP PLC
("AMVESCAP"), the parent company of IFG and AIM, 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 ("ERISA")
purportedly brought on behalf of participants in AMVESCAP's 401(k) plan. The
plaintiffs in one of the underlying lawsuits continue to seek remand of their
lawsuit 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. ("IINA"), ADI
and/or INVESCO Distributors, Inc. ("INVESCO Distributors")) 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. All of these lawsuits have been transferred to
the United States District Court for the Southern District of Texas, Houston
Division by order of the applicable United States District Court in which they
were initially filed. The plaintiff in one of these lawsuits has challenged this
order.
Private Civil Actions Alleging Improper Charging of Distribution Fees on Limited
Offering Funds or Share Classes
Multiple civil lawsuits, including 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. ("AIS")
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;
F-23
NOTE 13--LEGAL PROCEEDINGS (CONTINUED)
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.
Private Civil Action Alleging Failure to Ensure Participation in Class Action
Settlements
A civil lawsuit, purporting to be a class action lawsuit, has been filed
against AIM, IINA, A I M Capital Management, Inc. and the trustees of the AIM
Funds alleging that the defendants breached their fiduciary duties by failing to
ensure that the AIM Funds participated in class action settlements in which the
AIM Funds were eligible to participate. This lawsuit alleges as theories of
recovery: (i) violation of various provisions of the Federal securities laws;
(ii) common law breach of fiduciary duty; and (iii) common law negligence. This
lawsuit has been filed in Federal court and seeks such remedies as compensatory
and punitive damages; forfeiture of all commissions and fees paid by the class
of plaintiffs; and costs and attorneys' fees.
* * *
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
As a result of the matters discussed above, 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-24
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees and Shareholders of
AIM Basic Balanced Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of AIM Basic Balanced Fund (one of the
funds constituting AIM Funds Group hereafter referred to as the "Fund") at
December 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 periods indicated in conformity with
accounting principles generally accepted in the United States of America. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with 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 December 31, 2004 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
/S/ PRICEWATERHOUSECOOPERS LLP
February 18, 2005
Houston, Texas
F-25
OTHER INFORMATION
TRUSTEES AND OFFICERS
As of December 31, 2004
The address of each trustee and officer of AIM Funds Group (the "Trust"), is 11
Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee oversees 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 1992 Director and Chairman, A I M Management None
Trustee, Vice Chair and Group Inc. (financial services holding
President 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 1987 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 2001 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 2000 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 1998 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 1997 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)
- ---------------------------------------------------------------------------------------------------------------------------------
Carl Frischling -- 1937 1993 Partner, law firm of Kramer Levin Cortland Trust, Inc. (registered
Trustee Naftalis and Frankel LLP investment 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 December 31, 2004
The address of each trustee and officer of AIM Funds Group (the "Trust"), is 11
Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee oversees 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
- ----------------------------------------------------------------------------------------------------------------------------------
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 1998 Formerly: Chief Executive Officer, YWCA None
Trustee of the USA
- ----------------------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 1992 Partner, law firm of Pennock & Cooper None
Trustee
- ----------------------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2001 Retired None
Trustee
- ----------------------------------------------------------------------------------------------------------------------------------
Louis S. Sklar(4) -- 1939 1993 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(5) -- 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.; and Senior Vice
President and General Counsel, Liberty
Funds Group, LLC and Vice President,
A I M Distributors, Inc.
- ----------------------------------------------------------------------------------------------------------------------------------
Robert G. Alley -- 1948 1992 Managing Director, Chief Fixed Income N/A
Vice President Officer and Senior Investment Officer,
A I M Capital Management, Inc. and Vice
President, A I M Advisors, Inc.
- ----------------------------------------------------------------------------------------------------------------------------------
Stuart W. Coco -- 1955 1992 Managing Director and 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 1992 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(4) -- 1940 1999 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. (See footnote (4)
below.)
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) Mr. Sklar and Mr. Larsen retired effective December 31, 2004.
(5) 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 Street
Houston, TX 77046-1173 Suite 100 Suite 2900
Houston, TX 77046-1173 Houston, Texas
77002-5678
COUNSEL TO THE FUND COUNSEL TO THE TRANSFER AGENT CUSTODIAN
INDEPENDENT TRUSTEES
Ballard Spahr AIM Investment State Street Bank and
Andrews & Ingersoll, LLP Kramer, Levin, Naftalis Services, Inc. Trust Company
1735 Market Street & Frankel LLP P.O. Box 4739 225 Franklin Street
Philadelphia, PA 19103-7599 919 Third Avenue Houston, TX 77210-4739 Boston, MA 02110-2801
New York, NY 10022-3852
</Table>
REQUIRED FEDERAL INCOME TAX INFORMATION (UNAUDITED)
Of ordinary dividends paid to shareholders during the Fund's tax year ended
December 31, 2004, 100% is eligible for the dividends received deduction for
corporations. The Fund distributed long-term capital gains of $5,115,996 for the
Fund's tax year ended December 31, 2004.
For the tax year ended December 31, 2004, the Fund designated 100%, 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.
REQUIRED STATE INCOME TAX INFORMATION (UNAUDITED)
Of the ordinary dividends paid, 8.52% was derived from U.S. Treasury
Obligations.
<Table>
DOMESTIC EQUITY INTERNATIONAL/GLOBAL EQUITY FIXED INCOME
AIM Aggressive Growth Fund AIM Asia Pacific Growth Fund TAXABLE
AIM Balanced Fund* AIM Developing Markets Fund
AIM Basic Balanced Fund* AIM European Growth Fund AIM Floating Rate Fund
AIM Basic Value Fund AIM European Small Company Fund(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 Growth Fund AIM Total Return Bond Fund
AIM Diversified Dividend Fund AIM International Small Company Fund(7) Premier U.S. Government Money
AIM Dynamics Fund(1) AIM Trimark Fund Portfolio(1)
AIM Emerging Growth Fund
AIM Large Cap Basic Value Fund TAX-FREE
AIM Large Cap Growth Fund SECTOR EQUITY
AIM Libra Fund AIM High Income Municipal Fund
AIM Mid Cap Basic Value Fund AIM Advantage Health Sciences Fund(1) AIM Municipal Bond Fund
AIM Mid Cap Core Equity Fund(2) AIM Energy Fund(1) AIM Tax-Exempt Cash Fund
AIM Mid Cap Growth Fund AIM Financial Services Fund(1) AIM Tax-Free Intermediate Fund
AIM Mid Cap Stock Fund(1) AIM Global Health Care Fund
AIM Opportunities I Fund AIM Gold & Precious Metals Fund(1)
AIM Opportunities II Fund AIM Health Sciences Fund(1) AIM ALLOCATION SOLUTIONS
AIM Opportunities III Fund AIM Leisure Fund(1)
AIM Premier Equity Fund AIM Multi-Sector Fund(1) AIM Aggressive Allocation Fund
AIM S&P 500 Index Fund(1) AIM Real Estate Fund AIM Conservative Allocation Fund
AIM Select Equity Fund AIM Technology Fund(1) AIM Moderate Allocation Fund
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. FOR
AIM Trimark Endeavor Fund THIS AND OTHER INFORMATION ABOUT AIM FUNDS, OBTAIN A PROSPECTUS FROM YOUR FINANCIAL
AIM Trimark Small Companies Fund 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) Effective December 30, 2004, AIM
International Emerging Growth Fund was renamed AIM International Small Company
Fund. The fund will close to new investors when net assets reach $500 million.
If used after April 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 $138 billion in assets. AIM is a subsidiary of
AMVESCAP PLC, one of the world's largest independent financial services
companies with $382 billion in assets under management. Data as of December 31,
2004.
AIMinvestments.com BBA-AR-1 A I M Distributors, Inc.
<Table>
YOUR GOALS. OUR SOLUTIONS.--Registered Trademark--
- ------------------------------------------------------------------------
Mutual Retirement Annuities College Separately Offshore Cash [AIM INVESTMENTS LOGO APPEARS HERE]
Funds Products Savings Managed Products Management --Registered Trademark--
Plans Accounts
</Table>
AIM EUROPEAN SMALL COMPANY FUND
Annual Report to Shareholders o December 31, 2004
[COVER IMAGE]
YOUR GOALS. OUR SOLUTIONS. [AIM INVESTMENTS LOGO APPEARS HERE]
--Registered Trademark-- --Registered Trademark-
<Table>
====================================================================================================================================
AIM EUROPEAN SMALL COMPANY FUND SEEKS TO PROVIDE LONG-TERM GROWTH OF CAPITAL.
o Unless otherwise stated, information presented in this report is as of 12/31/04 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 MSCI Europe, Australasia o The returns shown in the Management's
not available as an investment for and the Far East Index (the MSCI Discussion of Fund Performance are based
retirement plans maintained pursuant to EAFE--Registered Trademark--) is a group on net asset values calculated for
Section 401 of the Internal Revenue of foreign securities tracked by Morgan shareholder transactions. Generally
Code, including 401(k) plans, money Stanley Capital International. accepted accounting principles require
purchase pension plans and profit adjustments to be made to the net assets
sharing plans. Plans that have existing o The unmanaged MSCI Europe Small Cap of the fund at period end for financial
accounts invested in Class B shares will Index is a price-only index that is reporting purposes, and as such, the net
continue to be allowed to make comprised of a group of small-cap asset values for shareholder
additional purchases. European securities tracked by Morgan transactions and the returns based on
Stanley Capital International. those net asset values may differ from
PRINCIPAL RISKS OF INVESTING IN THE the net asset values and returns
FUND o The unmanaged Lipper European Fund reported in the Financial Highlights.
Index represents an average of the 30
o International investing presents largest European Equity funds tracked by o Industry classifications used in this
certain risks not associated with Lipper, Inc., an independent mutual fund report are generally according to the
investing solely in the United States. performance monitor. Global Industry Classification Standard,
These include risks relating to which was developed by and is the
fluctuations in the value of the U.S. o The unmanaged Lehman U.S. Aggregate exclusive property and a service mark of
dollar relative to the values of other Bond Index, which represents the U.S. Morgan Stanley Capital International
currencies, the custody arrangements investment-grade fixed-rate bond market Inc. and Standard & Poor's.
made for the fund's foreign holdings, (including government and corporate
differences in accounting, political securities, mortgage pass-through The fund files its complete schedule of
risks and the lesser degree of public securities and asset-backed securities), portfolio holdings with the Securities
information required to be provided by is compiled by Lehman Brothers, a global and Exchange Commission ("SEC") for the
non-U.S. companies. investment bank. 1st and 3rd quarters of each fiscal year
on Form N-Q. The fund's Form N-Q filings
o Investing in emerging markets involves o The unmanaged Standard & Poor's are available on the SEC's Web site at
greater risk and potential reward than Composite Index of 500 Stocks (the S&P http://www.sec.gov. Copies of the fund's
investing in more established markets. 500--Registered Trademark-- Index) is an Forms N-Q may be reviewed and copied at
index of common stocks frequently used the SEC's Public Reference Room at 450
o Investing in a single-sector or as a general measure of U.S. stock Fifth Street, N.W., Washington, D.C.
single-region mutual fund involves market performance. 20549-0102. You can obtain information
greater risk and potential reward than on the operation of the Public Reference
investing in a more diversified fund. o The unmanaged MSCI Europe Index is a Room, including information about
group of European securities tracked by duplicating fee charges, by calling
o Investing in small and mid-size Morgan Stanley Capital International. 1-202-942-8090 or by electronic request
companies involves risks not associated at the following E-mail address:
with investing in more established o A direct investment cannot be made in publicinfo@sec.gov. The SEC file numbers
companies, including business risk, an index. Unless otherwise indicated, for the fund are 811-1540 and 2-27334.
significant stock price fluctuations and index results include reinvested The fund's most recent portfolio
illiquidity. dividends, and they do not reflect sales holdings, as filed on Form N-Q, are also
charges. Performance of an index of available at AIMinvestments.com.
o The fund may invest up to 35% of its funds reflects fund expenses;
total assets in securities of companies performance of a market index does not. A description of the policies and
located in developing countries and up procedures that the fund uses to
to 20% of its total assets in o The fund is not managed to track the determine how to vote proxies relating
non-European companies. performance of any particular index, to portfolio securities is available
including the indexes defined here, and without charge, upon request, from our
o The fund may participate in the consequently, the performance of the Client Services department at
initial public offering (IPO) market in fund may deviate significantly from the 800-959-4246 or on the AIM Web site,
some market cycles. Because of the performance of the indexes. AIMinvestments.com. On the home page,
fund's small asset base, any investment scroll down and click on AIM Funds Proxy
the fund may make in IPOs may Policy. The information is also
significantly affect the fund's total available on the Securities and Exchange
return. As the fund's assets grow, the Commission's Web site, sec.gov.
impact of IPO investments will decline,
which may reduce the effect of IPO Information regarding how the fund voted
investments on the fund's total return. 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
AIM EUROPEAN SMALL COMPANY FUND
<Table>
DEAR FELLOW SHAREHOLDER OF THE AIM FAMILY OF
FUNDS--Registered Trademark--:
NEW BOARD CHAIRMAN
It is our pleasure to introduce you to Bruce Crockett, the
[PHOTO OF new Chairman of the Board of Trustees of the AIM Funds. Bob
ROBERT H. Graham has served as Chairman of the Board of Trustees of
GRAHAM] the AIM Funds ever since Ted Bauer retired from that
position in 2000. However, as you may be aware, the U.S.
ROBERT H. GRAHAM 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
[PHOTO OF advisor, serve as chairman of the funds' Board. In
MARK H. addition, a similar provision was included in the terms of
WILIAMSON] AIM Advisors' recent settlements with certain regulators.
Accordingly, the AIM Funds' Board recently elected Mr.
MARK H. WILLIAMSON Crockett, one of the 14 independent trustees on the AIM
Funds' Board, as Chairman. His appointment became effective
on October 4, 2004. Mr. Graham will remain on the funds'
[PHOTO OF Board, as will Mark Williamson, President and Chief
BRUCE L. Executive Officer of AIM. Mr. Graham will also remain
CROCKETT] 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
After nine months of slow growth, equity markets rallied
late in the year to produce solid results for 2004. The S&P
500 Index was up 10.87% for the year as a whole, but that
includes the 9.23% total return for the fourth quarter
alone. For bonds, the turning point came earlier. Almost
all of the 4.34% return produced by the Lehman U.S.
Aggregate Bond Index came during the second half of the
year, despite the fact that the Federal Reserve had begun
raising short-term interest rates about halfway through the
year. Overseas markets followed a similar pattern, with
quite robust double-digit performance across the board,
most of it produced during the second half of the year.
All in all, 2004 was a good year for American investors,
with the decline in the dollar over the course of the year
lending a boost to returns from foreign holdings. And there
were a number of solid economic numbers to report as of the
end of the year:
o U.S. gross domestic product (GDP) rose each quarter
during 2004. And respondents to the BusinessWeek
magazine survey foresaw 2005 GDP growth at 3.5%,
above the post-World War II average of 3.4%.
o The Institute for Supply Management's manufacturing
and nonmanufacturing indexes--based on surveys of
purchasing managers in industries that together cover
more than 70% of the U.S. economy--both continued to
rise during December and remained in very strong
territory.
o Thomson First Call, which tracks corporate earnings
and other information for clients in financial
service industries, estimated S&P 500 earnings to be
up 10.5% in 2005.
Of course, none of this can guarantee that 2005 will be
another good year. Over the short term, the only sure thing
about the investment markets is their unpredictability.
Hence, we have always urged shareholders to keep a
long-term perspective on all their investments.
YOUR FUND
The following pages present a discussion of how your fund
invests, how it performed compared to pertinent benchmarks
during the fiscal year and how it has performed over the
long term. We hope you find this information helpful. We
also encourage you to visit AIMinvestments.com often.
Updated information on your fund is always available there,
as well as general information on a variety of investing
topics.
As always, AIM is committed to building solutions for
your investment goals, and we thank you for your
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
January 28, 2005
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.
</Table>
AIM EUROPEAN SMALL COMPANY FUND
<Table>
MANAGEMENT'S DISCUSSION OF FUND European markets produced some of the
PERFORMANCE best regional returns over the period.
In fact, of the 16 countries that
It was another banner year for European and purchase attractive stocks that are comprise the MSCI Europe Index, all
markets. For the second consecutive not followed by many analysts gave the posted positive returns on a
year, European markets produced fund a competitive edge. dollar-denominated basis.
double-digit gains. In addition, 2004
proved to be the third year in a row HOW WE INVEST Foreign exchange was one factor that
that international markets outperformed helped boost dollar-denominated European
their U.S. counterparts. Our investment strategy is based on the returns. During the year, the euro,
principle that strong earnings can drive which debuted in 1999, recorded an
stock prices. Therefore, we look for all-time high (compared to the U.S.
======================================== certain attributes in companies when dollar). Meanwhile, the British pound
FUND VS. INDEXES selecting stocks for the fund. We focus and Swiss franc also appreciated
on European small-cap companies with considerably compared to the dollar. As
TOTAL RETURNS, 12/31/03-12/31/04, accelerating earnings and revenues, mentioned earlier, we do not hedge
EXCLUDING APPLICABLE SALES CHARGES. IF strong cash flow generation and high currencies; therefore, strong foreign
SALES CHARGES WERE INCLUDED, RETURNS return on invested capital which are currency appreciation proved very
WOULD BE LOWER. also reasonably priced. Conversely, we favorable for the fund and was a factor
might sell a position if a company's in boosting returns.
Class A Shares 43.67% earnings outlook deteriorates.
In 2004, European market performance
Class B Shares 42.67 We select investments on a was driven primarily by small- and
stock-by-stock basis. This means we mid-cap stocks. European small-cap
Class C Shares 42.75 follow a bottom-up investment approach, stocks outperformed European large-cap
focusing on individual stocks, not stocks by more than 1,000 basis points
MSCI EAFE Index sector or country trends. Another (10%) during the fiscal year. Despite
(Broad Market Index) 20.25 important component of our investment the outperformance, European small-caps
strategy is that we do not hedge still trade at a discount, albeit
MSCI Europe Small Cap Index currencies. We believe foreign currency slight, to their large-cap peers. These
(Style-specific Index) 29.77 exposure increases the diversification discounted valuation levels for European
benefit of international investing. small-caps made them a good fit for our
Lipper European Fund Index investment philosophy as we look for
(Peer Group Index) 22.09 MARKET CONDITIONS AND YOUR FUND reasonably priced stocks.
Source: Lipper, Inc. During the fiscal year, foreign markets In addition to relatively low
======================================== outperformed U.S. markets by valuations, the number of European
approximately a two-to-one margin. small-cap stocks followed by analysts
As the table above illustrates, the Within that framework, has decreased. This creates more
fund outperformed all of its benchmarks opportunities for the fund as we are
for the year. We attribute the fund's willing to go off the beaten path to
higher return to several factors: sector find attractive, undiscovered companies.
exposure, the strong performance of To illustrate this,
European small-cap stocks (the MSCI EAFE
Index is comprised of stocks from many
different regions and is primarily
large-cap), and sound stock selection.
In addition, our willingness and ability
to identify
</Table>
<Table>
====================================================================================================================================
PORTFOLIO COMPOSITION TOP 10 EQUITY HOLDINGS*
By sector
1. EVS Broadcast Equipment S.A. (Belgium) 2.8%
1. Consumer Discretionary 29.6%
2. Amazys Holding A.G. (Switzerland) 2.4
2. Industrials 26.2
3. Sportingbet PLC (United Kingdom) 2.3
3. Information Technology 11.4
4. Aalberts Industries N.V. (Netherlands) 1.7
4. Financials 9.6
5. Techem A.G. (Germany) 1.6
5. Materials 5.3
6. Andritz A.G. (Austria) 1.6
6. Consumer Staples 2.7
7. Bijou Brigitte Modische Accessoires A.G. (Germany) 1.6
7. Energy 2.5
8. Aktiv Kapital A.S.A. (Norway) 1.5
8. Health Care 0.8
9. Rheinmetall A.G.-Pfd. (Germany) 1.5
9. Telecommunication Services 0.7
10. Eiffage S.A. (France) 1.5
10. Utilities 0.5
Money Market Funds Plus Other Assets Less Liabilities 10.7
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>
consider Sportingbet, a British online suffered losses in its gas business by The views and opinions expressed in
gaming company. When we bought the entering the market at the wrong Management's Discussion of Fund
stock, it was covered by just one time--when gas prices were rising. We Performance are those of A I M Advisors,
analyst. Recently Sportingbet purchased lost conviction in the stock and sold Inc. These views and opinions are
Paradise Poker, an online poker company, the position. subject to change at any time based on
for six times earnings, a valuation that factors such as market and economic
we considered attractive. Sportingbet On a sector basis, our considerable conditions. These views and opinions may
has proven to be a cash generative weightings in the industrials, not be relied upon as investment advice
company that continues to deliver strong financials, information technology and or recommendations, or as an offer for a
results--attributes we look for in a consumer discretionary sectors helped us particular security. The information is
stock. In 2004, Sportingbet's stock more outperform our style-specific benchmark not a complete analysis of every aspect
than doubled. as returns for the fund in each of these of any market, country, industry,
sectors was decidedly higher than for security or the Fund. Statements of fact
Another relatively undiscovered the index. Our greatest exposure was to are from sources considered reliable,
company at the time we purchased it was the consumer discretionary sector. but A I M Advisors, Inc. makes no
Bijou Brigitte Modische Accessoires, a Stocks in this group often have representation or warranty as to their
German costume jewelry retailer. We attractive valuations, good growth completeness or accuracy. Although
purchased the stock in early 2003 when prospects and high cash flow--exactly historical performance is no guarantee
it had no analyst coverage. The company the type of attributes we look for when of future results, these insights may
has benefited from strong growth and has selecting stocks for the portfolio. help you understand our investment
continued to open stores outside of management philosophy.
Germany. Bijou Brigitte also illustrates IN CLOSING
our bottom-up investment philosophy See important fund and index
which focuses on individual stocks, not Despite another year of outperformance, disclosures inside front cover.
countries. Despite Germany's troubled European small-cap stocks continued to
economy we still find good opportunities trade at a discount to both the U.S. JASON T. HOLZER,
there. The success of Bijou Brigitte, a market and their European large-cap Chartered Financial
stock that has more than tripled since peers on both a price-to-earnings and [HOLZER Analyst, senior
we purchased it, is evidence that our price-to-cash-flow valuation basis. PHOTO] portfolio manager, is
bottom-up strategy can be effective. Another attractive aspect of European lead manager of AIM
securities is that they generally offer European Small Company
An important factor in the fund's higher dividend yields than U.S. stocks. Fund. Mr. Holzer joined AIM in 1996. He
success in 2004 was simply the avoidance We are pleased to report another strong received a B.A. in quantitative
of poor-performing stocks. Our five year for foreign markets and to have economics and an M.S. in
worst performing stocks held relatively provided shareholders with excellent engineering-economic systems from
low weights in the portfolio so absolute and relative returns for the Stanford University.
therefore they did not detract much from fiscal year.
fund returns. Telecom Plus, however, BORGE ENDRESEN,
proved a drag on fund performance. An Chartered Financial
alternative utilities provider, Telecom [ENDRESEN Analyst, portfolio
Plus PHOTO] manager, is manager of
AIM European Small
Company Fund. He 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 Europe/Canada Team
</Table>
<Table>
======================================== ========================================
TOP 10 COUNTRIES* TOTAL NET ASSETS $215.5 MILLION
1. United Kingdom 20.2% TOTAL NUMBER OF HOLDINGS* 111
2. France 11.8 ========================================
3. Netherlands 10.8
4. Germany 10.4
5. Switzerland 7.2
6. Norway 6.7
7. Belgium 4.4
8. Italy 3.7
9. Ireland 3.3
10. Greece 2.5
========================================= [RIGHT ARROW GRAPHIC]
FOR A PRESENTATION OF YOUR FUND'S
LONG-TERM PERFORMANCE RECORD, PLEASE
TURN TO PAGE 5.
</Table>
3
AIM EUROPEAN SMALL COMPANY FUND
CALCULATING YOUR ONGOING FUND EXPENSES
<Table>
EXAMPLE You may use the information in this account balance or expenses you paid for
table, together with the amount you the period. You may use this information
As a shareholder of the fund, you incur invested, to estimate the expenses that to compare the ongoing costs of
two types of costs: (1) transaction you paid over the period. Simply divide investing in the fund and other funds.
costs, which may include sales charges your account value by $1,000 (for To do so, compare this 5% hypothetical
(loads) on purchase payments; contingent example, an $8,600 account value divided example with the 5% hypothetical
deferred sales charges on redemptions; by $1,000 = 8.6), then multiply the examples that appear in the shareholder
and redemption fees, if any; and (2) result by the number in the table under reports of the other funds.
ongoing costs, including management the heading entitled "Actual Expenses
fees; distribution and/or service fees Paid During Period" to estimate the Please note that the expenses shown in
(12b-1); and other fund expenses. This expenses you paid on your account during the table are meant to highlight your
example is intended to help you this period. ongoing costs only and do not reflect
understand your ongoing costs (in any transactional costs, such as sales
dollars) of investing in the fund and to HYPOTHETICAL EXAMPLE FOR COMPARISON charges (loads) on purchase payments,
compare these costs with ongoing costs PURPOSES contingent deferred sales charges on
of investing in other mutual funds. The redemptions, and redemption fees, if
example is based on an investment of The table below also provides any. Therefore, the hypothetical
$1,000 invested at the beginning of the information about hypothetical account information is useful in comparing
period and held for the entire period, values and hypothetical expenses based ongoing costs only, and will not help
July 1, 2004-December 31, 2004. on the fund's actual expense ratio and you determine the relative total costs
an assumed rate of return of 5% per year of owning different funds. In addition,
ACTUAL EXPENSES before expenses, which is not the fund's if these transactional costs were
actual return. The hypothetical account included, your costs would have been
The table below provides information values and expenses may not be used to higher.
about actual account values and actual estimate your actual ending
expenses.
====================================================================================================================================
ACTUAL HYPOTHETICAL
(5% ANNUAL RETURN BEFORE EXPENSES)
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES ENDING ACCOUNT EXPENSES
SHARE VALUE VALUE PAID DURING VALUE PAID DURING
CLASS (7/1/04) (12/31/04)(1) PERIOD(2) (12/31/04) PERIOD(2)
A $1,000.00 $1,265.60 $11.39 $1,015.08 $10.13
B 1,000.00 1,260.60 15.06 1,011.81 13.40
C 1,000.00 1,262.30 15.07 1,011.81 13.40
(1) The actual ending account value is based on the actual total return of the fund for the period July 1, 2004, to December 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 of 5% before expenses. hypothetical annual return The actual cumulative return at net asset value for the period July 1, 2004,
to December 31, 2004, was 26.55%, 26.06%, and 26.23% for Classes A, B, and C shares, respectively.
(2) Expenses are equal to the fund's annualized expense ratio (2.00%, 2.65%, and 2.65% 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
AIM EUROPEAN SMALL COMPANY FUND
YOUR FUND'S LONG-TERM PERFORMANCE
<Table>
====================================================================================================================================
Past performance cannot guarantee RESULTS OF A $10,000 INVESTMENT
comparable future results. 8/31/00-12/31/04
Your fund's total return includes [MOUNTAIN CHART]
reinvested distributions, applicable
sales charges, fund expenses and AIM EUROPEAN AIM EUROPEAN AIM EUROPEAN
management fees. Results for Class B SMALL SMALL SMALL MSCI EUROPE LIPPER
shares are calculated as if a COMPANY FUND COMPANY FUND COMPANY FUND MSCI EAFE SMALL CAP EUROPEAN
hypothetical shareholder had liquidated DATE CLASS A SHARES CLASS B SHARES CLASS C SHARES INDEX INDEX FUND INDEX
HIS entire investment in the fund at the
close of the reporting period and paid 8/31/00 $ 9450 $10000 $10000 $10000 $10000 $10000
the applicable contingent deferred sales 9/00 9223 9760 9760 9513 9718 9484
charges. Index results include 10/00 8722 9230 9220 9288 9233 9196
reinvested dividends, but they do not 11/00 8118 8580 8570 8940 9020 8704
reflect sales charges. Performance of an 12/00 8710 9212 9202 9258 9529 9357
index of funds reflects fund expenses 1/01 8890 9392 9392 9253 10031 9328
and management fees; performance of a 2/01 8149 8600 8600 8559 9635 8542
market index does not. Performance shown 3/01 7048 7435 7435 7989 8738 7792
in the chart does not reflect deduction 4/01 7332 7726 7726 8544 9228 8308
of taxes a shareholder would pay on fund 5/01 7209 7595 7595 8242 9154 7988
distributions or sale of fund shares. 6/01 6877 7244 7244 7905 8704 7662
Performance of the indexes does not 7/01 6753 7104 7104 7761 8551 7585
reflect the effects of taxes. 8/01 6839 7194 7194 7565 8612 7390
9/01 5851 6141 6141 6799 7153 6561
10/01 6336 6652 6652 6973 7597 6791
11/01 6611 6933 6933 7230 8210 7085
12/01 6830 7174 7164 7273 8342 7236
1/02 6820 7154 7154 6886 8188 6918
2/02 7001 7334 7324 6935 8214 6923
3/02 7323 7675 7666 7343 8739 7270
4/02 7675 8036 8037 7358 8973 7250
5/02 7855 8217 8217 7451 9007 7254
6/02 7903 8267 8268 7155 8676 7060
7/02 7257 7585 7576 6448 7733 6323
8/02 7276 7605 7595 6434 7605 6280
9/02 6573 6863 6852 5743 6764 5502
10/02 6782 7073 7073 6051 7033 5924
11/02 7019 7325 7314 6326 7335 6204
12/02 7000 7295 7294 6113 7145 5975
1/03 6820 7104 7104 5858 6914 5714
2/03 6687 6964 6963 5724 6635 5496
3/03 6858 7134 7133 5611 6592 5429
4/03 7466 7766 7765 6161 7484 6111
5/03 8206 8529 8518 6535 8280 6561
6/03 8349 8679 8669 6693 8438 6614
7/03 8738 9070 9060 6855 8799 6740
8/03 8947 9281 9281 7020 9101 6791
9/03 9659 10023 10013 7236 9510 6943
10/03 10380 10766 10755 7687 10287 7382
11/03 10808 11198 11196 7858 10671 7707
12/03 11477 11880 11878 8472 11231 8254
1/04 12286 12712 12710 8592 11916 8495
2/04 12858 13295 13292 8790 12449 8759
3/04 12544 12964 12961 8840 12101 8477
4/04 12411 12824 12822 8640 11794 8342
5/04 12582 12984 12982 8658 11760 8428
6/04 13030 13446 13434 8859 12144 8591
7/04 12639 13035 13032 8571 11616 8290
8/04 12858 13255 13252 8609 11578 8313
9/04 13506 13907 13904 8834 12120 8678
10/04 14211 14629 14626 9136 12607 8985
11/04 15535 15984 15980 9760 13873 9630
12/04 $16492 $16749 $16959 $10188 $14574 $10077
Source: Lipper, Inc.
======================================== Class A share performance reflects
AVERAGE ANNUAL TOTAL RETURNS the maximum 5.50% sales charge, and
Class B and Class C share performance
As of 12/31/04, including applicable reflects the applicable contingent
sales charges deferred sales charge (CDSC) for the
period involved. The CDSC on Class B
CLASS A SHARES shares declines from 5% beginning at the
Inception (8/31/00) 12.24% time of purchase to 0% at the beginning
1 Year 35.78 of the seventh year. The CDSC on Class C
shares is 1% for the first year after
CLASS B SHARES purchase.
Inception (8/31/00) 12.64%
1 Year 37.67 The performance of the fund's share
classes will differ due to different
CLASS C SHARES sales charge structures and class
Inception (8/31/00) 12.96% expenses.
1 Year 41.75
======================================== A redemption fee of 2% will be
imposed on certain redemptions or
The performance data quoted represent exchanges out of the fund within 30 days
past performance and cannot guarantee of purchase. Exceptions to the
comparable future results; current redemption fee are listed in the fund's
performance may be lower or higher. prospectus.
Please visit AIMinvestments.com for the
most recent month-end performance. Had the advisor not waived fees
Performance figures reflect reinvested and/or reimbursed expenses, performance
distributions, changes in net asset would have been lower.
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
December 31, 2004
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
FOREIGN STOCKS & OTHER EQUITY
INTERESTS-89.30%
AUSTRIA-1.57%
Andritz A.G. (Industrial Machinery)(a) 44,460 $ 3,376,725
========================================================================
BELGIUM-4.42%
EVS Broadcast Equipment S.A. (Communications
Equipment)(a)(b) 55,100 6,031,952
- ------------------------------------------------------------------------
Option N.V. (Communications
Equipment)(a)(b)(c) 56,570 2,027,750
- ------------------------------------------------------------------------
Van De Velde N.V. (Apparel, Accessories &
Luxury Goods)(a) 9,200 1,457,770
========================================================================
9,517,472
========================================================================
BERMUDA-0.70%
Central European Media Enterprises Ltd.-Class
A (Broadcasting & Cable TV)(c) 38,570 1,503,536
========================================================================
DENMARK-0.61%
Topdanmark A.S. (Multi-Line Insurance)(a)(c) 16,760 1,319,484
========================================================================
FINLAND-1.20%
Marimekko Oyj (Apparel, Accessories & Luxury
Goods)(a) 65,600 1,304,141
- ------------------------------------------------------------------------
Nokian Renkaat Oyj (Tires & Rubber)(a) 8,500 1,284,644
========================================================================
2,588,785
========================================================================
FRANCE-11.82%
Alten (IT Consulting & Other Services)(a)(c) 79,696 1,769,884
- ------------------------------------------------------------------------
Beneteau (Leisure Products)(a) 27,530 2,325,803
- ------------------------------------------------------------------------
Camaieu (Apparel Retail)(a) 12,227 1,213,948
- ------------------------------------------------------------------------
Eiffage S.A. (Construction & Engineering)
(Acquired 03/03/04-12/28/04; Cost
$2,500,405)(a)(d) 27,680 3,198,401
- ------------------------------------------------------------------------
Elior (Restaurants)(a) 206,700 2,350,114
- ------------------------------------------------------------------------
Eramet SLN (Diversified Metals & Mining) 9,300 835,143
- ------------------------------------------------------------------------
Euler Hermes S.A. (Property & Casualty
Insurance)(a) 35,050 2,414,310
- ------------------------------------------------------------------------
Imerys S.A. (Construction Materials)(a) 10,660 892,706
- ------------------------------------------------------------------------
Neopost S.A. (Office Electronics)(a) 29,800 2,311,840
- ------------------------------------------------------------------------
Norbert Dentressangle (Air Freight &
Logistics) 15,240 843,461
- ------------------------------------------------------------------------
SMOBY S.A. (Leisure Products) 7,200 781,344
- ------------------------------------------------------------------------
Spir Communication (Publishing)(b) 11,680 2,286,278
- ------------------------------------------------------------------------
TRIGANO (Leisure Products)(a) 27,400 2,262,714
- ------------------------------------------------------------------------
U10 (Home Furnishings) 27,900 1,979,364
========================================================================
25,465,310
========================================================================
GERMANY-10.39%
Bijou Brigitte Modische Accessoires A.G.
(Apparel, Accessories & Luxury Goods)(a) 25,390 3,362,755
- ------------------------------------------------------------------------
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
GERMANY-(CONTINUED)
CENTROTEC Sustainable A.G. (Commodity
Chemicals)(c) 106,100 $ 3,054,081
- ------------------------------------------------------------------------
CTS Eventim A.G. (Movies &
Entertainment)(a)(c) 78,700 1,900,543
- ------------------------------------------------------------------------
DIS Deutscher Industrie Service A.G.
(Employment Services)(c) 34,110 1,337,209
- ------------------------------------------------------------------------
Gfk A.G. (Diversified Commercial Services)(a) 18,324 714,127
- ------------------------------------------------------------------------
Grenkeleasing A.G. (Specialized Finance)(a) 41,710 1,985,541
- ------------------------------------------------------------------------
Puma A.G. Rudolf Dassler Sport (Footwear)
(Acquired 07/26/01-08/02/01; Cost
$115,336)(a)(c)(d) 6,670 1,832,097
- ------------------------------------------------------------------------
Rheinmetall A.G.-Pfd. (Industrial
Conglomerates)(a) 62,360 3,251,085
- ------------------------------------------------------------------------
Techem A.G. (Diversified Commercial
Services)(c) 97,794 3,548,590
- ------------------------------------------------------------------------
Telegate A.G. (Diversified Commercial
Services)(a)(c) 75,130 1,407,030
========================================================================
22,393,058
========================================================================
GREECE-2.53%
Athens Stock Exchange S.A. (Specialized
Finance)(a)(c) 88,362 910,399
- ------------------------------------------------------------------------
Germanos S.A. (Computer & Electronics
Retail)(a) 21,300 629,347
- ------------------------------------------------------------------------
Jumbo S.A. (Leisure Products)(a) 260,000 2,016,078
- ------------------------------------------------------------------------
Titan Cement Co. S.A. (Construction
Materials)(a) 64,500 1,907,275
========================================================================
5,463,099
========================================================================
IRELAND-3.34%
Anglo Irish Bank Corp. PLC (Diversified
Banks)(a) 79,040 1,916,787
- ------------------------------------------------------------------------
Depfa Bank PLC (Diversified Banks)(a) 75,130 1,260,909
- ------------------------------------------------------------------------
Grafton Group PLC (Trading Companies &
Distributors)(c)(e) 125,990 1,367,243
- ------------------------------------------------------------------------
Paddy Power PLC (Casinos & Gaming)(a) 93,500 1,373,854
- ------------------------------------------------------------------------
Qualceram Shires PLC (Home Furnishings) 241,567 448,929
- ------------------------------------------------------------------------
Trintech Group PLC-ADR (Internet Software &
Services)(c) 142,200 826,182
========================================================================
7,193,904
========================================================================
ITALY-3.69%
Cementir S.p.A. (Construction Materials) 397,600 2,098,050
- ------------------------------------------------------------------------
Davide Campari-Milano S.p.A. (Distillers &
Vintners)(a) 24,800 1,595,205
- ------------------------------------------------------------------------
Lottomatica S.p.A. (Casinos & Gaming)(a) 56,800 2,071,584
- ------------------------------------------------------------------------
Marzotto S.p.A. (Apparel, Accessories &
Luxury Goods)(a) 112,000 2,192,117
========================================================================
7,956,956
========================================================================
LUXEMBOURG-0.42%
SBS Broadcasting S.A. (Broadcasting & Cable
TV)(c) 22,550 907,186
========================================================================
</Table>
F-1
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
NETHERLANDS-10.77%
Aalberts Industries N.V. (Industrial
Conglomerates)(a) 75,034 $ 3,624,065
- ------------------------------------------------------------------------
Accell Group N.V. (Leisure Products) 120,375 2,563,632
- ------------------------------------------------------------------------
Airspray N.V. (Metal & Glass Containers)(a) 19,800 505,813
- ------------------------------------------------------------------------
Axalto Holding N.V. (Computer Storage &
Peripherals)(b)(c) 49,700 1,291,056
- ------------------------------------------------------------------------
Beter Bed Holding N.V. (Specialty Stores) 88,250 1,704,686
- ------------------------------------------------------------------------
Brunel International N.V. (Employment
Services)(a) 169,700 2,061,936
- ------------------------------------------------------------------------
Eriks Group N.V.-Dutch Ctfs. (Trading
Companies & Distributors)(a) 30,700 1,766,370
- ------------------------------------------------------------------------
Koninklijke BAM Groep N.V. (Construction &
Engineering)(a) 62,800 3,146,482
- ------------------------------------------------------------------------
OPG Groep N.V.-Dutch Ctfs. (Health Care
Distributors)(a) 18,630 1,083,141
- ------------------------------------------------------------------------
Randstad Holding N.V. (Employment
Services)(a) 13,800 540,957
- ------------------------------------------------------------------------
Roto Smeets de Boer N.V. (Commercial
Printing) 21,300 1,002,603
- ------------------------------------------------------------------------
Stork N.V. (Industrial Machinery)(a) 58,330 2,002,261
- ------------------------------------------------------------------------
Univar N.V. (Trading Companies &
Distributors)(a) 70,300 1,929,354
========================================================================
23,222,356
========================================================================
NORWAY-6.73%
Aktiv Kapital A.S.A. (Specialized Finance)(b) 147,495 3,281,826
- ------------------------------------------------------------------------
Ekornes A.S.A. (Home Furnishings)(a) 26,680 578,841
- ------------------------------------------------------------------------
Expert A.S.A (Computer & Electronics
Retail)(a) 186,640 1,768,122
- ------------------------------------------------------------------------
Schibsted A.S.A. (Publishing)(a) 72,000 2,035,086
- ------------------------------------------------------------------------
Smedvig A.S.A.-Class A (Oil & Gas
Drilling)(a)(b) 146,890 2,468,772
- ------------------------------------------------------------------------
SuperOffice A.S.A (Application Software)(a) 338,700 1,449,670
- ------------------------------------------------------------------------
TGS Nopec Geophysical Co. A.S.A. (Oil & Gas
Equipment & Services)(a)(c) 115,040 2,928,514
========================================================================
14,510,831
========================================================================
PORTUGAL-0.72%
SonaeCom, SGPS, S.A. (Wireless
Telecommunication Services)(a)(c) 301,900 1,553,380
========================================================================
SPAIN-2.04%
Corporacion Mapfre S.A. (Multi-Line
Insurance)(a) 122,970 1,807,272
- ------------------------------------------------------------------------
Enagas (Gas Utilities) (Acquired 07/20/04-
11/30/04; Cost $846,161)(a)(d) 71,400 1,178,625
- ------------------------------------------------------------------------
Gestevision Telecinco S.A. (Movies &
Entertainment) (Acquired 06/23/04; Cost
$332,856)(c)(d) 27,100 558,034
- ------------------------------------------------------------------------
Miquel y Costas & Miquel, S.A. (Paper
Products)(a) 17,698 849,882
========================================================================
4,393,813
========================================================================
SWEDEN-0.98%
Elanders A.B.-Class B (Publishing)(a) 131,500 2,117,479
========================================================================
SWITZERLAND-7.17%
Amazys Holding A.G. (Diversified Commercial
Services)(a)(c) 94,400 5,119,211
- ------------------------------------------------------------------------
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
SWITZERLAND-(CONTINUED)
Leica Geosystems A.G. (Electronic Equipment
Manufacturers)(a)(c) 8,900 $ 2,726,235
- ------------------------------------------------------------------------
Mobilezone Holding A.G. (Industrial
Machinery)(a)(c) 622,400 2,276,715
- ------------------------------------------------------------------------
Quadrant A.G. (Specialty Chemicals)(a)(c) 16,700 1,362,175
- ------------------------------------------------------------------------
Rieter Holding A.G. (Auto Parts &
Equipment)(a) 3,400 981,439
- ------------------------------------------------------------------------
SAIA-Burgess Electronics A.G. (Electronic
Equipment & Manufacturers)(a) 2,580 1,535,133
- ------------------------------------------------------------------------
Saurer A.G. (Industrial Machinery)(a)(c) 24,800 1,452,113
========================================================================
15,453,021
========================================================================
UNITED KINGDOM-20.20%
Admiral Group PLC (Property & Casualty
Insurance) (Acquired 09/23/04-12/29/04;
Cost $1,016,419)(c)(d) 188,600 1,166,838
- ------------------------------------------------------------------------
Albemarle & Bond Holdings PLC (Consumer
Finance)(a) 356,400 883,352
- ------------------------------------------------------------------------
Balfour Beatty PLC (Construction &
Engineering)(a) 349,530 2,110,094
- ------------------------------------------------------------------------
Belhaven Group PLC (The) (Brewers)(a) 165,310 1,347,499
- ------------------------------------------------------------------------
Cattles PLC (Consumer Finance) 197,680 1,391,772
- ------------------------------------------------------------------------
Dawson Holdings PLC (Distributors) 309,930 1,010,768
- ------------------------------------------------------------------------
Domino Printing Sciences PLC (Industrial
Machinery)(a) 319,010 1,553,265
- ------------------------------------------------------------------------
Enterprise Inns PLC (Restaurants)(a) 70,820 1,076,834
- ------------------------------------------------------------------------
Findel PLC (Catalog Retail)(a) 128,400 1,167,828
- ------------------------------------------------------------------------
Haynes Publishing Group PLC (Publishing) 29,300 208,199
- ------------------------------------------------------------------------
Homeserve PLC (Diversified Commercial
Services) 171,000 2,499,714
- ------------------------------------------------------------------------
Hornby PLC (Leisure Products) 210,810 1,060,586
- ------------------------------------------------------------------------
Inchcape PLC (Distributors) 22,670 850,232
- ------------------------------------------------------------------------
Intertek Group PLC (Diversified Commercial
Services)(a) 130,800 1,765,513
- ------------------------------------------------------------------------
Johnston Press PLC (Publishing)(a) 85,410 886,868
- ------------------------------------------------------------------------
Kensington Group PLC (Thrifts & Mortgage
Finance)(a) 78,490 720,906
- ------------------------------------------------------------------------
Kier Group PLC (Construction &
Engineering)(a) 93,081 1,256,687
- ------------------------------------------------------------------------
Lambert Howarth Group PLC (Footwear)(a) 140,850 809,118
- ------------------------------------------------------------------------
Mayborn Group PLC (Household Products) 215,400 1,066,116
- ------------------------------------------------------------------------
McBride PLC (Household Products)(a) 645,830 1,745,676
- ------------------------------------------------------------------------
nCipher PLC (Internet Software &
Services)(a)(c) 207,500 833,676
- ------------------------------------------------------------------------
NDS Group PLC-ADR (Application
Software)(b)(c) 57,900 1,973,174
- ------------------------------------------------------------------------
Punch Taverns PLC (Restaurants)(a) 102,100 1,350,797
- ------------------------------------------------------------------------
Savills PLC (Other Diversified Financial
Services) 152,545 1,524,667
- ------------------------------------------------------------------------
SCi Entertainment Group PLC (Home
Entertainment Software)(a)(c) 370,200 1,698,566
- ------------------------------------------------------------------------
ScS Upholstery PLC (Specialty Stores)(a) 134,400 899,278
- ------------------------------------------------------------------------
Sportingbet PLC (Casinos & Gaming)(a)(c) 1,381,830 5,008,430
- ------------------------------------------------------------------------
T&F Informa PLC (Publishing) 243,150 1,760,883
- ------------------------------------------------------------------------
</Table>
F-2
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
UNITED KINGDOM-(CONTINUED)
Ultra Electronics Holdings PLC (Aerospace &
Defense)(a) 130,000 $ 1,720,564
- ------------------------------------------------------------------------
Warner Chilcott PLC (Pharmaceuticals) 36,020 594,267
- ------------------------------------------------------------------------
WS Atkins PLC (Diversified Commercial
Services)(a) 117,195 1,605,122
========================================================================
43,547,289
========================================================================
Total Foreign Stocks & Other Equity
Interests (Cost $142,762,050) 192,483,684
========================================================================
MONEY MARKET FUNDS-10.91%
Liquid Assets Portfolio-Institutional
Class(f) 11,751,393 11,751,393
- ------------------------------------------------------------------------
STIC Prime Portfolio-Institutional Class(f) 11,751,393 11,751,393
========================================================================
Total Money Market Funds (Cost
$23,502,786) 23,502,786
========================================================================
TOTAL INVESTMENTS-100.21% (excluding
investments purchased with cash collateral
from securities loaned) (Cost $166,264,836) 215,986,470
========================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
INVESTMENTS PURCHASED WITH CASH COLLATERAL
FROM SECURITIES LOANED
MONEY MARKET FUNDS-3.11%
STIC Prime Portfolio-Institutional
Class(f)(g) 6,708,522 $ 6,708,522
========================================================================
Total Money Market Funds (purchased with
cash collateral from securities loaned)
(Cost $6,708,522) 6,708,522
========================================================================
TOTAL INVESTMENTS-103.32% (Cost $172,973,358) 222,694,992
========================================================================
OTHER ASSETS LESS LIABILITIES-(3.32%) (7,157,296)
========================================================================
NET ASSETS-100.00% $215,537,696
________________________________________________________________________
========================================================================
</Table>
Investment Abbreviations:
<Table>
ADR - American Depositary Receipt
Ctfs. - Certificates
Pfd. - Preferred
</Table>
Notes to Schedule of Investments:
(a) 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 December 31, 2004 was
$145,158,034, which represented 65.18% of the Fund's Total Investments. See
Note 1A.
(b) All or a portion of this security has been pledged as collateral for
securities lending transactions at December 31, 2004.
(c) Non-income producing security.
(d) Security not registered under the Securities Act of 1933, as amended (e.g.,
the security was purchased in a Rule 144A transaction or a Regulation D
transaction). The security may be resold only pursuant to an exemption from
registration under the 1933 Act, typically to qualified institutional
buyers. The Fund has no rights to demand registration of these securities.
The aggregate market value of these securities at December 31, 2004 was
$7,933,995, which represented 3.68% of the Fund's Net Assets. Unless
otherwise indicated these securities are not considered to be illiquid.
(e) Each unit represents one ordinary share, one ordinary C share and nine
ordinary A shares.
(f) The money market fund and the Fund are affiliated by having the same
investment advisor. See Note 3.
(g) The security has been segregated to satisfy the forward commitment to return
the cash collateral received in securities lending transactions upon the
borrower's return of the securities loaned. See Note 7.
See accompanying notes which are an integral part of the financial statements.
F-3
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2004
<Table>
ASSETS:
Investments, at market value (cost
$142,762,050)* $192,483,684
- -----------------------------------------------------------
Investments in affiliated money market funds
(cost $30,211,308) 30,211,308
===========================================================
Total investments (cost $172,973,358) 222,694,992
===========================================================
Foreign currencies, at market value (cost
$823,450) 814,315
- -----------------------------------------------------------
Receivables for:
Investments sold 86,870
- -----------------------------------------------------------
Fund shares sold 3,159,770
- -----------------------------------------------------------
Dividends 236,703
- -----------------------------------------------------------
Investment for trustee deferred compensation
and retirement plans 22,138
- -----------------------------------------------------------
Other assets 20,354
===========================================================
Total assets 227,035,142
___________________________________________________________
===========================================================
LIABILITIES:
Payables for:
Investments purchased 4,223,600
- -----------------------------------------------------------
Fund shares reacquired 368,660
- -----------------------------------------------------------
Trustee deferred compensation and
retirement plans 23,336
- -----------------------------------------------------------
Collateral upon return of securities loaned 6,708,522
- -----------------------------------------------------------
Accrued distribution fees 83,447
- -----------------------------------------------------------
Accrued transfer agent fees 20,242
- -----------------------------------------------------------
Accrued operating expenses 69,639
===========================================================
Total liabilities 11,497,446
===========================================================
Net assets applicable to shares outstanding $215,537,696
___________________________________________________________
===========================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $165,713,286
- -----------------------------------------------------------
Undistributed net investment income (loss) (236,487)
- -----------------------------------------------------------
Undistributed net realized gain from
investment securities and foreign
currencies 327,868
- -----------------------------------------------------------
Unrealized appreciation of investment
securities and foreign currencies 49,733,029
===========================================================
$215,537,696
___________________________________________________________
===========================================================
NET ASSETS:
Class A $161,014,083
___________________________________________________________
===========================================================
Class B $ 26,540,253
___________________________________________________________
===========================================================
Class C $ 27,983,360
___________________________________________________________
===========================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER
SHARE, UNLIMITED NUMBER OF SHARES
AUTHORIZED:
Class A 9,505,585
___________________________________________________________
===========================================================
Class B 1,606,100
___________________________________________________________
===========================================================
Class C 1,693,355
___________________________________________________________
===========================================================
Class A:
Net asset value per share $ 16.94
- -----------------------------------------------------------
Offering price per share:
(Net asset value of $16.94 divided by
94.50%) $ 17.93
___________________________________________________________
===========================================================
Class B:
Net asset value and offering price per
share $ 16.52
___________________________________________________________
===========================================================
Class C:
Net asset value and offering price per
share $ 16.53
___________________________________________________________
===========================================================
</Table>
* At December 31, 2004, securities with an aggregate market value of $6,429,276
were on loan to brokers.
See accompanying notes which are an integral part of the financial statements.
F-4
STATEMENT OF OPERATIONS
For the year ended December 31, 2004
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $193,594) $ 1,418,314
- -------------------------------------------------------------------------
Dividends from affiliated money market funds (including
securities lending income of $18,766*) 110,766
- -------------------------------------------------------------------------
Interest 1,412
=========================================================================
Total investment income 1,530,492
=========================================================================
EXPENSES:
Advisory fees 898,035
- -------------------------------------------------------------------------
Administrative services fees 50,000
- -------------------------------------------------------------------------
Custodian fees 210,426
- -------------------------------------------------------------------------
Distribution fees:
Class A 240,353
- -------------------------------------------------------------------------
Class B 149,573
- -------------------------------------------------------------------------
Class C 109,003
- -------------------------------------------------------------------------
Transfer agent fees 233,338
- -------------------------------------------------------------------------
Trustees' fees and retirement benefits 15,192
- -------------------------------------------------------------------------
Other 183,285
=========================================================================
Total expenses 2,089,205
=========================================================================
Less: Fees waived, expenses reimbursed and expense offset
arrangement (28,066)
=========================================================================
Net expenses 2,061,139
=========================================================================
Net investment income (loss) (530,647)
=========================================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES AND FOREIGN CURRENCIES:
Net realized gain (loss) from:
Investment securities 8,993,440
- -------------------------------------------------------------------------
Foreign currencies (80,044)
=========================================================================
8,913,396
=========================================================================
Change in net unrealized appreciation of:
Investment securities 32,238,896
- -------------------------------------------------------------------------
Foreign currencies 8,702
=========================================================================
32,247,598
=========================================================================
Net gain from investment securities and foreign currencies 41,160,994
=========================================================================
Net increase in net assets resulting from operations $40,630,347
_________________________________________________________________________
=========================================================================
</Table>
* Dividends from affiliated money market funds are net of income rebate paid to
securities lending counterparties.
See accompanying notes which are an integral part of the financial statements.
F-5
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 2004 and 2003
<Table>
<Caption>
2004 2003
- -----------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (530,647) $ (157,442)
- -----------------------------------------------------------------------------------------
Net realized gain from investment securities, foreign
currencies and futures contracts 8,913,396 4,332,482
- -----------------------------------------------------------------------------------------
Change in net unrealized appreciation of investment
securities and foreign currencies 32,247,598 14,544,576
=========================================================================================
Net increase in net assets resulting from operations 40,630,347 18,719,616
=========================================================================================
Distributions to shareholders from net investment income:
Class A -- (110,677)
- -----------------------------------------------------------------------------------------
Distributions to shareholders from net realized gains:
Class A (3,080,881) --
- -----------------------------------------------------------------------------------------
Class B (546,917) --
- -----------------------------------------------------------------------------------------
Class C (546,069) --
=========================================================================================
Decrease in net assets resulting from distributions (4,173,867) (110,677)
=========================================================================================
Share transactions-net:
Class A 92,344,444 14,779,957
- -----------------------------------------------------------------------------------------
Class B 11,576,871 653,971
- -----------------------------------------------------------------------------------------
Class C 17,295,575 2,479,060
=========================================================================================
Net increase in net assets resulting from share
transactions 121,216,890 17,912,988
=========================================================================================
Net increase in net assets 157,673,370 36,521,927
=========================================================================================
NET ASSETS:
Beginning of year 57,864,326 21,342,399
=========================================================================================
End of year (including undistributed net investment income
(loss) of $(236,487) and $(15,872), respectively) $215,537,696 $57,864,326
_________________________________________________________________________________________
=========================================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
F-6
NOTES TO FINANCIAL STATEMENTS
December 31, 2004
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM European Small Company Fund (the "Fund") is a series portfolio of AIM Funds
Group (the "Trust"). The Trust is a Delaware statutory trust registered under
the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
series management investment company consisting of nine separate portfolios,
each authorized to issue an unlimited number of shares of beneficial interest.
The Fund currently offers multiple classes of shares. Matters affecting each
portfolio or class will be voted on exclusively by the shareholders of such
portfolio or class. The assets, liabilities and operations of each portfolio are
accounted for separately. Information presented in these financial statements
pertains only to the Fund.
The Fund's investment objective is to achieve long-term growth of capital.
Companies are listed in the Schedule of Investments based on the country in
which they are organized.
Under the Trust's organizational documents, each Trustee, officer, employee
or other agent of the Trust (including the Trust's investment manager) is
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-7
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 -- Foreign currency is valued at the close of
the NYSE based on quotations posted by banks and major currency dealers.
Portfolio securities and other assets and liabilities denominated in
foreign currencies are translated into U.S. dollar amounts at date of
valuation. Purchases and sales of portfolio securities (net of foreign
taxes withheld on disposition) and income items denominated in foreign
currencies are translated into U.S. dollar amounts on the respective dates
of such transactions. The Fund does not separately account for the portion
of the results of operations resulting from changes in foreign exchange
rates on investments and the fluctuations arising from changes in market
prices of securities held. The combined results of changes in foreign
exchange rates and the fluctuation of market prices on investments (net of
estimated foreign tax withholding) are included with the net realized and
unrealized gain or loss from investments in the Statement of Operations.
Reported net realized foreign currency gains or losses arise from, (i)
sales of foreign currencies, (ii) currency gains or losses realized between
the trade and settlement dates on securities transactions, and (iii) the
difference between the amounts of dividends, interest, and foreign
withholding taxes recorded on the Fund's books and the U.S. dollar
equivalent of the amounts actually received or paid. Net unrealized foreign
currency gains and losses arise from changes in the fair values of assets
and liabilities, other than investments in securities at fiscal period end,
resulting from changes in exchange rates.
H. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to attempt
to minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency
contract for the purchase or sale of a security denominated in a foreign
currency in order to "lock in" the U.S. dollar price of that security. The
Fund could be exposed to risk if counterparties to the contracts are unable
to meet the terms of their contracts or if the value of the foreign
currency changes unfavorably.
I. FUTURES CONTRACTS -- The Fund may purchase or sell futures contracts as a
hedge against changes in market conditions. Initial margin deposits
required upon entering into futures contracts are satisfied by the
segregation of specific securities as collateral for the account of the
broker (the Fund's agent in acquiring the futures position). During the
period the futures contracts are open, changes in the value of the
contracts are recognized as unrealized gains or losses by "marking to
market" on a daily basis to reflect the market value of the contracts at
the end of each day's trading. Variation margin payments are made or
received depending upon whether unrealized gains or losses are incurred.
When the contracts are closed, the Fund recognizes a realized gain or loss
equal to the difference between the proceeds from, or cost of, the closing
transaction and the Fund's basis in the contract. If the Fund were unable
to liquidate a futures contract and/or enter into an offsetting closing
transaction, the Fund would continue to be subject to market risk with
respect to the value of the contracts and continue to be required to
maintain the margin deposits on the futures contracts.
F-8
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement,
the Fund pays an advisory fee to AIM at the annual rate of 0.95% of the Fund's
average daily net assets. Effective January 1, 2005 through June 30, 2006, AIM
has contractually agreed to waive advisory fees to the extent that the advisory
fees payable by the Fund (based on the Fund's average daily net assets) do not
exceed the annual rate of 0.935% of the first $250 million, plus 0.91% of the
next $250 million, plus 0.885% of the next $500 million, plus 0.86% of the next
$1.5 billion, plus 0.835% of the next $2.5 billion, plus 0.81% of the next $2.5
billion, plus 0.785% of the next $2.5 billion, plus 0.76% of the Fund's average
daily net assets in excess of $10 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%, 2.65% and 2.65% of average daily net
assets, respectively, through December 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 limits 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 December 31, 2004, AIM waived fees of $908.
For the year ended December 31, 2004, at the request of the Trustees of the
Trust, AMVESCAP PLC ("AMVESCAP") agreed to assume $26,041 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 December 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
December 31, 2004, the Fund paid AISI $233,338. AISI may make payments to
intermediaries that 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 0.35% of the
Fund's average daily net assets of Class A shares and 1.00% of the average daily
net assets of Class B and Class C shares. Of these amounts, up to 0.25% of the
average daily net assets of the Class A, Class B or Class C shares may be paid
to furnish continuing personal shareholder services to customers who purchase
and own shares of such classes. Any amounts not paid as a service fee under the
Plans would constitute an asset-based sales charge. NASD Rules also impose a cap
on the total sales charges, including asset-based sales charges that may be paid
by any class of shares of the Fund. Pursuant to the Plans, for the year ended
December 31, 2004, the Class A, Class B and Class C shares paid $240,353,
$149,573 and $109,003, respectively.
Front-end sales commissions and contingent deferred sales charges ("CDSC")
(collectively the "sales charges") are not recorded as expenses of the Fund.
Front-end sales commissions are deducted from proceeds from the sales of Fund
shares prior to investment in Class A shares of the Fund. CDSC are deducted from
redemption proceeds prior to remittance to the shareholder. During the year
ended December 31, 2004, AIM Distributors advised the Fund that it retained
$90,095 in front-end sales commissions from the sale of Class A shares and
$7,935, $28,316 and $19,975 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-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 December 31, 2004.
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 12/31/03 AT COST FROM SALES (DEPRECIATION) 12/31/04 INCOME GAIN (LOSS)
- ----------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $1,498,588 $ 43,099,555 $(32,846,750) $ -- $11,751,393 $ 45,937 $ --
- ----------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-
Institutional
Class 1,498,588 43,099,555 (32,846,750) -- 11,751,393 46,063 --
==================================================================================================================================
Subtotal $2,997,176 $ 86,199,110 $(65,693,500) $ -- $23,502,786 $ 92,000 $ --
==================================================================================================================================
</Table>
INVESTMENTS OF CASH COLLATERAL FROM SECURITIES LENDING TRANSACTIONS:
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 12/31/03 AT COST FROM SALES (DEPRECIATION) 12/31/04 INCOME* GAIN (LOSS)
- ----------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $ 117,600 $ 13,052,504 $(13,170,104) $ -- $ -- $ 7,861 $ --
- ----------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-
Institutional
Class -- 13,453,434 (6,744,912) -- 6,708,522 10,905 --
==================================================================================================================================
Subtotal $ 117,600 $ 26,505,938 $(19,915,016) $ -- $ 6,708,522 $ 18,766 $ --
==================================================================================================================================
Total $3,114,776 $112,705,048 $(85,608,516) $ -- $30,211,308 $110,766 $ --
__________________________________________________________________________________________________________________________________
==================================================================================================================================
</Table>
* Dividend income is net of income rebate paid to securities lending
counterparties.
NOTE 4--EXPENSE OFFSET ARRANGEMENT
The expense offset arrangement is comprised of transfer agency credits which
result from balances in Demand Deposit Accounts (DDA) used by the transfer agent
for clearing shareholder transactions. For the year ended December 31, 2004, the
Fund received credits in transfer agency fees of $1,117 under an expense offset
arrangement, which resulted in a reduction of the Fund's total expenses of
$1,117.
NOTE 5--TRUSTEES' FEES
Trustees' fees represent remuneration paid to each Trustee of the Trust who is
not an "interested person" of AIM. Trustees have the option to defer
compensation payable by the Trust. Those Trustees who defer compensation have
the option to select various AIM Funds 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 December 31, 2004, the Fund paid legal fees of $2,792
for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the
Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 6--BORROWINGS
Pursuant to an exemptive order from the SEC, the Fund may participate in an
interfund lending facility that AIM has established for temporary borrowings by
the AIM Funds. 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.
F-10
During the year ended December 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 7--PORTFOLIO SECURITIES LOANED
The Fund may lend portfolio securities having a market value up to one-third of
the Fund's total assets. Such loans are secured by collateral equal to no less
than the market value of the loaned securities determined daily. Such collateral
will be cash or debt securities issued or guaranteed by the U.S. Government or
any of its agencies. Cash collateral received in connection with these loans is
invested in short-term money market instruments or affiliated money market
funds. It is the Fund's policy to obtain additional collateral from or return
excess collateral to the borrower by the end of the next business day, following
the valuation date of the securities loaned. Therefore, the value of the
collateral held may be temporarily less than the value of the securities on
loan. Lending securities entails a risk of loss to the Fund if and to the extent
that the market value of the securities loaned were to increase and the borrower
did not increase the collateral accordingly, and the borrower fails to return
the securities. The Fund could also experience delays and costs in gaining
access to the collateral. The Fund bears the risk of any deficiency in the
amount of the collateral available for return to the borrower due to a loss on
the collateral invested.
At December 31, 2004, securities with an aggregate value of $6,429,276 were
on loan to brokers. The loans were secured by cash collateral of $6,708,522
received by the Fund and subsequently invested in an affiliated money market
fund. For the year ended December 31, 2004, the Fund received dividends on cash
collateral net of income rebate paid to counterparties of $18,766 for securities
lending transactions.
NOTE 8--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
DISTRIBUTIONS TO SHAREHOLDERS:
The tax character of distributions paid during the years ended December 31, 2004
and 2003 was as follows:
<Table>
<Caption>
2004 2003
- ------------------------------------------------------------------------------------
Distributions paid from:
Ordinary income $ -- $110,677
- ------------------------------------------------------------------------------------
Long-term capital gain 4,173,867 --
====================================================================================
Total distributions $4,173,867 $110,677
____________________________________________________________________________________
====================================================================================
</Table>
TAX COMPONENTS OF NET ASSETS:
As of December 31, 2004, the components of net assets on a tax basis were as
follows:
<Table>
<Caption>
2004
- --------------------------------------------------------------------------
Undistributed long-term gain $ 479,850
- --------------------------------------------------------------------------
Unrealized appreciation -- investments 49,465,308
- --------------------------------------------------------------------------
Temporary book/tax differences (20,378)
- --------------------------------------------------------------------------
Post-October capital loss deferral (100,370)
- --------------------------------------------------------------------------
Shares of beneficial interest 165,713,286
==========================================================================
Total net assets $215,537,696
__________________________________________________________________________
==========================================================================
</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 treatment of unrealized gains on Passive Foreign Investment
Companies. The tax-basis unrealized appreciation on investments amount includes
appreciation on foreign currencies of $11,395.
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 and the deferral of Post-October currency losses.
The Fund utilized $3,967,289 of capital loss carryforward in the current
period to offset net realized capital gain for federal income tax purposes.
The Fund had no capital loss carryforward as of December 31, 2004.
F-11
NOTE 9--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities
and money market funds) purchased and sold by the Fund during the year ended
December 31, 2004 was $161,328,684 and $64,411,400, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- -------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $49,615,166
- -------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (161,253)
===============================================================================
Net unrealized appreciation of investment securities $49,453,913
_______________________________________________________________________________
===============================================================================
Cost of investments for tax purposes is $173,241,079.
</Table>
NOTE 10--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of foreign currency
transactions and net operating losses, on December 31, 2004, undistributed net
investment income was increased by $310,032, undistributed net realized gain
(loss) was decreased by $372,720 and shares of beneficial interest increased by
$62,688. 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 DECEMBER 31,
--------------------------------------------------------
2004 2003
-------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------------------------------------------------------------
Sold:
Class A 8,997,539 $131,434,386 7,437,349 $ 64,909,222
- ----------------------------------------------------------------------------------------------------------------------
Class B 1,319,808 18,281,471 355,346 3,473,696
- ----------------------------------------------------------------------------------------------------------------------
Class C 1,884,423 26,702,122 2,260,834 19,474,776
======================================================================================================================
Issued as reinvestment of dividends:
Class A 155,210 2,553,215 6,582 76,679
- ----------------------------------------------------------------------------------------------------------------------
Class B 32,458 521,266 -- --
- ----------------------------------------------------------------------------------------------------------------------
Class C 30,938 496,866 -- --
======================================================================================================================
Automatic conversion of Class B shares to Class A shares:
Class A 73,593 1,053,339 24,199 222,934
- ----------------------------------------------------------------------------------------------------------------------
Class B (75,184) (1,053,339) (24,613) (222,934)
======================================================================================================================
Reacquired:(b)
Class A (3,215,160) (42,696,496) (5,818,558) (50,428,878)
- ----------------------------------------------------------------------------------------------------------------------
Class B (466,157) (6,172,527) (317,658) (2,596,791)
- ----------------------------------------------------------------------------------------------------------------------
Class C (758,107) (9,903,413) (2,007,635) (16,995,716)
======================================================================================================================
7,979,361 $121,216,890 1,915,846 $ 17,912,988
______________________________________________________________________________________________________________________
======================================================================================================================
</Table>
(a) There is one entity that is an owner of more than 5% of the outstanding
shares of the Fund and owns 8% of the outstanding shares of the Fund. The
Fund, AIM and or AIM affiliates may make payments to these entities, which
are considered to be related, 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 are also owned beneficially.
(b) Amount is net of redemption fees of $21,001, $4,574 and $3,333 for Class A,
Class B and Class C shares for 2004, respectively.
F-12
NOTE 12--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
CLASS A
-------------------------------------------------------------------------
AUGUST 31, 2000
(DATE OPERATIONS
YEAR ENDED DECEMBER 31, COMMENCED) TO
-------------------------------------------------- DECEMBER 31,
2004 2003 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 12.05 $ 7.37 $ 7.19 $ 9.17 $10.00
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.05)(a) (0.03)(a) (0.04)(a) (0.05)(a) (0.04)(a)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 5.30 4.74 0.22 (1.93) (0.74)
=================================================================================================================================
Total from investment operations 5.25 4.71 0.18 (1.98) (0.78)
=================================================================================================================================
Less distributions:
Dividends from net investment income -- (0.03) -- -- (0.05)
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains (0.36) -- -- -- --
=================================================================================================================================
Redemption fees added to shares of beneficial interest 0.00 -- -- -- --
=================================================================================================================================
Total distributions (0.36) (0.03) -- -- (0.05)
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Net asset value, end of period $ 16.94 $ 12.05 $ 7.37 $ 7.19 $ 9.17
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) 43.67% 63.96% 2.50% (21.59)% (7.84)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $161,014 $42,103 $13,597 $6,969 $8,606
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 2.00%(c) 2.00% 2.01% 2.01% 2.07%(d)
- ---------------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 2.03%(c) 2.68% 3.05% 4.65% 6.28%(d)
=================================================================================================================================
Ratio of net investment income (loss) to average net
assets (0.38)%(c) (0.28)% (0.51)% (0.61)% (1.28)%(d)
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(e) 71% 130% 119% 152% 25%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Does not include sales charges and is not
annualized for periods less than one year.
(c) Ratios are based on average daily net assets of $68,672,362.
(d) Annualized.
(e) Not annualized for periods less than one year.
F-13
NOTE 12--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS B
----------------------------------------------------------------------
AUGUST 31, 2000
(DATE OPERATIONS
YEAR ENDED DECEMBER 31, COMMENCED) TO
----------------------------------------------- DECEMBER 31,
2004 2003 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 11.84 $ 7.27 $ 7.15 $ 9.17 $10.00
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.14)(a) (0.08)(a) (0.09)(a) (0.10)(a) (0.06)(a)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 5.18 4.65 0.21 (1.92) (0.74)
=================================================================================================================================
Total from investment operations 5.04 4.57 0.12 (2.02) (0.80)
=================================================================================================================================
Less distributions:
Dividends from net investment income -- -- -- -- (0.03)
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains (0.36) -- -- -- --
=================================================================================================================================
Redemption fees added to shares of beneficial interest 0.00 -- -- -- --
=================================================================================================================================
Total distributions (0.36) -- -- -- (0.03)
=================================================================================================================================
Net asset value, end of period $ 16.52 $11.84 $ 7.27 $ 7.15 $ 9.17
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) 42.67% 62.86% 1.68% (22.03)% (7.99)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $26,540 $9,415 $5,689 $2,330 $2,851
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 2.65%(c) 2.65% 2.66% 2.71% 2.77%(d)
- ---------------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 2.68%(c) 3.33% 3.70% 5.36% 6.98%(d)
=================================================================================================================================
Ratio of net investment income (loss) to average net
assets (1.03)%(c) (0.93)% (1.16)% (1.31)% (1.98)%(d)
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(e) 71% 130% 119% 152% 25%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Does not include sales charges and is not
annualized for periods less than one year.
(c) Ratios are based on average daily net assets of $14,957,335.
(d) Annualized.
(e) Not annualized for periods less than one year.
F-14
NOTE 12--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS C
----------------------------------------------------------------------
AUGUST 31, 2000
(DATE OPERATIONS
YEAR ENDED DECEMBER 31, COMMENCED) TO
----------------------------------------------- DECEMBER 31,
2004 2003 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 11.84 $ 7.27 $ 7.14 $ 9.17 $10.00
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.14)(a) (0.09)(a) (0.09)(a) (0.10)(a) (0.06)(a)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 5.19 4.66 0.22 (1.93) (0.74)
=================================================================================================================================
Total from investment operations 5.05 4.57 0.13 (2.03) (0.80)
=================================================================================================================================
Less distributions:
Dividends from net investment income -- -- -- -- (0.03)
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains (0.36) -- -- -- --
=================================================================================================================================
Redemption fees added to shares of beneficial interest 0.00 -- -- -- --
=================================================================================================================================
Total distributions (0.36) -- -- -- (0.03)
=================================================================================================================================
Net asset value, end of period $ 16.53 $11.84 $ 7.27 $ 7.14 $ 9.17
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) 42.75% 62.86% 1.82% (22.14)% (7.99)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $27,983 $6,346 $2,057 $1,091 $1,073
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 2.65%(c) 2.65% 2.66% 2.71% 2.77%(d)
- ---------------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 2.68%(c) 3.33% 3.70% 5.36% 6.98%(d)
=================================================================================================================================
Ratio of net investment income (loss) to average net
assets (1.03)%(c) (0.93)% (1.16)% (1.31)% (1.98)%(d)
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(e) 71% 130% 119% 152% 25%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Does not include sales charges and is not
annualized for periods less than one year.
(c) Ratios are based on average daily net assets of $10,900,283.
(d) Annualized.
(e) Not annualized for periods less than one year.
NOTE 13--LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
Settled Enforcement Actions and Investigations Related to Market Timing
On October 8, 2004, INVESCO Funds Group, Inc. ("IFG") (the former investment
advisor to certain AIM Funds) and A I M Advisors, Inc. ("AIM") (the Fund's
investment advisor) reached final settlements with certain regulators, including
without limitation the Securities and Exchange Commission ("SEC"), the New York
Attorney General ("NYAG") and the Colorado Attorney General ("COAG"), 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.
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 they 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 and
AIM breached various Federal and state securities, business and consumer
protection laws. On the same date, A I M Distributors, Inc. ("ADI") (the
distributor of the retail AIM Funds) reached a final settlement with the SEC to
resolve an investigation relating to market timing activity and related issues
in the AIM Funds. The SEC also alleged that ADI violated various Federal
securities laws. The SEC also has settled related market timing enforcement
actions brought against certain former officers and employees of IFG.
Under the terms of the settlements, IFG agreed to pay a total of $325
million, of which $110 million is civil penalties. Of this $325 million total
payment, half has been paid 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, all of which has been paid. The entire $325
million IFG settlement payment will be made 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 made 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. 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 certain equity and balanced 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.
F-15
NOTE 13--LEGAL PROCEEDINGS (CONTINUED)
Under the terms of the settlements, AIM will make certain governance and
compliance reforms, including maintaining an internal controls committee and
retaining an independent compliance consultant and a corporate ombudsman. 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.
At the request of the trustees of the AIM Funds, AMVESCAP PLC ("AMVESCAP"),
the parent company of IFG and AIM, has agreed to pay expenses incurred by such
Funds related to market timing matters.
The SEC has also settled market timing enforcement actions 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), 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 these settlements, the SEC ordered these individuals to
pay restitution and civil penalties in various amounts and prohibited them from
associating with, or serving as an officer or director of, an investment
advisor, broker, dealer and/or investment company, as applicable, for certain
periods of time.
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 certain equity and balanced 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 Regulatory Inquires and Pending
Litigation described below may have on AIM, ADI or the Fund.
Regulatory Inquiries and Pending Litigation
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 but not limited to revenue sharing and directed-brokerage
arrangements, investments in securities of other registered investment
companies, contractual plans, issues related to Section 529 college savings
plans, procedures for locating lost security holders and participation in class
action settlements.
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.
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 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, the U.S. Postal Inspection
Service and the Commodity Futures Trading Commission, some of which concern one
or more AIM Funds. AIM is providing full cooperation with respect to these
inquiries.
F-16
NOTE 13--LEGAL PROCEEDINGS (CONTINUED)
Private Civil Actions Alleging Market Timing
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, certain AIM Funds, IFG, AIM, AIM Management, AMVESCAP PLC
("AMVESCAP"), the parent company of IFG and AIM, 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 ("ERISA")
purportedly brought on behalf of participants in AMVESCAP's 401(k) plan. The
plaintiffs in one of the underlying lawsuits continue to seek remand of their
lawsuit 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. ("IINA"), ADI
and/or INVESCO Distributors, Inc. ("INVESCO Distributors")) 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. All of these lawsuits have been transferred to
the United States District Court for the Southern District of Texas, Houston
Division by order of the applicable United States District Court in which they
were initially filed. The plaintiff in one of these lawsuits has challenged this
order.
Private Civil Actions Alleging Improper Charging of Distribution Fees on Limited
Offering Funds or Share Classes
Multiple civil lawsuits, including 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. ("AIS")
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.
Private Civil Action Alleging Failure to Ensure Participation in Class Action
Settlements
A civil lawsuit, purporting to be a class action lawsuit, has been filed
against AIM, IINA, A I M Capital Management, Inc. and the trustees of the AIM
Funds alleging that the defendants breached their fiduciary duties by failing to
ensure that the AIM Funds participated in class action settlements in which the
AIM Funds were eligible to participate. This lawsuit alleges as theories of
recovery: (i) violation of various provisions of the Federal securities laws;
(ii) common law breach of fiduciary duty; and (iii) common law negligence. This
lawsuit has been filed in Federal court and seeks such remedies as compensatory
and punitive damages; forfeiture of all commissions and fees paid by the class
of plaintiffs; and costs and attorneys' fees.
* * *
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
As a result of the matters discussed above, 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-17
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees and Shareholders of
AIM European Small Company Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of AIM European Small Company Fund
(one of the funds constituting AIM Funds Group hereafter referred to as the
"Fund") at December 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 periods indicated, in
conformity with accounting principles generally accepted in the United States of
America. These financial statements and financial highlights (hereafter referred
to as "financial statements") are the responsibility of the Fund's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these financial statements in
accordance with 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 December 31, 2004 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
/S/ PRICEWATERHOUSECOOPERS LLP
February 18, 2005
Houston, Texas
F-18
OTHER INFORMATION
TRUSTEES AND OFFICERS
As of December 31, 2004
The address of each trustee and officer of AIM Funds Group (the "Trust"), is 11
Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee oversees 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 1992 Director and Chairman, A I M Management None
Trustee, Vice Chair and Group Inc. (financial services holding
President 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 1987 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 2001 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 2000 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 1998 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 1997 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)
- ---------------------------------------------------------------------------------------------------------------------------------
Carl Frischling -- 1937 1993 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
- ---------------------------------------------------------------------------------------------------------------------------------
</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 December 31, 2004
The address of each trustee and officer of AIM Funds Group (the "Trust"), is 11
Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee oversees 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
- -----------------------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA None
Trustee of the USA
- -----------------------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 1992 Partner, law firm of Pennock & Cooper None
Trustee
- -----------------------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2001 Retired None
Trustee
- -----------------------------------------------------------------------------------------------------------------------------------
Louis S. Sklar(4) -- 1939 1993 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(5) -- 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.; and Senior Vice
President and General Counsel, Liberty
Funds Group, LLC and Vice President,
A I M Distributors, Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
Robert G. Alley -- 1948 1992 Managing Director, Chief Fixed Income N/A
Vice President Officer and Senior Investment Officer,
A I M Capital Management, Inc. and Vice
President, A I M Advisors, Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
Stuart W. Coco -- 1955 1992 Managing Director and 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 1992 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(4) -- 1940 1999 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. (See footnote (4)
below.)
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) Mr. Sklar and Mr. Larsen retired effective December 31, 2004.
(5) 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 1.800.410.4246.
<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 Street
Houston, TX 77046-1173 Suite 100 Suite 2900
Houston, TX 77046-1173 Houston, Texas
77002-5678
COUNSEL TO THE FUND COUNSEL TO THE TRANSFER AGENT CUSTODIAN
INDEPENDENT TRUSTEES
Ballard Spahr AIM Investment State Street Bank and
Andrews & Ingersoll, LLP Kramer, Levin, Naftalis Services, Inc. Trust Company
1735 Market Street & Frankel LLP P.O. Box 4739 225 Franklin Street
Philadelphia, PA 19103-7599 919 Third Avenue Houston, TX 77210-4739 Boston, MA 02110-2801
New York, NY 10022-3852
</Table>
REQUIRED FEDERAL INCOME TAX INFORMATION (UNAUDITED)
Of ordinary dividends paid to shareholders during the Fund's tax year ended
December 31, 2004, 0% is eligible for the dividends received deduction for
corporations. The Fund distributed long-term capital gains of $4,453,867 for the
Fund's year ended December 31, 2004.
For its tax year ended December 31, 2004, the fund designated 0%, 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 Growth Fund AIM Total Return Bond Fund
AIM Diversified Dividend Fund AIM International Small Company Fund(7) Premier U.S. Government Money
AIM Dynamics Fund(1) AIM Trimark Fund Portfolio(1)
AIM Emerging Growth Fund AIM
Large Cap Basic Value Fund TAX-FREE
AIM Large Cap Growth Fund SECTOR EQUITY
AIM Libra Fund AIM High Income Municipal Fund
AIM Mid Cap Basic Value Fund AIM Advantage Health Sciences Fund(1) AIM Municipal Bond Fund
AIM Mid Cap Core Equity Fund(2) AIM Energy Fund(1) AIM Tax-Exempt Cash Fund
AIM Mid Cap Growth Fund AIM Financial Services Fund(1) AIM Tax-Free Intermediate Fund
AIM Mid Cap Stock Fund(1) AIM Global Health Care Fund
AIM Opportunities I Fund AIM Gold & Precious Metals Fund(1)
AIM Opportunities II Fund AIM Health Sciences Fund(1) AIM ALLOCATION SOLUTIONS
AIM Opportunities III Fund AIM Leisure Fund(1)
AIM Premier Equity Fund AIM Multi-Sector Fund(1) AIM Aggressive Allocation Fund
AIM S&P 500 Index Fund(1) AIM Real Estate Fund AIM Conservative Allocation Fund
AIM Select Equity Fund AIM Technology Fund(1) AIM Moderate Allocation Fund
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. FOR
AIM Trimark Endeavor Fund THIS AND OTHER INFORMATION ABOUT AIM FUNDS, OBTAIN A PROSPECTUS FROM YOUR FINANCIAL
AIM Trimark Small Companies Fund 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) Effective December 30, 2004, AIM
International Emerging Growth Fund was renamed AIM International Small Company
Fund. The fund will close to new investors when net assets reach $500 million.
If used after April 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 $138 billion in assets. AIM is a subsidiary of
AMVESCAP PLC, one of the world's largest independent financial services
companies with $382 billion in assets under management. Data as of December 31,
2004.
AIMinvestments.com ESC-AR-1 A I M Distributors, Inc.
<Table>
YOUR GOALS. OUR SOLUTIONS.--Registered Trademark--
- ------------------------------------------------------------------------
Mutual Retirement Annuities College Separately Offshore Cash [AIM INVESTMENTS LOGO APPEARS HERE]
Funds Products Savings Managed Products Management --Registered Trademark--
Plans Accounts
- ------------------------------------------------------------------------
</Table>
AIM GLOBAL VALUE FUND
Annual Report to Shareholders o December 31, 2004
[COVER IMAGE]
[YOUR GOALS. OUR SOLUTIONS.] [AIM INVESTMENTS LOGO APPEARS HERE]
--Registered Trademark-- --Registered Trademark--
<Table>
====================================================================================================================================
AIM GLOBAL VALUE FUND SEEKS TO ACHIEVE LONG-TERM GROWTH OF CAPITAL.
o Unless otherwise stated, information presented in this report is as of 12/31/04 and is based on total net assets.
====================================================================================================================================
ABOUT SHARE CLASSES a group of global securities tracked by financial reporting purposes, and as
Morgan Stanley Capital International; such, the net asset values for
o Effective 9/30/03, Class B shares are the Value subset measures performance of shareholder transactions and the returns
not available as an investment for companies with lower price/earnings based on those net asset values may
retirement plans maintained pursuant to ratios and lower forecasted growth differ from the net asset values and
Section 401 of the Internal Revenue values. A "free" index represents returns reported in the Financial
Code, including 401(k) plans, money investable opportunities for global Highlights.
purchase pension plans and profit investors, taking into account the local
sharing plans. Plans that have existing market restrictions on share ownership o Industry classifications used in this
accounts invested in Class B shares will by foreign investors. report are generally according to the
continue to be allowed to make Global Industry Classification Standard,
additional purchases. o The unmanaged Lipper Global Multi-Cap which was developed by and is the
Value Fund Index represents an average exclusive property and a service mark of
PRINCIPAL RISKS OF INVESTING IN THE FUND of the performance of global multi-cap Morgan Stanley Capital International
value funds tracked by Lipper, Inc., an Inc. and Standard & Poor's.
o International investing presents independent mutual fund performance
certain risks not associated with monitor. The fund files its complete schedule of
investing solely in the United States. portfolio holdings with the Securities
These include risks relating to o The unmanaged Standard & Poor's and Exchange Commission ("SEC") for the
fluctuations in the value of the U.S. Composite Index of 500 Stocks (the S&P 1st and 3rd quarters of each fiscal year
dollar relative to the values of other 500--Registered Trademark-- Index) is an on Form N-Q. The fund's Form N-Q filings
currencies, the custody arrangements index of common stocks frequently used are available on the SEC's Web site at
made for the fund's foreign holdings, as a general measure of U.S. stock http://www.sec.gov. Copies of the fund's
differences in accounting, political market performance. Forms N-Q may be reviewed and copied at
risks and the lesser degree of public the SEC's Public Reference Room at 450
information required to be provided by o The unmanaged Lehman U.S. Aggregate Fifth Street, N.W., Washington, D.C.
non-U.S. companies. Bond Index, which represents the U.S. 20549-0102. You can obtain information
investment-grade fixed-rate bond market on the operation of the Public Reference
o Investing in emerging markets involves (including government and corporate Room, including information about
greater risk and potential reward than securities, mortgage pass-through duplicating fee charges, by calling
investing in more established markets. securities and asset-backed securities), 1-202-942-8090 or by electronic request
is compiled by Lehman Brothers, a global at the following E-mail address:
o Investing in small and mid-size investment bank. publicinfo@sec.gov. The SEC file numbers
companies involves risks not associated for the fund are 811-1540 and 2-27334.
with investing in more established o A direct investment cannot be made in The fund's most recent portfolio
companies, including business risk, an index. Unless otherwise indicated, holdings, as filed on Form N-Q, are also
significant stock price fluctuations and index results include reinvested available at AIMinvestments.com.
illiquidity. dividends, and they do not reflect sales
charges. Performance of an index of A description of the policies and
o The fund may participate in the funds reflects fund expenses; procedures that the fund uses to
initial public offering (IPO) market in performance of a market index does not. determine how to vote proxies relating
some market cycles. Because of the to portfolio securities is available
fund's small asset base, any investment o The fund is not managed to track the without charge, upon request, from our
the fund may make in IPOs may performance of any particular index, Client Services department at
significantly affect the fund's total including the indexes defined here, and 800-959-4246 or on the AIM Web site,
return. As the fund's assets grow, the consequently, the performance of the AIMinvestments.com. On the home page,
impact of IPO investments will decline, fund may deviate significantly from scroll down and click on AIM Funds Proxy
which may reduce the effect of IPO the performance of the indexes. Policy. The information is also
investments on the fund's total return. available on the Securities and Exchange
OTHER INFORMATION Commission's Web site, sec.gov.
ABOUT INDEXES USED IN THIS REPORT
o The returns shown in the Management's Information regarding how the fund voted
o The unmanaged MSCI World Index is a Discussion of Fund Performance are based proxies related to its portfolio
group of global securities tracked by on net asset values calculated for securities during the 12 months ended
Morgan Stanley Capital International. shareholder transactions. Generally 6/30/04 is available at our Web site. Go
accepted accounting principles require to AIMinvestments.com, access the About
o The unmanaged MSCI World Value Free adjustments to be made to the net assets Us tab, click on Required Notices and
Index is a subset of the MSCI World of the fund at period end for then click on Proxy Voting Activity.
Index, 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
AIM GLOBAL VALUE FUND
<Table>
DEAR FELLOW SHAREHOLDER OF THE AIM FAMILY OF
FUNDS--Registered Trademark--:
NEW BOARD CHAIRMAN
It is our pleasure to introduce you to Bruce Crockett, the
[GRAHAM new Chairman of the Board of Trustees of the AIM Funds. Bob
PHOTO] 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
ROBERT H. GRAHAM 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.
[WILLIAMSON Crockett, one of the 14 independent trustees on the AIM
PHOTO] 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--.
MARK H. WILLIAMSON
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
[CROCKETT experience in finance and general management and has been
PHOTO] 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
BRUCE L. CROCKETT the benefit of fund shareholders, and we at AIM share that
commitment.
MARKET CONDITIONS DURING THE FISCAL YEAR
After nine months of slow growth, equity markets rallied
late in the year to produce solid results for 2004. The S&P
500 Index was up 10.87% for the year as a whole, but that
includes the 9.23% total return for the fourth quarter
alone. For bonds, the turning point came earlier. Almost all
of the 4.34% return produced by the Lehman U.S. Aggregate
Bond Index came during the second half of the year, despite
the fact that the Federal Reserve had begun raising
short-term interest rates about halfway through the year.
Overseas markets followed a similar pattern, with quite
robust double-digit performance across the board, most of it
produced during the second half of the year.
All in all, 2004 was a good year for American investors,
with the decline in the dollar over the course of the year
lending a boost to returns from foreign holdings. And there
were a number of solid economic numbers to report as of the
end of the year:
o U.S. gross domestic product (GDP) rose each quarter
during 2004. And respondents to the BusinessWeek
magazine survey foresaw 2005 GDP growth at 3.5%, above
the post-World War II average of 3.4%.
o The Institute for Supply Management's manufacturing
and nonmanufacturing indexes--based on surveys of
purchasing managers in industries that together cover
more than 70% of the U.S. economy--both continued to
rise during December and remained in very strong
territory.
o Thomson First Call, which tracks corporate earnings
and other information for clients in financial service
industries, estimated S&P 500 earnings to be up 10.5%
in 2005.
Of course, none of this can guarantee that 2005 will be
another good year. Over the short term, the only sure thing
about the investment markets is their unpredictability.
Hence, we have always urged shareholders to keep a long-term
perspective on all their investments.
YOUR FUND
The following pages present a discussion of how your fund
invests, how it performed compared to pertinent benchmarks
during the fiscal year and how it has performed over the
long term. We hope you find this information helpful. We
also encourage you to visit AIMinvestments.com often.
Updated information on your fund is always available there,
as well as general information on a variety of investing
topics.
As always, AIM is committed to building solutions for
your investment goals, and we thank you for your
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
January 28, 2005
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.
</Table>
AIM GLOBAL VALUE FUND
<Table>
MANAGEMENT'S DISCUSSION we benefit without having paid for the
OF FUND PERFORMANCE additional growth.
Despite constraints from rising oil HOW WE INVEST We will consider selling a stock if
prices and geopolitical concerns, the catalyst that caused the value of
markets around the world moved higher in Our investment process is the security to rise has been realized,
2004. For the second consecutive year, straight-forward--we select stocks that if we feel the company will not realize
global markets posted positive returns, we believe have limited downside risk. its full market value, the target price
largely due to a late-year rally. We analyze risk first and then consider we set at purchase has been realized or
if the stock has economically a stock's value exceeds our comfort
======================================= independent upside potential. This tenet level.
FUND VS. INDEXES is behind every investment decision we
make. We believe this defensive approach MARKET CONDITIONS AND YOUR FUND
TOTAL RETURNS, 12/31/03-12/31/04, not only protects our portfolio by
EXCLUDING APPLICABLE SALES CHARGES. IF maintaining the gains it has earned, but In keeping with our investment strategy,
SALES CHARGES WERE INCLUDED, RETURNS also helps increase the fund's absolute we try to protect the fund from downside
WOULD BE LOWER. returns. risk and therefore spread the fund's
assets among various countries. Although
Class A Shares 17.50% To achieve a portfolio that the fund had significant exposure to
preserves shareholder capital and North America, nearly half of it was in
Class B Shares 16.77 tempers risk, we look for companies with Canadian stocks. During the year, we
one or more of the following attributes. believed Canadian stocks gave us
Class C Shares 16.75 exposure to the same economic zone as
o STOCKS THAT TRADE AT A SUBSTANTIAL the United States, but through a country
MSCI World Index DISCOUNT TO THEIR CURRENT MARKET VALUE. with a stronger fiscal economy.
(Broad Market Index) 14.72 We believe this limits downside risk.
Another reason for the
MSCI World Value Free Index o EVENTS OR CATALYSTS THAT CAN diversification into Canada was foreign
(Style-specific Index) 18.52 "UNLOCK" THE VALUE OF A STOCK. These exchange. For some time, the U.S. dollar
include corporate restructuring, has been weak compared to many foreign
Lipper Global Multi-Cap Value management changes or structural changes currencies. During the year, the
Fund Index (Peer Group Index) 17.35 within an industry. Canadian dollar appreciated
significantly (compared to the U.S.
SOURCE: LIPPER,INC. o COMPANIES THAT OFFER A "FREE dollar) as did the pound, yen and
======================================= CALL." A free call is an element that euro--which hit an all-time high. As we
might improve the value of a company but do not actively hedge currencies,
As the table above illustrates, the is not reflected in the price of its foreign currency appreciation helped
fund's Class A shares at NAV shares. For instance, if we purchase a boost fund returns and minimize the
outperformed both the MSCI World Index company that owns two business lines, we effects of a weak dollar.
and its Lipper peer group. We attribute might get both of these businesses, but
the fund's higher returns to the fact pay for just one. Should the free It should come as no surprise that
that value stocks outperformed growth portion of the business be sold or have the energy sector produced some of the
stocks for the period (the MSCI World positive activity, highest returns during the year as oil
Index is composed of both value and prices reached more than $50 a barrel in
growth stocks) and to strong stock October. Pan-Ocean Energy was
selection. We underperformed our
style-specific index due to our more
defensive investment management approach
which emphasizes limiting downside risk.
</Table>
<Table>
====================================================================================================================================
PORTFOLIO COMPOSITION TOP 10 EQUITY HOLDINGS*
By Sector 1. Pan-Ocean Energy Corp. Ltd. (United Kingdom) 3.4%
1. Materials 20.1% 2. Fording Canadian Coal Trust (Canada) 3.0
2. Financials 12.0 3. Macarthur Coal Ltd. (Australia) 2.5
3. Energy 9.1 4. Merck & Co., Inc. 2.1
4. Consumer Staples 5.4 5. BMTC Group, Inc.-Class A (Canada) 2.0
5. Consumer Discretionary 5.2 6. Cameco Corp. (Canada) 2.0
6. Industrials 4.3 7. Teck Cominco Ltd.-Class B (Canada) 1.7
7. Health Care 3.9 8. Man Group PLC (United Kingdom) 1.4
8. Telecommunication Services 1.9 9. Barrick Gold Corp. (Canada) 1.4
9. Information Technology 1.8 10. Devon Energy Cop. 1.4
10. Utilities 1.8 The fund's holdings are subject to change, and there is no assurance that the fund
will continue to hold any particular security.
Money Market Funds Plus Other
Assets Less Liabilities 22.2 *Excluding money market fund holdings and repurchase agreements.
Repurchase Agreements 7.2
U.S. Treasury Notes 4.2
Exchange Traded Funds 0.9
====================================================================================================================================
</Table>
2
<Table>
one of our best performing energy risk, but drug retractions are not ROGER J. MORTIMER,
stocks and a good example of how predictable. Our belief is that you [MORTIMER senior portfolio
our investment strategy works. We should not panic when faced with adverse PHOTO] manager, is lead
purchased the oil firm based on one of conditions. After reassessing the manager of AIM Global
our investment tenets--the stock was company's value, we bought more of Merck Value Fund. He began
trading at a large discount to what we and made much of the loss back for our his investment career
believed its assets were worth. This shareholders. in 1986. In 1997, he joined GT Global as
discount gave us comfort that our a portfolio manager overseeing the
downside risk was limited. We also IN CLOSING management of GT Global Canadian Value
identified another attribute we look for Class. In 1998, the GT Global Funds were
in a company, a "free call." Pan-Ocean Our focus remains on protecting acquired by AIM. Mr. Mortimer holds a
Energy was engaged in a major shareholder assets. We take a B.A. in economics and an M.B.A. from the
exploration drilling program off the conservative approach to investing by University of Western Ontario.
coast of Africa, the success of which first analyzing the downside risk of a
was not priced into the overall stock stock before considering its upside
value. Over the year, the drilling potential. We believe this defensive GLEN HILTON, portfolio
program was enormously successful and approach helps protect our portfolio by [HILTON manager, is manager of
the production profile of the company maintaining the gains it has earned and PHOTO] AIM Global Value Fund.
grew substantially. As a result, the increasing our absolute fund returns. We He began his career in
stock has nearly quadrupled since we are pleased to provide shareholders with investments in 1995. He
bought it. double-digit returns for the fiscal joined AIM in 2002. Mr.
year. Hilton holds a B.A. in economics from
During the fiscal year, we had Loyola University.
significant exposure to the THE VIEWS AND OPINIONS EXPRESSED IN
outperforming materials sector as we MANAGEMENT'S DISCUSSION OF FUND
believe the supply and demand picture PERFORMANCE ARE THOSE OF A I M ADVISORS,
for companies dealing in commodities is INC. THESE VIEWS AND OPINIONS ARE
easily understood. Given our investment SUBJECT TO CHANGE AT ANY TIME BASED ON
philosophy of limiting downside risk, we FACTORS SUCH AS MARKET AND ECONOMIC
also favor companies where tangible CONDITIONS. THESE VIEWS AND OPINIONS MAY
assets back the value of the company. We NOT BE RELIED UPON AS INVESTMENT ADVICE
continued to hold some exposure to OR RECOMMENDATIONS, OR AS AN OFFER FOR A
gold-mining companies during the year as PARTICULAR SECURITY. THE INFORMATION IS
we view gold as a hedge against risk NOT A COMPLETE ANALYSIS OF EVERY ASPECT
which can help reduce overall portfolio OF ANY MARKET, COUNTRY, INDUSTRY,
volatility. SECURITY OR THE FUND. STATEMENTS OF FACT
ARE FROM SOURCES CONSIDERED RELIABLE,
Given our performance for the year, BUT A I M ADVISORS, INC. MAKES NO
we had few detractors to report. Merck, REPRESENTATION OR WARRANTY AS TO THEIR
a U.S. pharmaceutical company, however, COMPLETENESS OR ACCURACY. ALTHOUGH
proved a drag on fund performance. The HISTORICAL PERFORMANCE IS NO GUARANTEE
company's stock price fell after one of OF FUTURE RESULTS, THESE INSIGHTS MAY
its popular arthritis drugs, Vioxx, was HELP YOU UNDERSTAND OUR INVESTMENT
taken off the market. Our investment MANAGEMENT PHILOSOPHY.
philosophy centers on limiting downside
See important fund and index
disclosures inside front cover.
========================================
=======================================
TOP 10 COUNTRIES*
TOTAL NET ASSETS $70.8 MILLION
1. United States 24.5%
TOTAL NUMBER OF HOLDINGS* 85
2. Canada 22.7
=======================================
3. United Kingdom 10.3
4. Australia 3.5
5. Hong Kong 1.6
6. Finland 1.6
7. Peru 1.3
8. Germany 1.3
9. Netherlands 1.3
10. Switzerland 1.1
=======================================
[RIGHT ARROW GRAPHIC]
FOR A PRESENTATION OF YOUR FUND'S
LONG-TERM PERFORMANCE RECORD, PLEASE
TURN TO PAGE 5.
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3
AIM GLOBAL VALUE FUND
CALCULATING YOUR ONGOING FUND EXPENSES
<Table>
EXAMPLE estimate the expenses that you paid over the fund and other funds. To do so,
the period. Simply divide your account compare this 5% hypothetical example
As a shareholder of the fund, you incur value by $1,000 (for example, an $8,600 with the 5% hypothetical examples that
two types of costs: (1) transaction account value divided by $1,000 = 8.6), appear in the shareholder reports of the
costs, which may include sales charges then multiply the result by the number 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
July 1, 2004 - December 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 your 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
this table, together with the amount you
invested, to
====================================================================================================================================
ACTUAL HYPOTHETICAL
(5% ANNUAL RETURN BEFORE EXPENSES)
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES ENDING ACCOUNT EXPENSES
SHARE VALUE VALUE PAID DURING VALUE PAID DURING
CLASS (07/01/04) (12/31/04)(1) PERIOD(2) (12/31/04) PERIOD(2)
A $1,000.00 $1,157.20 $10.84 $1,015.08 $10.13
B 1,000.00 1,153.70 14.35 1,011.81 13.40
C 1,000.00 1,153.60 14.35 1,011.81 13.40
(1) The actual ending account value is based on the actual total return of the fund for the period July 1, 2004, to December 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 July 1, 2004,
to December 31, 2004, was 15.72%, 15.37%, and 15.36% for Class A, B, and C shares, respectively.
(2) Expenses are equal to the fund's annualized expense ratio (2.00%, 2.65%, and 2.65% 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
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4
AIM GLOBAL VALUE FUND
YOUR FUND'S LONG-TERM PERFORMANCE
<Table>
====================================================================================================================================
Past performance cannot guarantee RESULTS OF A $10,000 INVESTMENT
comparable future results. 12/29/00-12/31/04 Index data from 12/31/00
Your fund's total return includes [MOUNTAIN CHART]
reinvested distributions, applicable
sales charges, fund expenses and AIM GLOBAL AIM GLOBAL AIM GLOBAL LIPPER GLOBAL
management fees. Results for Class B VALUE FUND VALUE FUND VALUE FUND MSCI WORLD MULTI-CAP
shares are calculated as if a hypotheti- CLASS A CLASS B CLASS C MSCI WORLD VALUE FREE VALUE FUND
cal shareholder had liquidated his DATE SHARES SHARES SHARES INDEX INDEX INDEX
entire investment in the fund at the
close of the reporting period and paid 12/29/00 $ 9450 $10000 $10000 $10000 $10000 $10000
the applicable contingent deferred sales 1/01 10026 10600 10610 10193 10100 10121
charges. Index results include 2/01 8873 9380 9390 9330 9604 9811
reinvested dividends, but they do not 3/01 8184 8640 8650 8716 9112 9313
reflect sales charges. Performance of an 4/01 9204 9720 9730 9358 9726 9778
index of funds reflects fund expenses 5/01 9223 9740 9751 9236 9664 9780
and management fees; performance of a 6/01 8930 9420 9431 8946 9392 9565
market index does not. Performance shown 7/01 8740 9220 9231 8826 9279 9398
in the chart does not reflect deduction 8/01 8466 8930 8931 8401 8949 9171
of taxes a shareholder would pay on fund 9/01 8116 8560 8561 7660 8117 8305
distributions or sale of fund shares. 10/01 8655 9120 9121 7806 8098 8415
Performance of the indexes does not 11/01 9241 9730 9731 8266 8445 8735
reflect the effects of taxes. 12/01 9308 9791 9793 8318 8507 8892
1/02 9062 9531 9532 8065 8267 8677
======================================= 2/02 8987 9451 9452 7994 8104 8663
AVERAGE ANNUAL TOTAL RETURNS 3/02 9478 9961 9963 8362 8629 9117
4/02 9383 9851 9863 8062 8393 9077
As of 12/31/04, including applicable 5/02 9355 9822 9822 8076 8462 9174
sales charges 6/02 9034 9472 9473 7584 7922 8655
7/02 8316 8722 8723 6944 7147 7845
CLASS A SHARES 8/02 8279 8682 8682 6956 7174 7913
Inception (12/29/00) 7.36% 9/02 7891 8262 8262 6190 6306 7154
1 Year 11.06 10/02 8619 9022 9022 6647 6745 7423
11/02 8884 9292 9302 7004 7228 7802
CLASS B SHARES 12/02 8557 8941 8942 6664 6810 7630
Inception (12/29/00) 7.79 1/03 8472 8851 8852 6460 6639 7453
1 Year 11.77 2/03 8377 8741 8752 6347 6481 7266
3/03 8330 8691 8691 6326 6386 7128
CLASS C SHARES 4/03 8689 9062 9071 6887 7059 7786
Inception (12/29/00) 8.20 5/03 9218 9602 9611 7279 7567 8306
1 Year 15.75 6/03 9351 9752 9751 7404 7720 8439
======================================= 7/03 9294 9681 9681 7554 7882 8676
8/03 9672 10062 10071 7716 8063 8992
9/03 9823 10222 10221 7762 8115 9044
10/03 10504 10922 10921 8222 8593 9568
11/03 10608 11022 11022 8347 8732 9776
12/03 11307 11737 11747 8870 9406 10334
1/04 11625 12071 12071 9012 9517 10592
2/04 11807 12253 12253 9163 9719 10837
3/04 11701 12132 12142 9102 9687 10762
4/04 11316 11727 11725 8916 9484 10533
5/04 11344 11747 11756 8990 9558 10550
6/04 11479 11878 11888 9182 9825 10802
7/04 11325 11716 11725 8882 9651 10495
8/04 11528 11918 11928 8921 9762 10531
9/04 12251 12659 12668 9090 9935 10776
10/04 12453 12851 12861 9312 10179 11026
11/04 13157 13571 13581 9801 10733 11676
12/04 $13288 $13503 $13713 $10175 $11148 $12128
SOURCE: LIPPER,INC.
The performance data quoted represent Class B shares declines from 5%
past performance and cannot guarantee beginning at the time of purchase to 0%
comparable future results; current at the beginning of the seventh year.
performance may be lower or higher. The CDSC on Class C shares is 1% for the
Please visit AIMinvestments.com for the first year after purchase.
most recent month-end performance.
Performance figures reflect reinvested The performance of the fund's share
distributions, changes in net asset classes will differ due to different
value and the effect of the maximum sales charge structures and class
sales charge unless otherwise stated. expenses.
Investment return and principal value
will fluctuate so that you may have a A redemption fee of 2% will be
gain or loss when you sell shares. imposed on certain redemptions or
exchanges out of the fund within 30 days
Class A share performance reflects of purchase. Exceptions to the
the maximum 5.50% sales charge, and redemption fee are listed in the fund's
Class B and Class C share performance prospectus.
reflects the applicable contingent
deferred sales charge (CDSC) for the Had the advisor not waived fees
period involved. The CDSC on and/or reimbursed expenses, performance
would have been lower.
====================================================================================================================================
</Table>
5
FINANCIALS
SCHEDULE OF INVESTMENTS
December 31, 2004
<Table>
<Caption>
MARKET
SHARES VALUE
- -----------------------------------------------------------------------
FOREIGN STOCKS & OTHER EQUITY
INTERESTS-46.04%
AUSTRALIA-3.48%
BHP Billiton Ltd. (Diversified Metals &
Mining)(a) 55,000 $ 658,780
- -----------------------------------------------------------------------
Macarthur Coal Ltd. (Diversified Metals &
Mining) 577,100 1,801,577
=======================================================================
2,460,357
=======================================================================
CANADA-22.65%
ACE Aviation Holdings Inc.-Class A
(Airlines)(b) 14,100 417,069
- -----------------------------------------------------------------------
American Gold Capital Corp. (Precious Metals
& Minerals)(b) 200,000 149,769
- -----------------------------------------------------------------------
Barrick Gold Corp. (Gold) 41,000 993,020
- -----------------------------------------------------------------------
Bema Gold Corp. (Gold)(b) 85,700 261,696
- -----------------------------------------------------------------------
BMTC Group, Inc.-Class A (Specialty Stores) 131,900 1,393,793
- -----------------------------------------------------------------------
Cameco Corp. (Diversified Metals & Mining) 39,900 1,392,690
- -----------------------------------------------------------------------
Canadian Natural Resources Ltd. (Oil & Gas
Exploration & Production) 17,000 724,924
- -----------------------------------------------------------------------
E-L Financial Corp. Ltd. (Multi-Line
Insurance) 2,512 705,977
- -----------------------------------------------------------------------
Energy Savings Income Fund-Units (Gas
Utilities) 25,800 413,238
- -----------------------------------------------------------------------
Entree Gold Inc. (Precious Metals &
Minerals)(b) 500,000 603,237
- -----------------------------------------------------------------------
Fording Canadian Coal Trust-Units
(Diversified Metals & Mining) 27,200 2,097,287
- -----------------------------------------------------------------------
Gold Reserve Inc. (Diversified Metals &
Mining)(b) 53,400 236,376
- -----------------------------------------------------------------------
Imperial Oil Ltd. (Integrated Oil & Gas) 8,500 503,203
- -----------------------------------------------------------------------
ING Canada Inc. (Property & Casualty
Insurance)(b) 25,300 617,001
- -----------------------------------------------------------------------
ING Canada Inc. (Property & Casualty
Insurance) (Acquired 12/09/04; Cost
$252,292)(b)(c) 11,800 287,771
- -----------------------------------------------------------------------
Kinross Gold Corp. (Gold)(b) 52,600 369,821
- -----------------------------------------------------------------------
Novicourt Inc. (Diversified Metals & Mining) 64,500 101,431
- -----------------------------------------------------------------------
Penn West Petroleum Ltd. (Oil & Gas
Exploration & Production) 3,400 224,196
- -----------------------------------------------------------------------
Placer Dome Inc. (Gold) 21,800 409,572
- -----------------------------------------------------------------------
Rothmans, Inc. (Tobacco) 23,800 790,132
- -----------------------------------------------------------------------
Stornoway Diamond Corp. (Precious Metal &
Minerals)(b) 260,000 389,400
- -----------------------------------------------------------------------
Teck Cominco Ltd.-Class B (Diversified Metals
& Mining) 39,700 1,219,556
- -----------------------------------------------------------------------
TimberWest Forest Corp.-Units (Forest
Products)(d) 44,200 554,592
- -----------------------------------------------------------------------
United Corporations Ltd. (Asset Management &
Custody Banks) 10,000 368,182
- -----------------------------------------------------------------------
Westaim Corp. (The) (Industrial
Conglomerates)(b) 275,700 699,659
- -----------------------------------------------------------------------
Western Silver Corp. (Diversified Metals &
Mining)(b) 12,500 112,951
=======================================================================
16,036,543
=======================================================================
</Table>
<Table>
MARKET
SHARES VALUE
- -----------------------------------------------------------------------
<Caption>
FINLAND-1.56%
Nokia Oyj-ADR (Communications Equipment) 30,300 $ 474,801
- -----------------------------------------------------------------------
UPM-Kymmene Oyj (Paper Products)(a) 28,400 627,376
=======================================================================
1,102,177
=======================================================================
GERMANY-1.32%
Bayerische Motoren Werke A.G. (Automobile
Manufacturers)(a) 20,700 932,734
=======================================================================
HONG KONG-1.57%
Cheung Kong (Holdings) Ltd. (Real Estate
Management & Development)(a) 65,000 648,574
- -----------------------------------------------------------------------
Henderson Land Development Co. Ltd. (Real
Estate Management & Development)(a) 89,000 462,716
=======================================================================
1,111,290
=======================================================================
JAPAN-0.86%
Honda Motor Co., Ltd. (Automobile
Manufacturers)(a) 11,600 606,706
=======================================================================
MEXICO-0.33%
Grupo Aeroportuario del Sureste S.A. de
C.V.-ADR (Airport Services) 8,700 237,945
=======================================================================
NETHERLANDS-1.25%
Akzo Nobel N.V. (Diversified Chemicals)(a) 5,900 250,817
- -----------------------------------------------------------------------
TPG N.V. (Air Freight & Logistics)(a) 23,500 636,838
=======================================================================
887,655
=======================================================================
PERU-1.33%
Compania de Minas Buenaventura S.A.-ADR
(Precious Metals & Materials) 41,000 938,900
=======================================================================
SWITZERLAND-1.12%
Nestle S.A. (Packaged Foods & Meats)(a) 3,050 793,978
=======================================================================
TAIWAN-0.28%
President Chain Store Corp. (Food Retail)(a) 122,590 197,559
=======================================================================
UNITED KINGDOM-10.29%
Diageo PLC (Distillers & Vintners)(a) 28,600 408,174
- -----------------------------------------------------------------------
GlaxoSmithKline PLC-ADR (Pharmaceuticals) 12,800 606,592
- -----------------------------------------------------------------------
HSBC Holdings PLC (Diversified Banks)(a) 25,000 420,869
- -----------------------------------------------------------------------
HSBC Holdings PLC (Diversified Banks)(a) 20,800 354,892
- -----------------------------------------------------------------------
Man Group PLC (Asset Management & Custody
Banks)(a) 35,260 994,255
- -----------------------------------------------------------------------
Pan-Ocean Energy Corp. Ltd. (Oil & Gas
Exploration & Production)(b) 120,500 2,410,301
- -----------------------------------------------------------------------
Randgold Resources Ltd.-ADR (Gold)(b) 32,700 372,780
- -----------------------------------------------------------------------
Severn Trent PLC (Water Utilities)(a) 45,110 835,592
- -----------------------------------------------------------------------
Standard Chartered PLC (Diversified Banks)(a) 13,000 241,130
- -----------------------------------------------------------------------
</Table>
F-1
<Table>
<Caption>
MARKET
SHARES VALUE
- -----------------------------------------------------------------------
UNITED KINGDOM-(CONTINUED)
Unilever PLC (Packaged Foods & Meats)(a) 65,000 $ 637,176
=======================================================================
7,281,761
=======================================================================
Total Foreign Stocks & Other Equity
Interests (Cost $26,039,182) 32,587,605
=======================================================================
DOMESTIC COMMON STOCKS & OTHER EQUITY
INTERESTS-20.30%
APPAREL, ACCESSORIES & LUXURY GOODS-0.59%
Jones Apparel Group, Inc. 11,500 420,555
=======================================================================
DIVERSIFIED BANKS-0.31%
Wells Fargo & Co. 3,500 217,525
=======================================================================
GOLD-0.93%
Newmont Mining Corp. 14,800 657,268
=======================================================================
INDUSTRIAL CONGLOMERATES-0.95%
Walter Industries, Inc. 20,000 674,600
=======================================================================
INSURANCE BROKERS-0.85%
Marsh & McLennan Cos., Inc.(e) 18,300 602,070
=======================================================================
INTEGRATED OIL & GAS-0.89%
Murphy Oil Corp. 7,800 627,510
=======================================================================
INTEGRATED TELECOMMUNICATION SERVICES-1.93%
ALLTEL Corp. 11,200 658,112
- -----------------------------------------------------------------------
CenturyTel, Inc. 20,000 709,400
=======================================================================
1,367,512
=======================================================================
INVESTMENT BANKING & BROKERAGE-0.32%
Merrill Lynch & Co., Inc. 3,800 227,126
=======================================================================
INVESTMENT COMPANIES -- EXCHANGE TRADED
FUNDS-0.91%
iShares MSCI Emerging Markets Index 3,200 645,920
=======================================================================
MOVIES & ENTERTAINMENT-0.45%
Walt Disney Co. (The) 11,500 319,700
=======================================================================
OIL & GAS EXPLORATION & PRODUCTION-2.78%
BP Prudhoe Bay Royalty Trust 11,000 531,300
- -----------------------------------------------------------------------
Devon Energy Corp.(e) 25,000 973,000
- -----------------------------------------------------------------------
EOG Resources, Inc. 6,500 463,840
=======================================================================
1,968,140
=======================================================================
PACKAGED FOODS & MEATS-1.41%
Kraft Foods Inc.-Class A 11,600 413,076
- -----------------------------------------------------------------------
Lancaster Colony Corp. 13,600 583,032
=======================================================================
996,108
=======================================================================
</Table>
<Table>
MARKET
SHARES VALUE
- -----------------------------------------------------------------------
<Caption>
PHARMACEUTICALS-3.00%
Bristol-Myers Squibb Co. 4,400 $ 112,728
- -----------------------------------------------------------------------
Merck & Co. Inc. 46,600 1,497,724
- -----------------------------------------------------------------------
Schering-Plough Corp. 24,700 515,736
=======================================================================
2,126,188
=======================================================================
RAILROADS-0.59%
Union Pacific Corp. 6,200 416,950
=======================================================================
REAL ESTATE-0.19%
Rayonier Inc. 2,760 134,992
=======================================================================
REAL ESTATE MANAGEMENT & DEVELOPMENT-0.57%
Tejon Ranch Co.(b) 10,000 408,000
=======================================================================
REGIONAL BANKS-0.61%
Commerce Bancshares, Inc. 4,515 226,653
- -----------------------------------------------------------------------
North Fork Bancorp., Inc. 7,050 203,392
=======================================================================
430,045
=======================================================================
SYSTEMS SOFTWARE-1.12%
Microsoft Corp. 29,600 790,616
=======================================================================
THRIFTS & MORTGAGE FINANCE-1.90%
Brookline Bancorp, Inc. 13,400 218,688
- -----------------------------------------------------------------------
First Financial Holdings, Inc. 6,800 222,632
- -----------------------------------------------------------------------
Washington Mutual, Inc. 14,800 625,744
- -----------------------------------------------------------------------
WSFS Financial Corp. 4,600 277,472
=======================================================================
1,344,536
=======================================================================
Total Domestic Common Stocks & Other
Equity Interests (Cost $13,021,865) 14,375,361
=======================================================================
<Caption>
PRINCIPAL
AMOUNT
U.S. TREASURY NOTES-4.22%
1.63%, 04/30/05(f) $ 500,000 498,850
- -----------------------------------------------------------------------
1.25%, 05/31/05(f) 500,000 497,675
- -----------------------------------------------------------------------
1.13%, 06/30/05(f) 500,000 496,600
- -----------------------------------------------------------------------
1.50%, 07/31/05(f) 500,000 496,915
- -----------------------------------------------------------------------
2.00%, 08/31/05(f) 500,000 498,085
- -----------------------------------------------------------------------
1.63%, 09/30/05(f) 500,000 496,290
=======================================================================
Total U.S. Treasury Notes (Cost
$3,004,731) 2,984,415
=======================================================================
<Caption>
PAR
(000)
REPURCHASE AGREEMENTS-7.20%
Barclays Capital Inc.-New York Branch (United
Kingdom) 2.25%, 01/03/05 (Cost
$5,100,000)(g) 5,100 5,100,000
=======================================================================
<Caption>
</Table>
F-2
<Table>
MONEY MARKET FUNDS-21.79%
Liquid Assets Portfolio-Institutional
Class(h) 7,712,432 $ 7,712,432
- -----------------------------------------------------------------------
STIC Prime Portfolio-Institutional Class(h) 7,712,432 7,712,432
=======================================================================
Total Money Market Funds (Cost
$15,424,864) 15,424,864
=======================================================================
TOTAL INVESTMENTS-99.55% (Cost $62,590,642) 70,472,245
=======================================================================
OTHER ASSETS LESS LIABILITIES-0.45% 315,810
=======================================================================
NET ASSETS-100.00% $70,788,055
_______________________________________________________________________
=======================================================================
</Table>
Investment Abbreviations:
<Table>
ADR - American Depositary Receipt
</Table>
Notes to Schedule of Investments:
(a) 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 December 31, 2004 was
$9,708,166, which represented 13.78% of the Fund's Total Investments. See
Note 1A.
(b) Non-income producing security.
(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 market value of this security at December 31, 2004 represented 0.41% of
the Fund's Net Assets. This security is considered to be illiquid.
(d) Each unit represents one common share, one hundred preferred shares and one
subordinate note receipt.
(e) A portion of this security is subject to call options written. See Note 1J
and Note 7.
(f) 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 December
31, 2004 was $2,984,415, which represented 4.23% of the Fund's Total
Investments. See Note 1A.
(g) Joint repurchase agreement entered into 12/31/04 with an aggregate maturing
value of $222,145,241. Collateralized by $224,956,000 U.S. Government
obligations, 0% to 5.80% due 04/19/05 to 09/02/08 with an aggregate market
value at 12/31/04 of $226,545,690. The amount to be received upon repurchase
by the Fund is $5,100,956.
(h) The money market fund and the Fund are affiliated by having the same
investment advisor. See Note 3.
See accompanying notes which are an integral part of the financial statements.
F-3
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2004
<Table>
ASSETS:
Investments, at market value (cost
$47,165,778) $55,047,381
- -----------------------------------------------------------
Investments in affiliated money market funds
(cost $15,424,864) 15,424,864
===========================================================
Total investments (cost $62,590,642) 70,472,245
===========================================================
Foreign currencies, at market value (cost
$24,762) 25,878
- -----------------------------------------------------------
Receivables for:
Fund shares sold 442,573
- -----------------------------------------------------------
Dividends and interest 130,727
- -----------------------------------------------------------
Amount due from advisor 4,707
- -----------------------------------------------------------
Investment for trustee deferred compensation
and retirement plans 17,235
- -----------------------------------------------------------
Other assets 23,059
===========================================================
Total assets 71,116,424
___________________________________________________________
===========================================================
LIABILITIES:
Payables for:
Fund shares reacquired 124,860
- -----------------------------------------------------------
Options written, at market value (premiums
received $81,729) 93,830
- -----------------------------------------------------------
Trustee deferred compensation and retirement
plans 17,442
- -----------------------------------------------------------
Accrued distribution fees 37,342
- -----------------------------------------------------------
Accrued transfer agent fees 13,413
- -----------------------------------------------------------
Accrued operating expenses 41,482
===========================================================
Total liabilities 328,369
===========================================================
Net assets applicable to shares outstanding $70,788,055
___________________________________________________________
===========================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $63,139,205
- -----------------------------------------------------------
Undistributed net investment income (loss) (176,123)
- -----------------------------------------------------------
Undistributed net realized gain from
investment securities, foreign currencies
and foreign currency contracts (46,308)
- -----------------------------------------------------------
Unrealized appreciation of investment
securities, foreign currencies and option
contracts 7,871,281
===========================================================
$70,788,055
___________________________________________________________
===========================================================
NET ASSETS:
Class A $36,091,824
___________________________________________________________
===========================================================
Class B $24,675,494
___________________________________________________________
===========================================================
Class C $10,020,737
___________________________________________________________
===========================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER SHARE,
UNLIMITED NUMBER OF SHARES AUTHORIZED:
Class A 2,716,812
___________________________________________________________
===========================================================
Class B 1,894,720
___________________________________________________________
===========================================================
Class C 768,908
___________________________________________________________
===========================================================
Class A:
Net asset value per share $ 13.28
- -----------------------------------------------------------
Offering price per share:
(Net asset value of $13.28 divided
by 94.50%) $ 14.05
___________________________________________________________
===========================================================
Class B:
Net asset value per share and offering price
per share $ 13.02
___________________________________________________________
===========================================================
Class C:
Net asset value per share and offering price
per share $ 13.03
___________________________________________________________
===========================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
F-4
STATEMENT OF OPERATIONS
For the year ended December 31, 2004
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $40,524) $ 624,281
- ------------------------------------------------------------------------
Dividends from affiliated money market funds 98,332
- ------------------------------------------------------------------------
Interest 45,472
========================================================================
Total investment income 768,085
========================================================================
EXPENSES:
Advisory fees 310,539
- ------------------------------------------------------------------------
Administrative services fees 50,000
- ------------------------------------------------------------------------
Custodian fees 30,160
- ------------------------------------------------------------------------
Distribution fees:
Class A 62,525
- ------------------------------------------------------------------------
Class B 130,059
- ------------------------------------------------------------------------
Class C 56,638
- ------------------------------------------------------------------------
Transfer agent fees 121,092
- ------------------------------------------------------------------------
Trustees' fees and retirement benefits 13,669
- ------------------------------------------------------------------------
Professional fees 52,733
- ------------------------------------------------------------------------
Other 96,553
========================================================================
Total expenses 923,968
========================================================================
Less: Fees waived, expenses reimbursed and expense offset
arrangements (70,824)
========================================================================
Net expenses 853,144
========================================================================
Net investment income (loss) (85,059)
========================================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES, FOREIGN CURRENCIES, FOREIGN CURRENCY CONTRACTS
AND OPTION CONTRACTS:
Net realized gain (loss) from:
Investment securities 2,140,772
- ------------------------------------------------------------------------
Foreign currencies 10,829
- ------------------------------------------------------------------------
Foreign currency contracts (135,587)
========================================================================
2,016,014
========================================================================
Change in net unrealized appreciation (depreciation) of:
Investment securities 5,432,029
- ------------------------------------------------------------------------
Foreign currencies (289)
- ------------------------------------------------------------------------
Option contracts written (12,101)
========================================================================
5,419,639
========================================================================
Net gain from investment securities, foreign currencies,
foreign currency contracts and option contracts 7,435,653
========================================================================
Net increase in net assets resulting from operations $7,350,594
________________________________________________________________________
========================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
F-5
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 2004 and 2003
<Table>
<Caption>
2004 2003
- ----------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (85,059) $ (26,446)
- ----------------------------------------------------------------------------------------
Net realized gain from investment securities, foreign
currencies, foreign currency contracts and option
contracts 2,016,014 3,340,092
- ----------------------------------------------------------------------------------------
Change in net unrealized appreciation of investment
securities, foreign currencies, foreign currency
contracts and option contracts 5,419,639 760,584
========================================================================================
Net increase in net assets resulting from operations 7,350,594 4,074,230
========================================================================================
Distributions to shareholders from net investment income:
Class A (71,026) (66,253)
- ----------------------------------------------------------------------------------------
Class B (7,630) (20,575)
- ----------------------------------------------------------------------------------------
Class C (3,042) (8,358)
========================================================================================
Total distributions from net investment income (81,698) (95,186)
========================================================================================
Distributions to shareholders from net realized gains:
Class A (1,209,975) (96,651)
- ----------------------------------------------------------------------------------------
Class B (845,773) (77,081)
- ----------------------------------------------------------------------------------------
Class C (337,438) (31,309)
========================================================================================
Total distributions from net realized gains (2,393,186) (205,041)
========================================================================================
Decrease in net assets resulting from distributions (2,474,884) (300,227)
========================================================================================
Share transactions-net:
Class A 24,355,657 1,096,605
- ----------------------------------------------------------------------------------------
Class B 15,906,396 1,052,199
- ----------------------------------------------------------------------------------------
Class C 6,451,669 481,030
========================================================================================
Net increase in net assets resulting from share
transactions 46,713,722 2,629,834
========================================================================================
Net increase in net assets 51,589,432 6,403,837
========================================================================================
NET ASSETS:
Beginning of year 19,198,623 12,794,786
========================================================================================
End of year (including undistributed net investment income
(loss) of $(176,123) and $(102,604), respectively) $70,788,055 $19,198,623
________________________________________________________________________________________
========================================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
F-6
NOTES TO FINANCIAL STATEMENTS
December 31, 2004
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Global Value Fund (the "Fund") is a series portfolio of AIM Funds Group (the
"Trust"). The Trust is a Delaware statutory trust registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
series management investment company consisting of nine separate portfolios,
each authorized to issue an unlimited number of shares of beneficial interest.
The Fund currently offers multiple classes of shares. Matters affecting each
portfolio or class will be voted on exclusively by the shareholders of such
portfolio or class. The assets, liabilities and operations of each portfolio are
accounted for separately. Information presented in these financial statements
pertains only to the Fund.
The Fund's investment objective is to achieve long-term growth of capital.
Companies are listed in the Schedule of Investments based on the country in
which they are organized.
Under the Trust's organizational documents, each Trustee, officer, employee
or other agent of the Trust (including the Trust's investment manager) is
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-7
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. REPURCHASE AGREEMENTS -- The Fund may enter into repurchase agreements.
Collateral on repurchase agreements, including the Fund's pro-rata interest
in joint repurchase agreements, is taken into possession by the Fund upon
entering into the repurchase agreement. Eligible securities for collateral
are U.S. Government Securities, U.S. Government Agency Securities and/or
Investment Grade Debt Securities. Collateral consisting of U.S. Government
Securities and U.S. Government Agency Securities is marked to market daily
to ensure its market value is at least 102% of the sales price of the
repurchase agreement. Collateral consisting of Investment Grade Debt
Securities is marked to market daily to ensure its market value is at least
105% of the sales price of the repurchase agreement. The investments in
some repurchase agreements, pursuant to an exemptive order from the
Securities and Exchange Commission, are through participation with other
mutual funds, private accounts and certain non-registered investment
companies managed by the investment advisor or its affiliates ("Joint
repurchase agreements"). If the seller of a repurchase agreement fails to
repurchase the security in accordance with the terms of the agreement, the
Fund might incur expenses in enforcing its rights, and could experience
losses, including a decline in the value of the underlying security and
loss of income.
G. 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.
H. FOREIGN CURRENCY TRANSLATIONS -- Foreign currency is valued at the close of
the NYSE based on quotations posted by banks and major currency dealers.
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.
I. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to attempt
to minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency
contract for the purchase or sale of a security denominated in a foreign
currency in order to "lock in" the U.S. dollar price of that security. The
Fund could be exposed to risk if counterparties to the contracts are unable
to meet the terms of their contracts or if the value of the foreign
currency changes unfavorably.
J. COVERED CALL OPTIONS -- The Fund may write call options, on a covered
basis; that is, the Fund will own the underlying security. When the Fund
writes a covered call option, an amount equal to the premium received by
the Fund is recorded as an asset and an equivalent liability. The
F-8
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 0.85% of the first $1
billion of the Fund's average daily net assets, plus 0.80% of the Fund's average
daily net assets in excess of $1 billion. Effective January 1, 2005 through June
30, 2006, AIM has contractually agreed to waive advisory fees to the extent
necessary so that the advisory fees payable by the Fund (based on the Fund's
average daily net assets) do not exceed the annual rate of 0.80% of the first
$250 million, plus 0.78% of the next $250 million, plus 0.76% of the next $500
million, plus 0.74% of the next $1.5 billion, plus 0.72% of the next $2.5
billion, plus 0.70% of the next $2.5 billion, plus 0.68% of the next $2.5
billion, plus 0.66% of the Fund's average daily net assets in excess of $10
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%, 2.65% and 2.65% of average daily net assets, respectively, through
December 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
limit 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 December 31, 2004, AIM waived fees of $49,124.
For the year ended December 31, 2004, at the request of the Trustees of the
Trust, AMVESCAP PLC ("AMVESCAP") agreed to reimburse $21,226 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. Pursuant to such agreement for the year ended
December 31, 2004, AIM was paid $50,000.
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
December 31, 2004, the Fund paid AISI $121,092. AISI may make payments to
intermediaries that 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 0.35% 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. AIM Distributors did not reimburse fees
during the period under this expense limitation. Pursuant to the Plans, for the
year ended December 31, 2004, the Class A, Class B and Class C shares paid
$62,525, $130,059 and $56,638, respectively.
Front-end sales commissions and contingent deferred sales charges ("CDSC")
(collectively the "sales charges") are not recorded as expenses of the Fund.
Front-end sales commissions are deducted from proceeds from the sales of Fund
shares prior to investment in Class A shares of the Fund. CDSC are deducted from
redemption proceeds prior to remittance to the shareholder. During year ended
December 31, 2004, AIM Distributors advised the Fund that it retained $35,815 in
front-end sales commissions from the sale of Class A shares and $0, $807 and
$367 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-9
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
December 31, 2004.
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 12/31/03 AT COST FROM SALES (DEPRECIATION) 12/31/04 INCOME GAIN (LOSS)
- ---------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $178,736 $18,243,208 $(10,709,512) $ -- $ 7,712,432 $49,282 $ --
- ---------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-
Institutional
Class 178,736 18,243,208 (10,709,512) -- 7,712,432 49,050 --
=================================================================================================================================
Total $357,472 $36,486,416 $(21,419,024) $ -- $15,424,864 $98,332 $ --
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
NOTE 4--EXPENSE OFFSET ARRANGEMENTS
The expense offset arrangements are comprised of (i) transfer agency credits
which result from balances in Demand Deposit Accounts (DDA) used by the transfer
agent for clearing shareholder transactions and (ii) custodian credits which
result from periodic overnight cash balances at the custodian. For the year
ended December 31, 2004, the Fund received credits in transfer agency fees of
$470 and credits in custodian fees of $4 under expense offset arrangements,
which resulted in a reduction of the Fund's total expenses of $474.
NOTE 5--TRUSTEES' FEES
Trustees' fees represent remuneration paid to each Trustee of the Trust who is
not an "interested person" of AIM. Trustees have the option to defer
compensation payable by the Trust. Those Trustees who defer compensation have
the option to select various AIM Funds 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 December 31, 2004, the Fund paid legal fees of $2,689
for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the
Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 6--BORROWINGS
Pursuant to an exemptive order from the SEC, the Fund may participate in an
interfund lending facility that AIM has established for temporary borrowings by
the AIM Funds. 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 December 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.
F-10
NOTE 7--OPTION CONTRACTS WRITTEN
<Table>
<Caption>
TRANSACTIONS DURING THE PERIOD
- -----------------------------------------------------------------------------------
CALL OPTION CONTRACTS
---------------------
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
- -----------------------------------------------------------------------------------
Beginning of year -- $ --
- -----------------------------------------------------------------------------------
Written 433 81,729
===================================================================================
End of year 433 $81,729
___________________________________________________________________________________
===================================================================================
</Table>
<Table>
<Caption>
OPEN CALL OPTIONS WRITTEN AT PERIOD END
- ------------------------------------------------------------------------------------------------------------------------------
DECEMBER 31,
2004 UNREALIZED
CONTRACT STRIKE NUMBER OF PREMIUMS MARKET APPRECIATION
MONTH PRICE CONTRACTS RECEIVED VALUE (DEPRECIATION)
- ------------------------------------------------------------------------------------------------------------------------------
Devon Energy Corp. Apr-05 $40 250 $52,999 $46,250 $ 6,749
- ------------------------------------------------------------------------------------------------------------------------------
Marsh & McLennan Cos., Inc. Jan-05 $35 183 28,730 47,580 (18,850)
==============================================================================================================================
433 $81,729 $93,830 $ (12,101)
______________________________________________________________________________________________________________________________
==============================================================================================================================
</Table>
NOTE 8--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
DISTRIBUTIONS TO SHAREHOLDERS:
The tax character of distributions paid during the years ended December 31, 2004
and 2003 was as follows:
<Table>
<Caption>
2004 2003
- ------------------------------------------------------------------------------------
Distributions paid from:
Ordinary income $2,422,197 $ 95,332
- ------------------------------------------------------------------------------------
Long-term capital gain 52,687 204,895
====================================================================================
Total distributions $2,474,884 $300,227
____________________________________________________________________________________
====================================================================================
</Table>
TAX COMPONENTS OF NET ASSETS:
As of December 31, 2004, the components of net assets on a tax basis were as
follows:
<Table>
<Caption>
2004
- ---------------------------------------------------------------------------
Undistributed ordinary income $ 216,446
- ---------------------------------------------------------------------------
Unrealized appreciation -- investments 7,456,725
- ---------------------------------------------------------------------------
Temporary book/tax differences (15,968)
- ---------------------------------------------------------------------------
Post-October capital loss deferral (8,353)
- ---------------------------------------------------------------------------
Shares of beneficial interest 63,139,205
===========================================================================
Total net assets $70,788,055
___________________________________________________________________________
===========================================================================
</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 realization of gains on passive foreign investment companies. The
tax-basis unrealized appreciation (depreciation) on investments amount includes
appreciation (depreciation) on option contracts written and foreign currencies
of $(10,322.)
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.
F-11
NOTE 9--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities
and money market funds) purchased and sold by the Fund during the year ended
December 31, 2004 was $60,854,445 and $36,672,647, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- ------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $7,638,896
- ------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (171,849)
==============================================================================
Net unrealized appreciation of investment securities $7,467,047
______________________________________________________________________________
==============================================================================
Cost of investments for tax purposes is $63,005,198.
</Table>
NOTE 10--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of foreign currency
transactions and passive foreign investment companies, on December 31, 2004,
undistributed net investment income (loss) was increased by $93,238 and
undistributed net realized gain was decreased by $93,238. 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
- -----------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
---------------------------------------------------
2004 2003
------------------------ -----------------------
SHARES AMOUNT SHARES AMOUNT
- -----------------------------------------------------------------------------------------------------------------
Sold:
Class A 2,289,921 $28,913,537 496,139 $ 5,108,376
- -----------------------------------------------------------------------------------------------------------------
Class B 1,514,229 18,647,078 345,035 3,466,255
- -----------------------------------------------------------------------------------------------------------------
Class C 618,798 7,563,706 139,530 1,450,866
=================================================================================================================
Issued as reinvestment of dividends:
Class A 95,009 1,238,925 14,310 160,136
- -----------------------------------------------------------------------------------------------------------------
Class B 62,110 794,388 8,515 94,004
- -----------------------------------------------------------------------------------------------------------------
Class C 24,725 316,475 3,440 37,992
=================================================================================================================
Automatic conversion of Class B shares to Class A shares:
Class A 60,173 757,419 14,898 155,309
- -----------------------------------------------------------------------------------------------------------------
Class B (61,312) (757,419) (15,126) (155,309)
=================================================================================================================
Reacquired:(a)
Class A (518,218) (6,554,224) (434,061) (4,327,216)
- -----------------------------------------------------------------------------------------------------------------
Class B (231,753) (2,777,651) (244,204) (2,352,751)
- -----------------------------------------------------------------------------------------------------------------
Class C (121,102) (1,428,512) (103,345) (1,007,828)
=================================================================================================================
3,732,580 $46,713,722 225,131 $ 2,629,834
_________________________________________________________________________________________________________________
=================================================================================================================
</Table>
(a) Amount is net of redemption fees of $1,773, $1,289, and $566 for Class A,
Class B and Class C shares, respectively.
F-12
NOTE 12--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
CLASS A
-------------------------------------------------------------------
DECEMBER 29, 2000
(DATE OPERATIONS
YEAR ENDED DECEMBER 31, COMMENCED) TO
---------------------------------------------- DECEMBER 31,
2004 2003 2002 2001 2000
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 11.74 $ 9.05 $ 9.85 $10.00 $10.00
- -------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.01(a)(b) 0.01(b) (0.11)(b) (0.05)(b) --
- -------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 2.04 2.89 (0.69) (0.10) --
===============================================================================================================================
Total from investment operations 2.05 2.90 (0.80) (0.15) --
===============================================================================================================================
Less distributions:
Dividends from net investment income (0.03) (0.09) (0.00) (0.00) --
- -------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains (0.48) (0.12) -- -- --
===============================================================================================================================
Total distributions (0.51) (0.21) (0.00) (0.00) --
===============================================================================================================================
Redemption fees added to beneficial interest 0.00 -- -- -- --
===============================================================================================================================
Net asset value, end of period $ 13.28 $11.74 $ 9.05 $ 9.85 $10.00
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Total return(c) 17.50% 32.15% (8.08)% (1.49)% --
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $36,092 $9,270 $6,321 $8,725 $1,110
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 2.00%(d) 2.00% 2.00% 1.91% 1.80%(e)
- -------------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 2.20%(d) 3.12% 2.75% 4.44% 76.90%(e)
===============================================================================================================================
Ratio of net investment income (loss) to average net
assets 0.10%(a)(d) 0.14% (1.16)% (0.52)% 3.91%(e)
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Portfolio turnover rate(f) 129% 372% 101% 168% --
_______________________________________________________________________________________________________________________________
===============================================================================================================================
</Table>
(a) Net investment income per share and the ratio of net investment income
to average net assets include a special cash dividend received of $3.00
per share owned of Microsoft Corp. on December 2, 2004. Net investment
income per share and the ratio of net investment to average net assets
excluding the special dividend are $(0.02) and (0.14)%, respectively.
(b) Calculated using average shares outstanding.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Does not include sales charges and is not
annualized for periods less than one year.
(d) Ratios are based on average daily net assets of $17,864,283.
(e) Annualized.
(f) Not annualized for periods less than one year.
F-13
NOTE 12--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS B
----------------------------------------------------------
JANUARY 2, 2001
(DATE SALES
YEAR ENDED DECEMBER 31, COMMENCED) TO
---------------------------------- DECEMBER 31,
2004 2003 2002 2001
- ------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 11.57 $ 8.94 $ 9.79 $10.00
- ------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.07)(a)(b) (0.05)(b) (0.17)(b) (0.11)(b)
- ------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 2.00 2.83 (0.68) (0.10)
========================================================================================================================
Total from investment operations 1.93 2.78 (0.85) (0.21)
========================================================================================================================
Less distributions:
Dividends from net investment income (0.00) (0.03) -- (0.00)
- ------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains (0.48) (0.12) -- --
========================================================================================================================
Total distributions (0.48) (0.15) -- (0.00)
========================================================================================================================
Redemption fees added to beneficial interest 0.00 -- -- --
========================================================================================================================
Net asset value, end of period $ 13.02 $11.57 $ 8.94 $ 9.79
________________________________________________________________________________________________________________________
========================================================================================================================
Total return(c) 16.77% 31.26% (8.68)% (2.09)%
________________________________________________________________________________________________________________________
========================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $24,675 $7,075 $4,624 $3,613
________________________________________________________________________________________________________________________
========================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 2.65%(d) 2.65% 2.65% 2.57%(e)
- ------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 2.85%(d) 3.77% 3.40% 5.10%(e)
========================================================================================================================
Ratio of net investment income (loss) to average net assets (0.55)%(a)(d) (0.51)% (1.81)% (1.18)%(e)
________________________________________________________________________________________________________________________
========================================================================================================================
Portfolio turnover rate(f) 129% 372% 101% 168%
________________________________________________________________________________________________________________________
========================================================================================================================
</Table>
(a) Net investment income per share and the ratio of net investment income
to average net assets include a special cash dividend received of $3.00
per share owned of Microsoft Corp. on December 2, 2004. Net investment
income per share and the ratio of net investment to average net assets
excluding the special dividend are $(0.10) and (0.79)%, respectively.
(b) Calculated using average shares outstanding.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Does not include sales charges and is not
annualized for periods less than one year.
(d) Ratios are based on average daily net assets of $13,005,885.
(e) Annualized.
(f) Not annualized for periods less than one year.
F-14
NOTE 12--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS C
------------------------------------------------------------
JANUARY 11, 2001
(DATE SALES
YEAR ENDED DECEMBER 31, COMMENCED) TO
------------------------------------ DECEMBER 31,
2004 2003 2002 2001
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 11.58 $ 8.94 $ 9.79 $10.00
- --------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.07)(a)(b) (0.05)(b) (0.17)(b) (0.11)(b)
- --------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 2.00 2.84 (0.68) (0.10)
==========================================================================================================================
Total from investment operations 1.93 2.79 (0.85) (0.21)
==========================================================================================================================
Less distributions:
Dividends from net investment income (0.00) (0.03) -- (0.00)
- --------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains (0.48) (0.12) -- --
==========================================================================================================================
Total distributions (0.48) (0.15) -- (0.00)
==========================================================================================================================
Redemption fees added to beneficial interest 0.00 -- -- --
==========================================================================================================================
Net asset value, end of period $ 13.03 $11.58 $ 8.94 $ 9.79
__________________________________________________________________________________________________________________________
==========================================================================================================================
Total return(c) 16.75% 31.37% (8.68)% (2.09)%
__________________________________________________________________________________________________________________________
==========================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $10,021 $2,853 $1,850 $1,312
__________________________________________________________________________________________________________________________
==========================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 2.65%(d) 2.65% 2.65% 2.57%(e)
- --------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 2.85%(d) 3.77% 3.40% 5.10%(e)
==========================================================================================================================
Ratio of net investment income (loss) to average net assets (0.55)%(a)(d) (0.51)% (1.81)% (1.18)%(e)
__________________________________________________________________________________________________________________________
==========================================================================================================================
Portfolio turnover rate(f) 129% 372% 101% 168%
__________________________________________________________________________________________________________________________
==========================================================================================================================
</Table>
(a) Net investment income per share and the ratio of net investment income
to average net assets include a special cash dividend received of $3.00
per share owned of Microsoft Corp. on December 2, 2004. Net investment
income per share and the ratio of net investment to average net assets
excluding the special dividend are $(0.10) and (0.79)%, respectively.
(b) Calculated using average shares outstanding.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Does not include sales charges and is not
annualized for periods less than one year.
(d) Ratios are based on average daily net assets of $5,663,781.
(e) Annualized.
(f) Not annualized for periods less than one year.
NOTE 13--LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
Settled Enforcement Actions and Investigations Related to Market Timing
On October 8, 2004, INVESCO Funds Group, Inc. ("IFG") (the former investment
advisor to certain AIM Funds) and A I M Advisors, Inc. ("AIM") (the Fund's
investment advisor) reached final settlements with certain regulators, including
without limitation the Securities and Exchange Commission ("SEC"), the New York
Attorney General ("NYAG") and the Colorado Attorney General ("COAG"), 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.
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 they 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 and
AIM breached various Federal and state securities, business and consumer
protection laws. On the same date, A I M Distributors, Inc. ("ADI") (the
distributor of the retail AIM Funds) reached a final settlement with the SEC to
resolve an investigation relating to market timing activity and related issues
in the AIM Funds. The SEC also alleged that ADI violated various Federal
securities laws. The SEC also has settled related market timing enforcement
actions brought against certain former officers and employees of IFG.
Under the terms of the settlements, IFG agreed to pay a total of $325 million,
of which $110 million is civil penalties. Of this $325 million total payment,
half has been paid 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, all of which has been paid. The entire $325 million IFG
settlement payment will be made 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
made 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. 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 certain
equity and balanced 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.
F-15
NOTE 13--LEGAL PROCEEDINGS (CONTINUED)
Under the terms of the settlements, AIM will make certain governance and
compliance reforms, including maintaining an internal controls committee and
retaining an independent compliance consultant and a corporate ombudsman. 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.
At the request of the trustees of the AIM Funds, AMVESCAP PLC ("AMVESCAP"),
the parent company of IFG and AIM, has agreed to pay expenses incurred by such
Funds related to market timing matters.
The SEC has also settled market timing enforcement actions 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),
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 these settlements, the SEC ordered these individuals to
pay restitution and civil penalties in various amounts and prohibited them from
associating with, or serving as an officer or director of, an investment
advisor, broker, dealer and/or investment company, as applicable, for certain
periods of time.
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 certain equity and balanced 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 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 payments 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 Regulatory Inquiries and Pending
Litigation described below may have on AIM, ADI or the Fund.
Regulatory Inquiries and Pending Litigation
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 but not limited to revenue sharing and directed-brokerage
arrangements, investments in securities of other registered investment
companies, contractual plans, issues related to Section 529 college savings
plans, procedures for locating lost security holders and participation in class
action settlements.
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.
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 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, the U.S. Postal Inspection
Service and the Commodity Futures Trading Commission, some of which concern one
or more AIM Funds. AIM is providing full cooperation with respect to these
inquiries.
F-16
NOTE 13--LEGAL PROCEEDINGS (CONTINUED)
Private Civil Actions Alleging Market Timing
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, certain AIM Funds, IFG, AIM, 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 ("ERISA")
purportedly brought on behalf of participants in AMVESCAP's 401(k) plan. The
plaintiffs in one of the underlying lawsuits continue to seek remand of their
lawsuit 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. ("IINA"), ADI
and/or INVESCO Distributors, Inc. ("INVESCO Distributors")) 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. All of these lawsuits have been transferred to
the United States District Court for the Southern District of Texas, Houston
Division by order of the applicable United States District Court in which they
were initially filed. The plaintiff in one of these lawsuits has challenged this
order.
Private Civil Actions Alleging Improper Charging of Distribution Fees on Limited
Offering Funds or Share Classes
Multiple civil lawsuits, including 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. ("AIS")
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.
Private Civil Action Alleging Failure to Ensure Participation in Class Action
Settlements
A civil lawsuit, purporting to be a class action lawsuit, has been filed
against AIM, IINA, A I M Capital Management, Inc. and the trustees of the AIM
Funds alleging that the defendants breached their fiduciary duties by failing to
ensure that the AIM Funds participated in class action settlements in which the
AIM Funds were eligible to participate. This lawsuit alleges as theories of
recovery: (i) violation of various provisions of the Federal securities laws;
(ii) common law breach of fiduciary duty; and (iii) common law negligence. This
lawsuit has been filed in Federal court and seeks such remedies as compensatory
and punitive damages; forfeiture of all commissions and fees paid by the class
of plaintiffs; and costs and attorneys' fees.
* * *
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
As a result of the matters discussed above, 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-17
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees and Shareholders of
AIM Global Value Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of AIM Global Value Fund (one of the
funds constituting AIM Funds Group hereafter referred to as the "Fund") at
December 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 periods indicated, in conformity with
accounting principles generally accepted in the United States of America. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with 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 December 31, 2004 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
/S/ PRICEWATERHOUSECOOPERS LLP
February 18, 2005
Houston, Texas
F-18
OTHER INFORMATION
TRUSTEES AND OFFICERS
As of December 31, 2004
The address of each trustee and officer of AIM Funds Group (the "Trust"), is 11
Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee oversees 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 1992 Director and Chairman, A I M Management None
Trustee, Vice Chair and Group Inc. (financial services holding
President 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 1987 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 2001 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 2000 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 1998 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 1997 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 December 31, 2004
The address of each trustee and officer of AIM Funds Group (the "Trust"), is 11
Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee oversees 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 1993 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 1998 Formerly: Chief Executive Officer, YWCA None
Trustee of the USA
- -----------------------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 1992 Partner, law firm of Pennock & Cooper None
Trustee
- -----------------------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2001 Retired None
Trustee
- -----------------------------------------------------------------------------------------------------------------------------------
Louis S. Sklar(4) -- 1939 1993 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(5) -- 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.; and Senior Vice
President and General Counsel, Liberty
Funds Group, LLC and Vice President,
A I M Distributors, Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
Robert G. Alley -- 1948 1992 Managing Director, Chief Fixed Income N/A
Vice President Officer and Senior Investment Officer,
A I M Capital Management, Inc. and Vice
President, A I M Advisors, Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
Stuart W. Coco -- 1955 1992 Managing Director and 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 1992 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(4) -- 1940 1999 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. (See footnote (4)
below.)
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) Mr. Sklar and Mr. Larsen retired effective December 31, 2004.
(5) 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 Street
Houston, TX 77046-1173 Suite 100 Suite 2900
Houston, TX 77046-1173 Houston, Texas
77002-5678
COUNSEL TO THE FUND COUNSEL TO THE TRANSFER AGENT CUSTODIAN
INDEPENDENT TRUSTEES
Ballard Spahr AIM Investment State Street Bank and
Andrews & Ingersoll, LLP Kramer, Levin, Naftalis Services, Inc. Trust Company
1735 Market Street & Frankel LLP P.O. Box 4739 225 Franklin Street
Philadelphia, PA 19103-7599 919 Third Avenue Houston, TX 77210-4739 Boston, MA 02110-2801
New York, NY 10022-3852
</Table>
REQUIRED FEDERAL INCOME TAX INFORMATION (UNAUDITED)
Of ordinary dividends paid to shareholders during the Fund's tax year ended
December 31, 2004, 12.16% is eligible for the dividends received deduction for
corporations. The Fund distributed long-term capital gains of $52,687 for the
Fund's year ended December 31, 2004.
For its tax year ended December 31, 2004, the fund designates 37.17%, 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.
REQUIRED STATE INCOME TAX INFORMATION
Of the ordinary dividends paid, 3.50% was derived from U.S. Treasury
Obligations.
<Table>
DOMESTIC EQUITY INTERNATIONAL/GLOBAL EQUITY FIXED INCOME
AIM Aggressive Growth Fund AIM Asia Pacific Growth Fund TAXABLE
AIM Balanced Fund* AIM Developing Markets Fund
AIM Basic Balanced Fund* AIM European Growth Fund AIM Floating Rate Fund
AIM Basic Value Fund AIM European Small Company Fund(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 Growth Fund AIM Total Return Bond Fund
AIM Diversified Dividend Fund AIM International Small Company Fund(7) 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 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) Effective December 30, 2004, AIM
International Emerging Growth Fund was renamed AIM International Small Company
Fund. The fund will close to new investors when net assets reach $500 million.
If used after April 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 $138 billion in assets. AIM is a subsidiary of
AMVESCAP PLC, one of the world's largest independent financial services
companies with $382 billion in assets under management. Data as of December 31,
2004.
AIMinvestments.com GLV-AR-1 A I M Distributors, Inc.
<Table>
[YOUR GOALS. OUR SOLUTIONS]--Registered Trademark--
- ------------------------------------------------------------------------
Mutual Retirement Annuities College Separately Offshore Cash [AIM INVESTMENTS LOGO APPEARS HERE]
Funds Products Savings Managed Products Management --Registered Trademark--
Plans Accounts
- ------------------------------------------------------------------------
</Table>
AIM INTERNATIONAL SMALL COMPANY FUND
Annual Report to Shareholders o December 31, 2004
[COVER IMAGE]
FORMERLY AIM INTERNATIONAL EMERGING GROWTH FUND.
YOUR GOALS. OUR SOLUTIONS. [AIM INVESTMENTS LOGO APPEARS HERE]
--Registered Trademark-- --Registered Trademark--
<Table>
====================================================================================================================================
AIM INTERNATIONAL SMALL COMPANY FUND SEEKS TO PROVIDE LONG-TERM GROWTH OF CAPITAL.
o Unless otherwise stated, information presented in this report is as of 12/31/04 and is based on total net assets.
====================================================================================================================================
o Effective December 30, 2004, AIM ABOUT INDEXES USED IN THIS REPORT o The fund is not managed to track the
International Emerging Growth Fund was performance of any particular index,
renamed AIM International Small Company o The unmanaged MSCI Europe, Australasia including the indexes defined here, and
Fund. and the Far East Index (the MSCI consequently, the performance of the
EAFE--Registered Trademark--) is a group fund may deviate significantly from the
ABOUT SHARE CLASSES of foreign securities tracked by Morgan performance of the indexes.
Stanley Capital International.
o Effective 9/30/03, Class B shares are OTHER INFORMATION
not available as an investment for o The unmanaged MSCI All Country (AC)
retirement plans maintained pursuant to World Free ex-U.S.A.Growth Index is a o The returns shown in the Management's
Section 401 of the Internal Revenue subset of the unmanaged MSCI All Country Discussion of Fund Performance are based
Code, including 401(k) plans, money (AC) World Free ex-U.S.A. Index, which on net asset values calculated for
purchase pension plans and profit represents the performance of securities shareholder transactions. Generally
sharing plans. Plans that have existing in developed and emerging countries, accepted accounting principles require
accounts invested in Class B shares will excluding the United States, covered by adjustments to be made to the net assets
continue to be allowed to make Morgan Stanley Capital International. of the fund at period end for financial
additional purchases. The Growth portion measures performance reporting purposes, and as such, the net
of companies with higher price/earnings asset values for shareholder
PRINCIPAL RISKS OF INVESTING IN THE FUND ratios and higher forecasted growth transactions and the returns based on
values. A "free" index represents those net asset values may differ from
o International investing presents investable opportunities for global the net asset values and returns
certain risks not associated with investors, taking into account the local reported in the Financial Highlights.
investing solely in the United States. market restrictions on share ownership
These include risks relating to by foreign investors. o Industry classifications used in this
fluctuations in the value of the U.S. report are generally according to the
dollar relative to the values of other o The unmanaged MSCI Europe Index is a Global Industry Classification Standard,
currencies, the custody arrangements group of European securities tracked by which was developed by and is the
made for the fund's foreign holdings, Morgan Stanley Capital International. exclusive property and a service mark of
differences in accounting, political Morgan Stanley Capital International
risks and the lesser degree of public o The unmanaged Lipper International Inc. and Standard & Poor's.
information required to be provided by Small/Mid-Cap Growth Fund Index
non-U.S. companies. represents an average of the performance The fund files its complete schedule of
of international small-cap and portfolio holdings with the Securities
o Investing in emerging markets involves international mid-cap mutual funds and Exchange Commission ("SEC") for the
greater risk and potential reward than tracked by Lipper, Inc., an independent 1st and 3rd quarters of each fiscal year
investing in more established markets. mutual fund performance monitor. on Form N-Q. The fund's Form N-Q filings
are available on the SEC's Web site at
o Investing in small and mid-size o The unmanaged Lehman U.S. Aggregate http://www.sec.gov. Copies of the fund's
companies involves risks not associated Bond Index, which represents the U.S. Forms N-Q may be reviewed and copied at
with investing in more established investment-grade fixed-rate bond market the SEC's Public Reference Room at 450
companies, including business risk, (including government and corporate Fifth Street, N.W., Washington, D.C.
significant stock price fluctuations and securities, mortgage pass-through 20549-0102. You can obtain information
illiquidity. securities and asset-backed securities), on the operation of the Public Reference
is compiled by Lehman Brothers, a global Room, including information about
o The fund is nondiversified, which investment bank. duplicating fee charges, by calling 1-
increases risks as well as potential 202-942-8090 or by electronic request at
rewards. o The unmanaged Standard & Poor's the following E-mail address:
Composite Index of 500 Stocks (the S&P publicinfo@sec.gov. The SEC file numbers
o The fund may participate in the 500--Registered Trademark-- Index) is an for the fund are 811-1540 and 2-27334.
initial public offering (IPO) market in index of common stocks frequently used The fund's most recent portfolio
some market cycles. Because of the as a general measure of U.S. stock holdings, as filed on Form N-Q, are also
fund's small asset base, any investment market performance. available at AIMinvestments.com.
the fund may make in IPOs may
significantly affect the fund's total o A direct investment cannot be made in A description of the policies and
return. As the fund's assets grow, the an index. Unless otherwise indicated, procedures that the fund uses to
impact of IPO investments will decline, index results include reinvested determine how to vote proxies relating
which may reduce the effect of IPO dividends, and they do not reflect sales to portfolio securities is available
investments on the fund's total return. charges. Performance of an index of without charge, upon request, from our
funds reflects fund expenses; Client Services department at
performance of a market index does not. 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
AIM INTERNATIONAL SMALL COMPANY FUND
<Table>
DEAR FELLOW SHAREHOLDER OF THE AIM FAMILY OF
FUNDS--Registered Trademark--:
NEW BOARD CHAIRMAN
It is our pleasure to introduce you to Bruce Crockett, the
[PHOTO OF new Chairman of the Board of Trustees of the AIM Funds. Bob
ROBERT H. Graham has served as Chairman of the Board of Trustees of
GRAHAM] the AIM Funds ever since Ted Bauer retired from that
position in 2000. However, as you may be aware, the U.S.
ROBERT H. GRAHAM 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
[PHOTO OF advisor, serve as chairman of the funds' Board. In addition,
MARK H. a similar provision was included in the terms of AIM
WILLIAMSON] Advisors' recent settlements with certain regulators.
Accordingly, the AIM Funds' Board recently elected Mr.
MARK H. WILLIAMSON Crockett, one of the 14 independent trustees on the AIM
Funds' Board, as Chairman. His appointment became effective
on October 4, 2004. Mr. Graham will remain on the funds'
[PHOTO OF Board, as will Mark Williamson, President and Chief
BRUCE L. Executive Officer of AIM. Mr. Graham will also remain
CROCKETT] 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
After nine months of slow growth, equity markets rallied
late in the year to produce solid results for 2004. The S&P
500 Index was up 10.87% for the year as a whole, but that
includes the 9.23% total return for the fourth quarter
alone. For bonds, the turning point came earlier. Almost all
of the 4.34% return produced by the Lehman U.S. Aggregate
Bond Index came during the second half of the year, despite
the fact that the Federal Reserve had begun raising
short-term interest rates about halfway through the year.
Overseas markets followed a similar pattern, with quite
robust double-digit performance across the board, most of it
produced during the second half of the year.
All in all, 2004 was a good year for American investors,
with the decline in the dollar over the course of the year
lending a boost to returns from foreign holdings. And there
were a number of solid economic numbers to report as of the
end of the year:
o U.S. gross domestic product (GDP) rose each quarter
during 2004. And respondents to the BusinessWeek
magazine survey foresaw 2005 GDP growth at 3.5%,
above the post-World War II average of 3.4%.
o The Institute for Supply Management's manufacturing
and non-manufacturing indexes--based on surveys of
purchasing managers in industries that together
cover more than 70% of the U.S. economy--both
continued to rise during December and remained in
very strong territory.
o Thomson First Call, which tracks corporate
earnings and other information for clients in
financial service industries, estimated S&P 500
earnings to be up 10.5% in 2005.
Of course, none of this can guarantee that 2005 will be
another good year. Over the short term, the only sure thing
about the investment markets is their unpredictability.
Hence, we have always urged shareholders to keep a long-term
perspective on all their investments.
YOUR FUND
The following pages present a discussion of how your fund
invests, how it performed compared to pertinent benchmarks
during the fiscal year and how it has performed over the
long term. We hope you find this information helpful. We
also encourage you to visit AIMinvestments.com often.
Updated information on your fund is always available there,
as well as general information on a variety of investing
topics.
As always, AIM is committed to building solutions for
your investment goals, and we thank you for your
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, AIM Funds Investments Trustee, AIM Funds
January 28, 2005
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.
</Table>
AIM INTERNATIONAL SMALL COMPANY FUND
<Table>
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE MARKET CONDITIONS AND YOUR FUND
It was another banner year for stocks that are not followed by many During the fiscal year, foreign markets
international markets and small-cap analysts, gave the fund a competitive outperformed domestic markets by
stocks. For the second consecutive year, edge. approximately a two to one margin.
foreign markets produced double-digits Beyond higher prices for foreign stocks,
gains. In addition, 2004 proved to be HOW WE INVEST the market's focus changed in 2004. For
the third year in a row that foreign instance, during much of 2003,
markets outperformed their U.S. On 12/30/04 the name of the fund changed distressed or highly leveraged companies
counterparts. from AIM International Emerging Growth were in favor. That sentiment reversed
Fund to AIM International Small Company in 2004 as stocks with strong earnings,
======================================== Fund. Although the name has changed our cash flow and reasonable valuations were
FUND VS. INDEXES investment philosophy remains the same. rewarded by the market. This environment
clearly fits with our investment
TOTAL RETURNS, 12/31/03-12/31/04, Our investment strategy is based on strategy and is underscored by the
EXCLUDING APPLICABLE SALES CHARGES. IF the principle that strong earnings can fund's performance during the reporting
SALES CHARGES WERE INCLUDED, RETURNS drive stock prices. Therefore, we look period.
WOULD BE LOWER. for certain attributes in companies when
selecting stocks for the fund. We focus For several years, foreign small-cap
Class A Shares 35.83% on foreign small-cap companies with stocks have outperformed their large-cap
accelerating earnings and revenues, peers, yet they still trade at a
Class B Shares 34.94 strong cash flow generation and high discount. This trend benefits the fund
return on invested capital which also in two ways: the strong performance of
Class C Shares 35.06 have reasonable valuations. Conversely, foreign small-caps helps boost absolute
we might sell a position if a company's and relative fund returns, while their
MSCI EAFE Index (Broad Market earnings outlook deteriorates. discounted price makes them a good fit
Index) 20.25 for our investment philosophy as we look
We select investments on a for reasonably priced stocks.
MSCI All Country (AC) World stock-by-stock basis. This means we
Free Ex-U.S.A. Growth Index follow a bottom-up investment approach, European markets produced some of
(Style-Specific Index) 17.07 focusing on individual stocks, not the best regional returns over the
sector or country trends. Another period. In fact, of the 16 countries
Lipper International Small/ important component of our investment that comprise the MSCI Europe Index, all
Mid-Cap Growth Fund Index (Peer strategy is that we do not hedge posted positive returns on a
Group Index) 23.48 currencies. We believe foreign currency dollar-denominated basis. On a regional
exposure increases the diversification basis, we had the most exposure to
Source: Lipper, Inc. benefit of international investing. Europe and European stocks also
======================================== contributed the most to fund
performance. Within Europe, we continue
As the table above illustrates, the to look for the best stocks, not country
fund outperformed all of its benchmarks economics. For instance, despite
for the year. We attribute the fund's Germany's troubled economy, we still
higher return to several factors: the invest in
strong performance of international
small-cap stocks (the MSCI EAFE Index is
comprised primarily of large-caps) along
with strong stock and sector exposure.
In addition, our willingness and ability
to identify and purchase attractive
</Table>
<Table>
====================================================================================================================================
PORTFOLIO COMPOSITION TOP 10 EQUITY HOLDINGS* TOP 10 INDUSTRIES*
By sector
1. Trican Well Service Ltd. 1. Diversified Banks 5.3%
1. Consumer Discretionary 28.7% (Canada) 2.1%
2. Diversified Commercial
2. Industrials 19.6 2. CryptoLogic Inc. (Canada) 2.0 Services 5.0
3. Financials 14.1 3. Aktiv Kapital A.S.A. (Norway) 1.7 3. Construction & Engineering 4.1
4. Information Technology 10.2 4. Techem A.G. (Germany) 1.6 4. Casinos & Gaming 4.1
5. Energy 7.5 5. Bijou Brigitte Modische 5. Oil & Gas Equipment & Services 4.0
Accessoires A.G. (Germany) 1.5
6. Consumer Staples 5.4 6. Industrial Machinery 3.6
6. Aalberts Industries N.V.
7. Health Care 2.6 (Netherlands) 1.5 7. Oil & Gas Exploration &
Production 3.0
8. Telecommunication Services 1.9 7. Leica Geosystems A.G.
(Switzerland) 1.5 8. Industrial Conglomerates 2.9
9. Materials 1.6
8. Great Canadian Gaming Corp. 9. Electronic Equipment
Money Market Funds Plus (Canada) 1.5 Manufacturers 2.8
Other Assets Less Liabilities 8.4
9. Andritz A.G. (Austria) 1.4 10. Auto Parts & Equipment 2.3
10. TGS Nopec Geophysical
Co. A.S.A. (Norway) 1.2
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>
German stocks we find attractive. In relatively low weights in the portfolio. The views and opinions expressed in
fact, two of the fund's top-10 holdings Taro Pharmaceutical, an Israeli drug Management's Discussion of Fund
are German. company, declined during the year and Performance are those of A I M Advisors,
proved a drag on fund returns. Although Inc. These views and opinions are
Asia/Pacific Rim markets also the stock has performed well for the subject to change at any time based on
rallied in 2004. Despite a fund in the past, given unresolved drug factors such as market and economic
second-quarter decline amid concerns trials and a sell-off in the entire conditions. These views and opinions may
over the country's oil dependence, generic drug industry, the stock not be relied upon as investment advice
Japanese markets recovered to post declined significantly. It reported a or recommendations, or as an offer for a
positive results and Australian markets profit warning and we sold the position. particular security. The information is
posted new highs during the year. not a complete analysis of every aspect
Meanwhile, China continued its efforts Foreign exchange proved quite of any market, country, industry,
to slow its economy through a variety of favorable for the fund. As mentioned security or the Fund. Statements of fact
measures including an interest rate hike earlier, we don't hedge currencies so are from sources considered reliable,
of 27 basis points (0.27%). strong foreign currency appreciation but A I M Advisors, Inc. makes no
helped boost fund returns. During the representation or warranty as to their
Rising commodity prices, for oil in fiscal year, the euro hit an all-time completeness or accuracy. Although
particular, made headlines throughout high against the U.S. dollar. Meanwhile, historical performance is no guarantee
the year as oil reached more than $50 a the Canadian dollar, British pound, of future results, these insights may
barrel in October. Commodity exporting Australian dollar and Japanese yen also help you understand our investment
countries such as Canada benefited from gained ground. management philosophy.
the trend. On a sector basis, energy
stocks produced the highest returns for IN CLOSING See important fund and index
the fund with Trican Well Service, a disclosures inside front cover.
Canadian oil service company, one our Despite a second year of double-digit
top contributors for the year. The returns, international small-cap stocks
company is a good example of the type of continued to trade at a discount to both JASON T. HOLZER,
stock we like to have in the portfolio. the U.S. market and their foreign Chartered Financial
The company has a clean balance sheet, large-cap peers on both a [HOLZER Analyst, senior
strong market position and high return price-to-earnings and price-to-cash-flow PHOTO] portfolio manager is
on equity. valuation basis. Given the attractive co-lead manager of AIM
valuations of foreign small caps and International Small
On a sector basis, the fund posted their abundance, we continued to find Company Fund. Mr. Holzer joined AIM in
double-digit returns in all but the reasonably priced stocks that fit the 1996. He received a B.A. in quantitative
utilities sector. Our largest exposure fund's investment strategy. We are economics and an M.S. in
was to the consumer discretionary pleased to report another strong year engineering-economic systems from
sector. Stocks in this group often have for foreign markets and to provide Stanford University.
attractive valuations, good growth shareholders with excellent absolute and
prospects and high cash flow--exactly relative returns for the fiscal year. BARRETT K. SIDES,
the type of attributes we look for when senior portfolio
selecting stocks for the portfolio. ======================================== [SIDES manager, is co-lead
TOTAL NET ASSETS $353.3 MILLION PHOTO] manager of AIM
Given our performance for the year, International Small
we have few detractors to report, all of TOTAL NUMBER OF HOLDINGS* 143 Company Fund. He joined
which had ======================================== AIM in 1990. Mr. Sides graduated with a
B.S. in economics from Bucknell
======================================== University. He also received a master's
TOP 10 COUNTRIES in international business from the
University of St. Thomas.
1. Canada 20.0%
SHUXIN CAO, Chartered
2. United Kingdom 10.7 Financial Analyst,
[CAO portfolio manager is
3. Japan 5.7 PHOTO] manager of AIM
International Small
4. France 5.3 Company Fund. He joined
AIM in 1997. Mr. Cao graduated from
5. Germany 5.1 Tianjin Foreign Language Institute with
a B.A. in English. He also received an
6. Norway 4.1 M.B.A. from Texas A&M University and is
a Certified Public Accountant.
7. Switzerland 4.0
BORGE ENDRESEN,
8. Cayman Islands 3.7 Chartered Financial
[ENDRESEN Analyst, portfolio
9. Ireland 3.4 PHOTO] manager, is manager of
AIM International Small
10. Netherlands 3.1 Company Fund. He 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
European/Canada Team
[RIGHT ARROW GRAPHIC]
FOR A PRESENTATION OF YOUR FUND'S
LONG-TERM PERFORMANCE RECORD, PLEASE
TURN TO PAGE 5.
</Table>
3
AIM INTERNATIONAL SMALL COMPANY FUND
CALCULATING YOUR ONGOING FUND EXPENSES
<Table>
EXAMPLE You may use the information in this account balance or expenses you paid for
table, together with the amount you the period. You may use this information
As a shareholder of the Fund, you incur invested, to estimate the expenses that to compare the ongoing costs of
two types of costs: (1) transaction you paid over the period. Simply divide investing in the Fund and other funds.
costs, which may include sales charges your account value by $1,000 (for To do so, compare this 5% hypothetical
(loads) on purchase payments; contingent example, an $8,600 account value divided example with the 5% hypothetical
deferred sales charges on redemptions; by $1,000 = 8.6), then multiply the examples that appear in the shareholder
and redemption fees, if any; and (2) result by the number in the table under reports of the other funds.
ongoing costs, including management the heading entitled "Actual Expenses
fees; distribution and/or service fees Paid During Period" to estimate the Please note that the expenses shown
(12b-1); and other Fund expenses. This expenses you paid on your account during in the table are meant to highlight your
example is intended to help you this period. ongoing costs only and do not reflect
understand your ongoing costs (in any transactional costs, such as sales
dollars) of investing in the fund and to HYPOTHETICAL EXAMPLE FOR COMPARISON charges (loads) on purchase payments,
compare these costs with ongoing costs PURPOSES contingent deferred sales charges on
of investing in other mutual funds. The redemptions, and redemption fees, if
example is based on an investment of The table below also provides any. Therefore, the hypothetical
$1,000 invested at the beginning of the information about hypothetical account information is useful in comparing
period and held for the entire period, values and hypothetical expenses based ongoing costs only, and will not help
July 1, 2004-December 31, 2004. on the fund's actual expense ratio and you determine the relative total costs
an assumed rate of return of 5% per year of owning different funds. In addition,
ACTUAL EXPENSES before expenses, which is not the fund's if these transactional costs were
actual return. The hypothetical account included, your costs would have been
The table below provides information values and expenses may not be used to higher.
about actual account values and actual estimate your actual ending
expenses.
====================================================================================================================================
ACTUAL HYPOTHETICAL
(5% ANNUAL RETURN BEFORE EXPENSES)
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES ENDING ACCOUNT EXPENSES
SHARE VALUE VALUE PAID DURING VALUE PAID DURING
CLASS (7/1/04) (12/31/04)(1) PERIOD(2) (12/31/04) PERIOD(2)
A $1,000.00 $1,260.30 $10.34 $1,015.99 $ 9.22
B 1,000.00 1,255.40 14.00 1,012.72 12.50
C 1,000.00 1,256.40 14.01 1,012.72 12.50
(1) The actual ending account value is based on the actual total return of the fund for the period July 1, 2004, to December 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 July 1, 2004,
to December 31, 2004, was 26.03%, 25.54%, and 25.64% for Classes A, B, and C shares, respectively.
(2) Expenses are equal to the fund's annualized expense ratio (1.82%, 2.47%, and 2.47% 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 For More Information Visit
BUTTON AIMinvestments.com
IMAGE]
</Table>
4
AIM INTERNATIONAL SMALL COMPANY FUND
YOUR FUND'S LONG-TERM PERFORMANCE
<Table>
====================================================================================================================================
Past performance cannot guarantee RESULTS OF A $10,000 INVESTMENT
comparable future results. 8/31/00-12/31/04
Your fund's total return includes
reinvested distributions, applicable [MOUNTAIN CHART]
sales charges, fund expenses and
management fees. Results for Class B AIM AIM AIM MSCI
shares are calculated as if a INTERNATIONAL INTERNATIONAL INTERNATIONAL ALL COUNTRY
hypothetical shareholder had liquidated SMALL COMPANY SMALL COMPANY SMALL COMPANY (AC) WORLD FREE
his entire investment in the fund at the FUND FUND FUND MSCI EAFE EX-USA GROWTH
close of the reporting period and paid DATE CLASS A SHARES CLASS B SHARES CLASS C SHARES INDEX INDEX
the applicable contingent deferred sales 8/31/00 $ 9450 $10000 $10000 $10000 $10000
charges. Index results include 9/00 8930 9450 9450 9513 9244
reinvested dividends, but they do not 10/00 8250 8720 8730 9288 8720
reflect sales charges. Performance of an 11/00 7172 7581 7590 8940 8226
index of funds reflects fund expenses 12/00 7532 7951 7950 9258 8345
and management fees; performance of a 1/01 8146 8591 8600 9253 8487
market index does not. Performance shown 2/01 7126 7511 7520 8559 7529
in the chart does not reflect deduction 3/01 6237 6570 6580 7989 6956
of taxes a shareholder would pay on fund 4/01 6577 6931 6930 8544 7436
distributions or sale of fund shares. 5/01 6719 7080 7079 8242 7177
Performance of the indexes does not 6/01 6577 6930 6919 7905 6838
reflect the effects of taxes. 7/01 6502 6850 6839 7761 6657
8/01 6388 6720 6709 7565 6345
9/01 5557 5841 5839 6799 5696
10/01 6076 6381 6379 6973 5940
11/01 6502 6821 6819 7230 6294
12/01 6742 7071 7070 7273 6390
1/02 6752 7071 7070 6886 6096
2/02 6837 7171 7159 6935 6175
3/02 7245 7591 7580 7343 6461
4/02 7379 7731 7720 7358 6476
5/02 7616 7971 7970 7451 6485
6/02 7626 7981 7970 7155 6276
7/02 6932 7251 7240 6448 5619
8/02 6876 7191 7180 6434 5594
9/02 6296 6571 6570 5743 5103
10/02 6410 6691 6690 6051 5395
11/02 6552 6831 6830 6326 5581
12/02 6562 6841 6840 6113 5448
1/03 6638 6911 6910 5858 5213
2/03 6629 6901 6900 5724 5116
3/03 6705 6981 6970 5611 5058
4/03 7227 7511 7510 6161 5487
5/03 7883 8201 8189 6535 5793
6/03 8158 8481 8479 6693 5919
7/03 8481 8801 8799 6855 6020
8/03 8890 9231 9219 7020 6175
9/03 9460 9811 9799 7236 6360
10/03 10438 10821 10809 7687 6736
11/03 10770 11152 11149 7858 6888
12/03 11491 11892 11880 8472 7351
1/04 12034 12452 12439 8592 7510
2/04 12594 13032 13019 8790 7671
3/04 12661 13082 13079 8840 7678
4/04 12233 12642 12629 8640 7413
5/04 12052 12453 12439 8658 7404
6/04 12385 12783 12769 8859 7505
7/04 12090 12463 12459 8571 7220
8/04 12290 12674 12659 8609 7260
9/04 12946 13334 13329 8834 7484
10/04 13497 13905 13889 9136 7730
11/04 14734 15165 15158 9760 8265
12/04 $15610 $15844 $16044 $10188 $8606
Source: Lipper, Inc.
======================================== Class A share performance reflects
AVERAGE ANNUAL TOTAL RETURNS the maximum 5.50% sales charge, and
Class B and Class C share performance
As of 12/31/04, including applicable reflects the applicable contingent
sales charges deferred sales charge (CDSC) for the
period involved. The CDSC on Class B
CLASS A SHARES shares declines from 5% beginning at the
Inception (8/31/00) 10.82% time of purchase to 0% at the beginning
1 Year 28.39 of the seventh year. The CDSC on Class C
shares is 1% for the first year after
CLASS B SHARES purchase.
Inception (8/31/00) 11.20%
1 Year 29.94 The performance of the fund's share
classes will differ due to different
CLASS C SHARES sales charge structures and class
Inception (8/31/00) 11.53% expenses.
1 Year 34.06
======================================== A redemption fee of 2% will be
imposed on certain redemptions or
The performance data quoted represent exchanges out of the fund within 30 days
past performance and cannot guarantee of purchase. Exceptions to the
comparable future results; current redemption fee are listed in the fund's
performance may be lower or higher. prospectus.
Please visit AIMinvestments.com for the
most recent month-end performance. Had the advisor not waived fees
Performance figures reflect reinvested and/or reimbursed expenses, performance
distributions, changes in net asset would have been lower.
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
December 31, 2004
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
FOREIGN STOCKS & OTHER EQUITY
INTERESTS--91.61%
AUSTRALIA-1.82%
Computershare Ltd. (Data Processing &
Outsourced Services)(a) 260,000 $ 1,154,064
- ------------------------------------------------------------------------
CSL Ltd. (Biotechnology)(a) 97,000 2,223,526
- ------------------------------------------------------------------------
Ramsay Health Care Ltd. (Health Care
Facilities)(a) 263,900 1,475,197
- ------------------------------------------------------------------------
Toll Holdings Ltd. (Trucking)(a) 156,100 1,565,853
========================================================================
6,418,640
========================================================================
AUSTRIA-1.41%
Andritz A.G. (Industrial Machinery)(a) 65,700 4,989,898
========================================================================
BERMUDA-2.11%
Central European Media Enterprises Ltd.-Class
A (Broadcasting & Cable TV)(b) 79,050 3,081,527
- ------------------------------------------------------------------------
Giordano International Ltd. (Apparel
Retail)(a) 2,698,000 1,692,553
- ------------------------------------------------------------------------
Regal Hotels International Holdings Ltd.
(Hotels, Resorts & Cruise Lines)(a)(b) 34,070,000 2,451,415
- ------------------------------------------------------------------------
Top Form International Ltd. (Apparel,
Accessories & Luxury Goods)(a) 986,000 233,097
========================================================================
7,458,592
========================================================================
BRAZIL-1.99%
Companhia Brasileira de Distribuicao Grupo
Pao de Acucar-ADR (Hypermarkets & Super
Centers) 62,000 1,587,200
- ------------------------------------------------------------------------
Natura Cosmeticos S.A. (Personal Products)
(Acquired 11/10/04-12/13/04; Cost
$1,794,994)(c) 80,100 2,337,255
- ------------------------------------------------------------------------
Perdigao S.A.-Pfd. (Packaged Foods & Meats) 77,300 1,667,654
- ------------------------------------------------------------------------
Sadia S.A.-Pfd. (Packaged Foods & Meats) 632,700 1,424,528
========================================================================
7,016,637
========================================================================
CANADA-19.98%
Aastra Technologies Ltd. (Communications
Equipment)(b) 79,400 1,386,040
- ------------------------------------------------------------------------
ADDENDA Capital Inc. (Investment Banking &
Brokerage) (Acquired 12/03/04; Cost
$2,847,571)(b)(c)(d)(e) 200,000 4,102,009
- ------------------------------------------------------------------------
AKITA Drilling Ltd.-Class A (Oil & Gas
Drilling) 80,820 1,798,839
- ------------------------------------------------------------------------
Badger Income Fund (Construction &
Engineering) 264,140 3,819,739
- ------------------------------------------------------------------------
BMTC Group, Inc.-Class A (Specialty Stores) 147,564 1,559,315
- ------------------------------------------------------------------------
Ceramic Protection Corp. (Aerospace &
Defense)(b) 116,400 2,895,836
- ------------------------------------------------------------------------
Crew Energy Inc. (Oil & Gas Exploration &
Production)(b) 347,400 2,413,604
- ------------------------------------------------------------------------
CryptoLogic Inc. (Internet Software &
Services) 282,090 7,034,353
- ------------------------------------------------------------------------
Exco Technologies Ltd. (Industrial Machinery) 166,400 1,041,168
- ------------------------------------------------------------------------
Extendicare Inc.-Class A (Health Care
Facilities)(b) 124,540 1,600,984
- ------------------------------------------------------------------------
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
CANADA-(CONTINUED)
FirstService Corp. (Diversified Commercial
Services)(b) 131,600 $ 2,146,158
- ------------------------------------------------------------------------
Great Canadian Gaming Corp. (Casinos &
Gaming)(b) 139,040 5,264,975
- ------------------------------------------------------------------------
Groupe Laperriere & Verreault Inc.-Class A
(Industrial Machinery)(b) 50,300 935,395
- ------------------------------------------------------------------------
Kingsway Financial Services Inc. (Property &
Casualty Insurance)(b) 144,000 2,276,490
- ------------------------------------------------------------------------
Lions Gate Entertainment Corp. (Movies &
Entertainment)(b) 275,080 2,921,350
- ------------------------------------------------------------------------
Reitmans (Canada) Ltd.-Class A (Apparel
Retail) 113,000 2,689,021
- ------------------------------------------------------------------------
StarPoint Energy Ltd. (Oil & Gas Exploration
& Production)(b) 643,100 2,835,986
- ------------------------------------------------------------------------
Telesystem International Wireless Inc.
(Wireless Telecommunication Services)(b) 169,990 1,902,372
- ------------------------------------------------------------------------
Total Energy Services Ltd. (Oil & Gas
Equipment & Services)(b) 354,190 2,012,828
- ------------------------------------------------------------------------
Transat A.T. Inc. (Airlines)(b) 69,350 1,390,635
- ------------------------------------------------------------------------
Trican Well Service Ltd. (Oil & Gas Equipment
& Services)(b) 137,080 7,584,823
- ------------------------------------------------------------------------
Vanguard Response Systems Inc. (Specialty
Chemicals)(b) 436,000 1,832,009
- ------------------------------------------------------------------------
Wajax Ltd. (Industrial Machinery)(b) 141,870 1,676,211
- ------------------------------------------------------------------------
West Energy Ltd. (Oil & Gas Exploration &
Production)(b) 620,000 2,950,784
- ------------------------------------------------------------------------
Western Oil Sands Inc.-Class A (Oil & Gas
Exploration & Production)(b) 68,900 2,399,189
- ------------------------------------------------------------------------
Workbrain Corp. (Application Software)(b) 148,300 2,127,297
========================================================================
70,597,410
========================================================================
CAYMAN ISLANDS-3.74%
China Mengniu Dairy Co. Ltd. (Packaged Foods
& Meats)(b) 1,766,000 1,385,936
- ------------------------------------------------------------------------
Chitaly Holdings Ltd. (Home Furnishings)(a) 1,684,000 1,378,213
- ------------------------------------------------------------------------
Global Bio-chem Technology Group Co.
Ltd.-Wts., expiring 05/31/07
(Biotechnology)(f) 114,250 5,438
- ------------------------------------------------------------------------
Golden Meditech Co. Ltd. (Health Care
Equipment) 2,744,000 691,931
- ------------------------------------------------------------------------
Hengan International Group Co. Ltd. (Personal
Products)(a) 2,558,000 1,679,118
- ------------------------------------------------------------------------
Luen Thai Holdings Ltd. (Distributors)
(Acquired 07/09/04-10/25/04; Cost
$1,225,048)(b)(c) 2,705,000 1,400,734
- ------------------------------------------------------------------------
Norstar Founders Group Ltd. (Auto Parts &
Equipment)(a) 2,000,000 455,728
- ------------------------------------------------------------------------
Sa Sa International Holdings Ltd. (Specialty
Stores)(a) 2,896,000 1,555,574
- ------------------------------------------------------------------------
</Table>
F-1
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
CAYMAN ISLANDS-(CONTINUED)
Shanda Interactive Entertainment Ltd.-ADR
(Home Entertainment Software)(b)(c) 59,950 $ 2,547,875
- ------------------------------------------------------------------------
Solomon Systech International Ltd.
(Semiconductors)(a) 8,546,000 2,118,521
========================================================================
13,219,068
========================================================================
CHINA-0.97%
Tong Ren Tang Technologies Co. Ltd.-Class H
(Pharmaceuticals) 400,000 877,419
- ------------------------------------------------------------------------
Weiqiao Textile Co. Ltd.-Class H (Textiles)
(Acquired 09/19/03-10/25/04; Cost
$1,237,509)(a)(c) 927,000 1,460,027
- ------------------------------------------------------------------------
Yantai North Andre Juice Co. Ltd.-Class H
(Packaged Foods & Meats) 8,265,000 1,084,590
========================================================================
3,422,036
========================================================================
DENMARK-0.72%
Topdanmark A.S. (Multi-Line Insurance)(a)(b) 32,443 2,554,177
========================================================================
FINLAND-0.60%
Nokian Renkaat Oyj (Tires & Rubber)(a) 14,045 2,122,685
========================================================================
FRANCE-5.30%
Camaieu (Apparel Retail)(a) 28,615 2,841,018
- ------------------------------------------------------------------------
Eiffage S.A. (Construction & Engineering)
(Acquired 03/26/04-11/22/04; Cost
$2,562,122)(a)(c) 33,370 3,855,876
- ------------------------------------------------------------------------
Elior (Restaurants)(a) 291,300 3,311,990
- ------------------------------------------------------------------------
Eramet SLN (Diversified Metals & Mining) 15,600 1,400,885
- ------------------------------------------------------------------------
Euler Hermes S.A. (Property & Casualty
Insurance)(a) 49,320 3,397,255
- ------------------------------------------------------------------------
Trigano (Leisure Products)(a) 47,375 3,912,266
========================================================================
18,719,290
========================================================================
GERMANY-5.13%
Bijou Brigitte Modische Accessoires A.G.
(Apparel, Accessories & Luxury Goods)(a) 40,430 5,354,713
- ------------------------------------------------------------------------
Puma A.G. Rudolf Dassler Sport (Footwear)
(Acquired 01/30/02-02/13/04; Cost
$933,270)(a)(c) 11,819 3,246,411
- ------------------------------------------------------------------------
Rheinmetall A.G.-Pfd. (Industrial
Conglomerates)(a) 77,161 4,022,723
- ------------------------------------------------------------------------
Techem A.G. (Diversified Commercial
Services)(b) 151,280 5,489,403
========================================================================
18,113,250
========================================================================
GREECE-1.32%
Germanos S.A. (Computer & Electronics
Retail)(a) 69,821 2,062,989
- ------------------------------------------------------------------------
Titan Cement Co. S.A. (Construction
Materials)(a) 88,200 2,608,088
========================================================================
4,671,077
========================================================================
HONG KONG-1.52%
Dah Sing Banking Group Ltd. (Diversified
Banks) 753,840 1,561,448
- ------------------------------------------------------------------------
Dah Sing Financial Group (Diversified
Banks)(a) 95,200 739,152
- ------------------------------------------------------------------------
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
HONG KONG-(CONTINUED)
Techtronic Industries Co. Ltd. (Household
Appliances) (Acquired 04/24/02-08/19/04;
Cost $639,888)(a)(c) 600,000 $ 1,307,691
- ------------------------------------------------------------------------
Wing Hang Bank Ltd. (Diversified Banks)(a) 252,000 1,770,888
========================================================================
5,379,179
========================================================================
INDIA-1.66%
Bharat Forge Ltd. (Auto Parts & Equipment) 52,290 1,291,131
- ------------------------------------------------------------------------
Bharat Forge Ltd.-Wts., expiring 09/30/06
(Auto Parts & Equipment)(f) 1,245 4,726
- ------------------------------------------------------------------------
HDFC Bank Ltd. (Diversified Banks)(a) 172,000 2,058,543
- ------------------------------------------------------------------------
Housing Development Finance Corp. Ltd.
(Thrifts & Mortgage Finance) 78,000 1,374,645
- ------------------------------------------------------------------------
Wockhardt Ltd. (Pharmaceuticals) 141,600 1,152,149
========================================================================
5,881,194
========================================================================
IRELAND-3.44%
Anglo Irish Bank Corp. PLC (Diversified
Banks)(a) 155,365 3,767,734
- ------------------------------------------------------------------------
Depfa Bank PLC (Diversified Banks)(a) 72,910 1,223,650
- ------------------------------------------------------------------------
Grafton Group PLC (Trading Companies &
Distributors)(b)(g) 239,830 2,602,635
- ------------------------------------------------------------------------
Kingspan Group PLC (Building Products) 272,900 2,609,831
- ------------------------------------------------------------------------
Paddy Power PLC (Casinos & Gaming)(a) 131,800 1,936,620
========================================================================
12,140,470
========================================================================
ITALY-0.97%
Lottomatica S.p.A. (Casinos & Gaming)(a) 94,400 3,442,914
========================================================================
JAPAN-5.67%
ARGO GRAPHICS Inc. (IT Consulting & Other
Services)(a) 57,500 1,490,054
- ------------------------------------------------------------------------
Clarion Co., Ltd. (Consumer
Electronics)(a)(b) 1,057,000 2,491,159
- ------------------------------------------------------------------------
Daiwa House Industry Co., Ltd.
(Homebuilding)(a) 94,000 1,071,125
- ------------------------------------------------------------------------
Mars Engineering Corp. (Leisure Products)(a) 60,100 2,038,437
- ------------------------------------------------------------------------
NEOMAX Co., Ltd. (Electrical Components &
Equipment)(a) 120,000 2,129,373
- ------------------------------------------------------------------------
NHK Spring Co., Ltd. (Auto Parts &
Equipment)(a) 414,000 2,836,491
- ------------------------------------------------------------------------
NOK Corp. (Auto Parts & Equipment)(a) 23,000 721,291
- ------------------------------------------------------------------------
OMRON Corp. (Electronic Equipment
Manufacturers)(a) 74,600 1,780,940
- ------------------------------------------------------------------------
Sekisui Chemical Co., Ltd. (Homebuilding)(a) 172,000 1,260,549
- ------------------------------------------------------------------------
Stanley Electric Co., Ltd. (Auto Parts &
Equipment)(a) 171,800 2,951,252
- ------------------------------------------------------------------------
USS Co., Ltd. (Specialty Stores)(a) 15,100 1,268,471
========================================================================
20,039,142
========================================================================
LUXEMBOURG-0.55%
SBS Broadcasting S.A. (Broadcasting & Cable
TV)(b) 48,470 1,949,948
========================================================================
</Table>
F-2
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
MALAYSIA-0.71%
Maxis Communications Berhad (Wireless
Telecommunication Services)(a) 476,600 $ 1,173,216
- ------------------------------------------------------------------------
Public Bank Berhad (Diversified Banks)(a) 672,950 1,345,072
========================================================================
2,518,288
========================================================================
MEXICO-1.46%
Consorcio ARA, S.A. de C.V. (Homebuilding)(b) 463,100 1,393,251
- ------------------------------------------------------------------------
Corporacion GEO, S.A. de C.V.-Series B
(Homebuilding)(b) 687,600 1,377,052
- ------------------------------------------------------------------------
Grupo Financiero Banorte S.A. de C.V.-Class O
(Diversified Banks) 380,600 2,399,472
========================================================================
5,169,775
========================================================================
NETHERLANDS-3.07%
Aalberts Industries N.V. (Industrial
Conglomerates)(a) 110,121 5,318,731
- ------------------------------------------------------------------------
Axalto Holding N.V. (Computer Storage &
Peripherals)(b) 44,400 1,153,378
- ------------------------------------------------------------------------
Koninklijke BAM Groep N.V. (Construction &
Engineering)(a) 87,100 4,363,990
========================================================================
10,836,099
========================================================================
NORWAY-4.11%
Aktiv Kapital A.S.A. (Specialized Finance) 266,554 5,930,940
- ------------------------------------------------------------------------
Ekornes A.S.A. (Home Furnishings)(a) 41,336 896,813
- ------------------------------------------------------------------------
Schibsted A.S.A. (Publishing)(a) 117,000 3,307,014
- ------------------------------------------------------------------------
TGS Nopec Geophysical Co. A.S.A. (Oil & Gas
Equipment & Services)(a)(b) 171,780 4,372,914
========================================================================
14,507,681
========================================================================
PHILIPPINES-0.45%
Philippine Long Distance Telephone Co.
(Integrated Telecommunication
Services)(a)(b) 64,500 1,583,886
========================================================================
PORTUGAL-0.61%
SonaeCom, SGPS, S.A. (Wireless
Telecommunication Services)(a)(b) 417,600 2,148,697
========================================================================
SINGAPORE-1.39%
Keppel Corp. Ltd. (Industrial
Conglomerates)(a) 148,000 780,244
- ------------------------------------------------------------------------
Keppel Land Ltd. (Real Estate Management &
Development)(a) 1,184,000 1,632,819
- ------------------------------------------------------------------------
SembCorp Logistics Ltd. (Marine Ports &
Services) 1,032,000 1,093,904
- ------------------------------------------------------------------------
Sunningdale Precision Industries Ltd.
(Industrial Machinery)(a) 2,918,000 1,388,048
========================================================================
4,895,015
========================================================================
SOUTH AFRICA-0.84%
Massmart Holdings Ltd. (Hypermarkets & Super
Centers) 369,600 2,954,791
========================================================================
SOUTH KOREA-2.26%
Cheil Communications Inc. (Advertising)(a)(b) 8,600 1,249,390
- ------------------------------------------------------------------------
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
SOUTH KOREA-(CONTINUED)
CJ Corp. (Packaged Foods & Meats)(a)(b) 26,610 $ 1,812,301
- ------------------------------------------------------------------------
Core Logic (Electronic Manufacturing
Services) 56,310 1,770,567
- ------------------------------------------------------------------------
Hana Bank (Diversified Banks)(a)(b) 53,600 1,334,964
- ------------------------------------------------------------------------
Hyundai Department Store Co., Ltd.
(Department Stores)(a)(b) 55,400 1,807,429
========================================================================
7,974,651
========================================================================
SPAIN-0.97%
Corporacion Mapfre S.A. (Multi-Line
Insurance)(a) 151,830 2,231,423
- ------------------------------------------------------------------------
Gestevision Telecinco S.A. (Broadcasting &
Cable TV) (Acquired 06/23/04; Cost
$712,386)(b)(c) 58,000 1,194,317
========================================================================
3,425,740
========================================================================
SWITZERLAND-3.96%
Amazys Holding A.G. (Diversified Commercial
Services)(a) 60,000 3,253,736
- ------------------------------------------------------------------------
Leica Geosystems A.G. (Electronic Equipment
Manufacturers)(a)(b) 17,200 5,268,679
- ------------------------------------------------------------------------
SAIA-Burgess Electronics A.G. (Electronic
Equipment Manufacturers)(a) 4,950 2,945,314
- ------------------------------------------------------------------------
Saurer A.G. (Industrial Machinery)(a)(b) 43,400 2,541,197
========================================================================
14,008,926
========================================================================
TAIWAN-1.54%
Catcher Technology Co., Ltd. (Computer
Storage & Peripherals)(a) 599,200 1,977,266
- ------------------------------------------------------------------------
Hotai Motor Co. Ltd. (Automobile
Manufacturers)(a) 990,000 2,032,484
- ------------------------------------------------------------------------
Merry Electronics Co., Ltd. (Consumer
Electronics)(a) 555,954 1,331,950
- ------------------------------------------------------------------------
Novatek Microelectronics Corp., Ltd.
(Semiconductors)(a) 31,194 109,469
========================================================================
5,451,169
========================================================================
THAILAND-0.68%
Siam Commercial Bank PCL (Diversified
Banks)(a) 1,925,000 2,410,098
========================================================================
UNITED KINGDOM-10.66%
Admiral Group PLC (Property & Casualty
Insurance) (Acquired 09/23/04-12/29/04;
Cost $1,450,709)(b)(c) 278,800 1,724,891
- ------------------------------------------------------------------------
Balfour Beatty PLC (Construction &
Engineering)(a) 395,600 2,388,216
- ------------------------------------------------------------------------
Cattles PLC (Consumer Finance) 254,720 1,793,363
- ------------------------------------------------------------------------
Enterprise Inns PLC (Restaurants)(a) 180,740 2,748,192
- ------------------------------------------------------------------------
Findel PLC (Catalog Retail)(a) 222,900 2,027,327
- ------------------------------------------------------------------------
Homeserve PLC (Diversified Commercial
Services) 295,800 4,324,066
- ------------------------------------------------------------------------
Johnston Press PLC (Publishing)(a) 173,390 1,800,422
- ------------------------------------------------------------------------
Kensington Group PLC (Thrifts & Mortgage
Finance)(a) 182,720 1,678,225
- ------------------------------------------------------------------------
McBride PLC (Household Products)(a) 1,134,010 3,065,224
- ------------------------------------------------------------------------
NDS Group PLC-ADR (Application Software)(b) 98,300 3,349,966
- ------------------------------------------------------------------------
Savills PLC (Other Diversified Financial
Services) 244,225 2,440,996
- ------------------------------------------------------------------------
</Table>
F-3
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
UNITED KINGDOM-(CONTINUED)
Sportingbet PLC (Casinos & Gaming)(a)(b) 1,036,600 $ 3,757,147
- ------------------------------------------------------------------------
T&F Informa PLC (Publishing) 404,614 2,930,198
- ------------------------------------------------------------------------
Warner Chilcott PLC (Pharmaceuticals) 70,200 1,158,176
- ------------------------------------------------------------------------
WS Atkins PLC (Diversified Commercial
Services)(a) 181,355 2,483,866
========================================================================
37,670,275
========================================================================
Total Foreign Stocks & Other Equity
Interests (Cost $239,167,228) 323,690,698
========================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
MONEY MARKET FUNDS-8.29%
Liquid Assets Portfolio-Institutional
Class(h) 14,652,276 $ 14,652,276
- ------------------------------------------------------------------------
STIC Prime Portfolio-Institutional Class(h) 14,652,276 14,652,276
========================================================================
Total Money Market Funds (Cost
$29,304,552) 29,304,552
========================================================================
TOTAL INVESTMENTS-99.90% (Cost $268,471,780) 352,995,250
========================================================================
OTHER ASSETS LESS LIABILITIES-0.10% 343,237
========================================================================
NET ASSETS-100.00% $353,338,487
________________________________________________________________________
========================================================================
</Table>
Investment Abbreviations:
<Table>
ADR - American Depositary Receipt
Pfd. - Preferred
Wts. - Warrants
</Table>
Notes to Schedule of Investments:
(a) 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 December 31, 2004 was
$178,575,072, which represented 50.59% of the Fund's Total Investments. See
Note 1A.
(b) Non-income producing security.
(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 December 31, 2004 was
$20,629,211, which represented 5.84% of the Fund 's Net Assets. Unless
otherwise indicated these securities are not considered to be illiquid.
(d) Security considered to be illiquid. The market value of this security
considered illiquid at December 31, 2004 represented 1.16% of the Fund's Net
Assets.
(e) Security fair valued in good faith in accordance with the procedures
established by the Board of Trustees. The market value of this security at
December 31, 2004 represented 1.16% of the Fund's Total Investments. See
Note 1A.
(f) Non-income producing security acquired as part of a unit with or in exchange
for other securities.
(g) Each unit represents one ordinary share, one ordinary C share and nine
ordinary A shares.
(h) The money market fund and the Fund are affiliated by having the same
investment advisor. See Note 3.
See accompanying notes which are an integral part of the financial statements.
F-4
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2004
<Table>
ASSETS:
Investments, at market value (cost
$239,167,228) $323,690,698
- -----------------------------------------------------------
Investments in affiliated money market funds
(cost $29,304,552) 29,304,552
===========================================================
Total investments (cost $268,471,780) 352,995,250
===========================================================
Foreign currencies, at market value (cost
$2,473,153) 2,519,115
- -----------------------------------------------------------
Receivables for:
Investments sold 1,724,506
- -----------------------------------------------------------
Fund shares sold 4,438,252
- -----------------------------------------------------------
Dividends 739,715
- -----------------------------------------------------------
Investment for trustee deferred compensation
and retirement plans 24,095
- -----------------------------------------------------------
Other assets 61,483
===========================================================
Total assets 362,502,416
___________________________________________________________
===========================================================
LIABILITIES:
Payables for:
Investments purchased 8,126,760
- -----------------------------------------------------------
Fund shares reacquired 680,323
- -----------------------------------------------------------
Trustee deferred compensation and
retirement plans 26,670
- -----------------------------------------------------------
Accrued distribution fees 156,276
- -----------------------------------------------------------
Accrued transfer agent fees 38,289
- -----------------------------------------------------------
Accrued operating expenses 135,611
===========================================================
Total liabilities 9,163,929
===========================================================
Net assets applicable to shares outstanding $353,338,487
___________________________________________________________
===========================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $269,345,292
- -----------------------------------------------------------
Undistributed net investment income (loss) (21,967)
- -----------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities and foreign
currencies (457,096)
- -----------------------------------------------------------
Unrealized appreciation of investment
securities, foreign currencies and futures
contracts 84,472,258
===========================================================
$353,338,487
___________________________________________________________
===========================================================
NET ASSETS:
Class A $257,578,890
___________________________________________________________
===========================================================
Class B $ 47,941,767
___________________________________________________________
===========================================================
Class C $ 47,817,830
___________________________________________________________
===========================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER
SHARE, UNLIMITED NUMBER OF SHARES
AUTHORIZED:
Class A 15,933,590
___________________________________________________________
===========================================================
Class B 3,031,921
___________________________________________________________
===========================================================
Class C 3,025,009
___________________________________________________________
===========================================================
Class A:
Net asset value per share $ 16.17
- -----------------------------------------------------------
Offering price per share:
(Net asset value of $16.17 divided by
94.50%) $ 17.11
___________________________________________________________
===========================================================
Class B:
Net asset value and offering price per
share $ 15.81
___________________________________________________________
===========================================================
Class C:
Net asset value and offering price per
share $ 15.81
___________________________________________________________
===========================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
F-5
STATEMENT OF OPERATIONS
For the year ended December 31, 2004
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $456,976) $ 3,007,124
- -------------------------------------------------------------------------
Dividends from affiliated money market funds 135,911
- -------------------------------------------------------------------------
Interest 7,800
=========================================================================
Total investment income 3,150,835
=========================================================================
EXPENSES:
Advisory fees 1,828,269
- -------------------------------------------------------------------------
Administrative services fees 50,000
- -------------------------------------------------------------------------
Custodian fees 309,059
- -------------------------------------------------------------------------
Distribution fees:
Class A 495,861
- -------------------------------------------------------------------------
Class B 273,185
- -------------------------------------------------------------------------
Class C 234,563
- -------------------------------------------------------------------------
Transfer agent fees 429,862
- -------------------------------------------------------------------------
Trustees' fees and retirement benefits 17,510
- -------------------------------------------------------------------------
Other 246,697
=========================================================================
Total expenses 3,885,006
=========================================================================
Less: Fees waived, expenses reimbursed and expense offset
arrangement (37,258)
=========================================================================
Net expenses 3,847,748
=========================================================================
Net investment income (loss) (696,913)
=========================================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES, FOREIGN CURRENCIES AND FUTURES CONTRACTS:
Net realized gain from:
Investment securities (Net of tax on sale of foreign
investments of $90,696) -- Note 1G 5,950,394
- -------------------------------------------------------------------------
Foreign currencies 140,539
=========================================================================
6,090,933
=========================================================================
Change in net unrealized appreciation (depreciation) of:
Investment securities (Net of tax on sale of foreign
investments of $47,079) -- Note 1G 59,958,824
- -------------------------------------------------------------------------
Foreign currencies 13,603
- -------------------------------------------------------------------------
Futures contracts (21)
=========================================================================
59,972,406
=========================================================================
Net gain from investment securities, foreign currencies and
futures contracts 66,063,339
=========================================================================
Net increase in net assets resulting from operations $65,366,426
_________________________________________________________________________
=========================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
F-6
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 2004 and 2003
<Table>
<Caption>
2004 2003
- ------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (696,913) $ (284,447)
- ------------------------------------------------------------------------------------------
Net realized gain from investment securities, foreign
currencies and future contracts 6,090,933 5,752,968
- ------------------------------------------------------------------------------------------
Change in net unrealized appreciation of investment
securities, foreign currencies and futures contracts 59,972,406 23,348,468
==========================================================================================
Net increase in net assets resulting from operations 65,366,426 28,816,989
==========================================================================================
Distributions to shareholders from net investment
income -- Class A (60,067) (120,788)
==========================================================================================
Distributions to shareholders from net realized gains:
Class A (3,378,922) --
- ------------------------------------------------------------------------------------------
Class B (646,759) --
- ------------------------------------------------------------------------------------------
Class C (626,531) --
==========================================================================================
Decrease in net assets resulting from distributions (4,712,279) (120,788)
==========================================================================================
Share transactions-net:
Class A 126,403,770 56,079,420
- ------------------------------------------------------------------------------------------
Class B 22,472,939 8,070,154
- ------------------------------------------------------------------------------------------
Class C 30,787,540 3,704,141
==========================================================================================
Net increase in net assets resulting from share
transactions 179,664,249 67,853,715
==========================================================================================
Net increase in net assets 240,318,396 96,549,916
==========================================================================================
NET ASSETS:
Beginning of year 113,020,091 16,470,175
==========================================================================================
End of year (including undistributed net investment income
(loss) of $(21,967) and $(77,408), respectively) $353,338,487 $113,020,091
__________________________________________________________________________________________
==========================================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
F-7
NOTES TO FINANCIAL STATEMENTS
December 31, 2004
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM International Small Company Fund, formerly AIM International Emerging Growth
Fund, (the "Fund") is a series portfolio of AIM Funds Group (the "Trust"). The
Trust is a Delaware statutory trust registered under the Investment Company Act
of 1940, as amended (the "1940 Act"), as an open-end series management
investment company consisting of nine separate portfolios, each authorized to
issue an unlimited number of shares of beneficial interest. The Fund currently
offers multiple classes of shares. Matters affecting each portfolio or class
will be voted on exclusively by the shareholders of such portfolio or class. The
assets, liabilities and operations of each portfolio are accounted for
separately. Information presented in these financial statements pertains only to
the Fund.
The Fund's investment objective is to achieve long-term growth of capital.
Companies are listed in the Schedule of Investments based on the country in
which they are organized.
Under the Trust's organizational documents, each Trustee, officer, employee
or other agent of the Trust (including the Trust's investment manager) is
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-8
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 -- Foreign currency is valued at the close of
the NYSE based on quotations posted by banks and major currency dealers.
Portfolio securities and other assets and liabilities denominated in
foreign currencies are translated into U.S. dollar amounts at date of
valuation. Purchases and sales of portfolio securities (net of foreign
taxes withheld on disposition) and income items denominated in foreign
currencies are translated into U.S. dollar amounts on the respective dates
of such transactions. The Fund does not separately account for the portion
of the results of operations resulting from changes in foreign exchange
rates on investments and the fluctuations arising from changes in market
prices of securities held. The combined results of changes in foreign
exchange rates and the fluctuation of market prices on investments (net of
estimated foreign tax withholding) are included with the net realized and
unrealized gain or loss from investments in the Statement of Operations.
Reported net realized foreign currency gains or losses arise from, (i)
sales of foreign currencies, (ii) currency gains or losses realized between
the trade and settlement dates on securities transactions, and (iii) the
difference between the amounts of dividends, interest, and foreign
withholding taxes recorded on the Fund's books and the U.S. dollar
equivalent of the amounts actually received or paid. Net unrealized foreign
currency gains and losses arise from changes in the fair values of assets
and liabilities, other than investments in securities at fiscal period end,
resulting from changes in exchange rates.
H. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to attempt
to minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency
contract for the purchase or sale of a security denominated in a foreign
currency in order to "lock in" the U.S. dollar price of that security. The
Fund could be exposed to risk if counterparties to the contracts are unable
to meet the terms of their contracts or if the value of the foreign
currency changes unfavorably.
I. FUTURES CONTRACTS -- The Fund may purchase or sell futures contracts as a
hedge against changes in market conditions. Initial margin deposits
required upon entering into futures contracts are satisfied by the
segregation of specific securities as collateral for the account of the
broker (the Fund's agent in acquiring the futures position). During the
period the futures contracts are open, changes in the value of the
contracts are recognized as unrealized gains or losses by "marking to
market" on a daily basis to reflect the market value of the contracts at
the end of each day's trading. Variation margin payments are made or
received depending upon whether unrealized gains or losses are incurred.
When the contracts are closed, the Fund recognizes a realized gain or loss
equal to the difference between the proceeds from, or cost of, the closing
transaction and the Fund's basis in the contract. If the Fund were unable
to liquidate a futures contract and/or enter into an offsetting closing
transaction, the Fund would continue to be subject to market risk with
respect to the value of the contracts and continue to be required to
maintain the margin deposits on the futures contracts.
F-9
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement,
the Fund pays an advisory fee to AIM at the annual rate of 0.95% of the Fund's
average daily net assets. Effective January 1, 2005 through December 31, 2009,
AIM has contractually agreed to waive advisory fees to the extent necessary so
that the advisory fees payable by the Fund (based on the Fund's average daily
net assets) do not exceed the annual rate of 0.935% of the first $250 million,
plus 0.91% of the next $250 million, plus 0.885% of the next $500 million, plus
0.86% of the next $1.5 billion, plus 0.835% of the next $2.5 billion, plus 0.81%
of the next $2.5 billion, plus 0.785% of the next $2.5 billion, plus 0.76% of
the Fund's average daily net assets in excess of $10 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%, 2.65%
and 2.65% of average daily net assets, respectively, through December 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 limit 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. AIM did not waive fees and/or
reimburse expenses during the period under this expense limitation. 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 December 31, 2004, AIM waived fees of $1,642.
For the year ended December 31, 2004, at the request of the Trustees of the
Trust, AMVESCAP PLC ("AMVESCAP") agreed to reimburse $33,283 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. Pursuant to such agreement for the year ended
December 31, 2004, AIM was paid $50,000.
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
December 31, 2004, the Fund paid AISI $429,862. AISI may make payments to
intermediaries that 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 0.35% 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. AIM Distributors did not reimburse fees
during the period under this expense limitation. Pursuant to the Plans, for the
year ended December 31, 2004, the Class A, Class B and Class C shares paid
$495,861, $273,185 and $234,563, respectively.
Front-end sales commissions and contingent deferred sales charges ("CDSC")
(collectively the "sales charges") are not recorded as expenses of the Fund.
Front-end sales commissions are deducted from proceeds from the sales of Fund
shares prior to investment in Class A shares of the Fund. CDSC are deducted from
redemption proceeds prior to remittance to the shareholder. During year ended
December 31, 2004, AIM Distributors advised the Fund that it retained $164,316
in front-end sales commissions from the sale of Class A shares and $50,130,
$18,191 and $36,764 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
December 31, 2004.
F-10
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 12/31/03 AT COST FROM SALES (DEPRECIATION) 12/31/04 INCOME GAIN (LOSS)
- ----------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $4,055,406 $ 73,608,722 $ (63,011,852) $ -- $14,652,276 $ 68,175 $ --
- ----------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-
Institutional
Class 4,055,406 73,608,722 (63,011,852) -- 14,652,276 67,736 --
==================================================================================================================================
Total $8,110,812 $147,217,444 $(126,023,704) $ -- $29,304,552 $135,911 $ --
__________________________________________________________________________________________________________________________________
==================================================================================================================================
</Table>
NOTE 4--EXPENSE OFFSET ARRANGEMENT
The expense offset arrangement is comprised of transfer agency credits which
result from balances in Demand Deposit Accounts (DDA) used by the transfer agent
for clearing shareholder transactions. For the year ended December 31, 2004, the
Fund received credits in transfer agency fees of $2,333 under an expense offset
arrangement, which resulted in a reduction of the Fund's total expenses of
$2,333.
NOTE 5--TRUSTEES' FEES
Trustees' fees represent remuneration paid to each Trustee of the Trust who is
not an "interested person" of AIM. Trustees have the option to defer
compensation payable by the Trust. Those Trustees who defer compensation have
the option to select various AIM Funds 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 December 31, 2004, the Fund paid legal fees of $2,996
for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the
Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 6--BORROWINGS
Pursuant to an exemptive order from the SEC, the Fund may participate in an
interfund lending facility that AIM has established for temporary borrowings by
the AIM Funds. 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 December 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 7--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
DISTRIBUTIONS TO SHAREHOLDERS:
The tax character of distributions paid during the years ended December 31, 2004
and 2003 was as follows:
<Table>
<Caption>
2004 2003
- ------------------------------------------------------------------------------------
Distributions paid from:
Ordinary income $1,464,397 $120,788
- ------------------------------------------------------------------------------------
Long-term capital gain 3,247,882 --
====================================================================================
Total distributions $4,712,279 $120,788
____________________________________________________________________________________
====================================================================================
</Table>
F-11
TAX COMPONENTS OF NET ASSETS:
As of December 31, 2004, the components of net assets on a tax basis were as
follows:
<Table>
<Caption>
2004
- --------------------------------------------------------------------------
Undistributed ordinary income $ 478,007
- --------------------------------------------------------------------------
Unrealized appreciation -- investments 83,942,218
- --------------------------------------------------------------------------
Temporary book/tax differences (21,967)
- --------------------------------------------------------------------------
Post-October capital loss deferral (405,063)
- --------------------------------------------------------------------------
Shares of beneficial interest 269,345,292
==========================================================================
Total net assets $353,338,487
__________________________________________________________________________
==========================================================================
</Table>
The difference between book-basis and tax-basis unrealized appreciation
(depreciation) is due to differences in the timing of recognition of gains and
losses on investments for tax and book purposes. The Fund's unrealized
appreciation difference is attributable primarily to the deferral of losses on
wash sales. The tax-basis unrealized appreciation on investments amount includes
appreciation (depreciation) on foreign currencies and accrued tax on certain
unrealized gains of $(51,211).
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.
There was no capital loss carryforward for the year ended December 31, 2004.
NOTE 8--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities
and money market funds) purchased and sold by the Fund during the year ended
December 31, 2004 was $314,025,223 and $158,935,700, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- -------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $84,632,502
- -------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (639,073)
===============================================================================
Net unrealized appreciation of investment securities $83,993,429
_______________________________________________________________________________
===============================================================================
Cost of investments for tax purposes is $269,001,821.
</Table>
NOTE 9--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of foreign currency
transactions excise taxes, treatment of passive foreign investment companies,
distribution reclassification, the use of proceeds from redemption as
distributions, treatment of foreign capital gain tax and net operating losses,
on December 31, 2004, undistributed net investment income was increased by
$812,421, undistributed net realized gain (loss) was decreased by $1,933,211 and
shares of beneficial interest increased by $1,120,790. This reclassification had
no effect on the net assets of the Fund.
F-12
NOTE 10--SHARE INFORMATION
The Fund currently offers three different classes of shares: Class A shares,
Class B shares and Class C shares. Class A shares are sold with a front-end
sales charge. Class B shares and Class C shares are sold with CDSC. Under
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 DECEMBER 31,
---------------------------------------------------------
2004 2003
--------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
- -----------------------------------------------------------------------------------------------------------------------
Sold:
Class A 16,386,746 $ 224,397,563 11,919,761 $109,893,228
- -----------------------------------------------------------------------------------------------------------------------
Class B 2,424,445 32,530,604 1,165,952 11,299,951
- -----------------------------------------------------------------------------------------------------------------------
Class C 3,054,037 40,985,997 2,225,582 18,994,606
=======================================================================================================================
Issued as reinvestment of dividends:
Class A 171,758 2,658,846 7,488 87,303
- -----------------------------------------------------------------------------------------------------------------------
Class B 40,784 617,885 -- --
- -----------------------------------------------------------------------------------------------------------------------
Class C 39,308 595,120 -- --
=======================================================================================================================
Automatic conversion of Class B shares to Class A shares:
Class A 124,568 1,742,784 33,321 340,599
- -----------------------------------------------------------------------------------------------------------------------
Class B (127,016) (1,742,784) (33,826) (340,599)
=======================================================================================================================
Reacquired:(b)
Class A (7,975,559) (102,395,423) (6,138,550) (54,241,710)
- -----------------------------------------------------------------------------------------------------------------------
Class B (697,463) (8,932,766) (313,814) (2,889,198)
- -----------------------------------------------------------------------------------------------------------------------
Class C (843,079) (10,793,577) (1,867,698) (15,290,465)
=======================================================================================================================
12,598,529 $ 179,664,249 6,998,216 $ 67,853,715
_______________________________________________________________________________________________________________________
=======================================================================================================================
</Table>
(a) There is one entity that is a record owner of more than 5% of the
outstanding shares of the Fund and owns 10% 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 entity is also owned
beneficially.
(b) Net of redemption fees of $22,491, $3,963 and $3,254 for Class A, Class B
and Class C shares for 2004, respectively, and $121, $28 and $17 for Class
A, Class B, and Class C shares for 2003, respectively, based on the relative
net assets of each class.
F-13
NOTE 11--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
CLASS A
------------------------------------------------------------------------
AUGUST 31, 2000
(DATE OPERATIONS
YEAR ENDED DECEMBER 31, COMMENCED) TO
------------------------------------------------- DECEMBER 31,
2004 2003 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 12.08 $ 6.91 $ 7.10 $ 7.97 $ 10.00
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.03)(a) (0.04)(a) (0.06)(a) (0.08)(a) (0.03)(a)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 4.34 5.24 (0.13) (0.76) (2.00)
=================================================================================================================================
Total from investment operations 4.31 5.20 (0.19) (0.84) (2.03)
=================================================================================================================================
Less distributions:
Dividends from net investment income (0.00) (0.03) -- (0.03) --
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains (0.22) -- -- -- --
=================================================================================================================================
Total distributions (0.22) (0.03) -- (0.03) --
=================================================================================================================================
Redemptions fees added to shares of beneficial interest 0.00 0.00 -- -- --
=================================================================================================================================
Net asset value, end of period $ 16.17 $ 12.08 $ 6.91 $ 7.10 $ 7.97
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) 35.83% 75.10% (2.68)% (10.48)% (20.30)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $257,579 $87,269 $9,703 $ 5,202 $ 5,625
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.83%(c) 2.00% 2.01% 2.00%(d) 2.11%(e)
- ---------------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.85%(c) 2.35% 3.03% 4.53%(d) 6.83%(e)
=================================================================================================================================
Ratio of net investment income (loss) to average net
assets (0.19)%(c) (0.46)% (0.85)% (1.12)% (1.09)%(e)
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(f) 87% 93% 118% 145% 30%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Does not include sales charges and is not
annualized for periods less than one year.
(c) Ratios are based on average daily net assets of $141,674,613.
(d) Ratio of expenses to average net assets including interest expense were
2.02% and 4.55% with and without fee waivers and/or expense
reimbursements, respectively. Ratio of interest expense to average net
assets was 0.02%.
(e) Annualized.
(f) Not annualized for periods less than one year.
F-14
NOTE 11--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS B
-----------------------------------------------------------------------
AUGUST 31, 2000
(DATE OPERATIONS
YEAR ENDED DECEMBER 31, COMMENCED) TO
------------------------------------------------ DECEMBER 31,
2004 2003 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 11.89 $ 6.84 $ 7.07 $ 7.95 $ 10.00
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.11)(a) (0.10)(a) (0.11)(a) (0.13)(a) (0.05)(a)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 4.25 5.15 (0.12) (0.75) (2.00)
=================================================================================================================================
Total from investment operations 4.14 5.05 (0.23) (0.88) (2.05)
=================================================================================================================================
Less distributions from net realized gains (0.22) -- -- -- --
=================================================================================================================================
Redemptions fees added to shares of beneficial interest 0.00 0.00 -- -- --
=================================================================================================================================
Net asset value, end of period $ 15.81 $ 11.89 $ 6.84 $ 7.07 $ 7.95
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) 34.94% 73.83% (3.25)% (11.07)% (20.50)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $47,942 $16,543 $3,918 $ 2,016 $ 1,992
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 2.48%(c) 2.65% 2.66% 2.70%(d) 2.81%(e)
- ---------------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 2.50%(c) 3.00% 3.68% 5.23%(d) 7.53%(e)
=================================================================================================================================
Ratio of net investment income (loss) to average net
assets (0.84)%(c) (1.11)% (1.50)% (1.83)% (1.79)%(e)
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(f) 87% 93% 118% 145% 30%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Does not include sales charges and is not
annualized for periods less than one year.
(c) Ratios are based on average daily net assets of $27,318,464.
(d) Ratio of expenses to average net assets including interest expense were
2.72% and 5.25% with and without fee waivers and/or expense
reimbursements, respectively. Ratio of interest expense to average net
assets was 0.02%.
(e) Annualized.
(f) Not annualized for periods less than one year.
F-15
NOTE 11--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS C
----------------------------------------------------------------------
AUGUST 31, 2000
(DATE OPERATIONS
YEAR ENDED DECEMBER 31, COMMENCED) TO
----------------------------------------------- DECEMBER 31,
2004 2003 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 11.89 $ 6.83 $ 7.07 $ 7.95 $ 10.00
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.11)(a) (0.10)(a) (0.11)(a) (0.13)(a) (0.05)(a)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 4.25 5.16 (0.13) (0.75) (2.00)
=================================================================================================================================
Total from investment operations 4.14 5.06 (0.24) (0.88) (2.05)
=================================================================================================================================
Less distributions from net realized gains (0.22) -- -- -- --
=================================================================================================================================
Redemptions fees added to shares of beneficial interest 0.00 0.00 -- -- --
=================================================================================================================================
Net asset value, end of period $ 15.81 $11.89 $ 6.83 $ 7.07 $ 7.95
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) 34.94% 74.09% (3.39)% (11.07)% (20.50)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $47,818 $9,208 $2,849 $ 2,588 $ 2,649
=================================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 2.48%(c) 2.65% 2.66% 2.70%(d) 2.81%(e)
- ---------------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 2.50%(c) 3.00% 3.68% 5.23%(d) 7.53%(e)
=================================================================================================================================
Ratio of net investment income (loss) to average net
assets (0.84)%(c) (1.11)% (1.50)% (1.83)% (1.79)%(e)
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(f) 87% 93% 118% 145% 30%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Does not include sales charges and is not
annualized for periods less than one year.
(c) Ratios are based on average daily net assets of $23,456,283.
(d) Ratio of expenses to average net assets including interest expense were
2.72% and 5.25% with and without fee waivers and/or expense
reimbursements, respectively. Ratio of interest expense to average net
assets was 0.02%.
(e) Annualized.
(f) Not annualized for periods less than one year.
NOTE 12--LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
Settled Enforcement Actions and Investigations Related to Market Timing
On October 8, 2004, INVESCO Funds Group, Inc. ("IFG") (the former investment
advisor to certain AIM Funds) and A I M Advisors, Inc. ("AIM") (the Fund's
investment advisor) reached final settlements with certain regulators, including
without limitation the Securities and Exchange Commission ("SEC"), the New York
Attorney General ("NYAG") and the Colorado Attorney General ("COAG"), 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.
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 they 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 and
AIM breached various Federal and state securities, business and consumer
protection laws. On the same date, A I M Distributors, Inc. ("ADI") (the
distributor of the retail AIM Funds) reached a final settlement with the SEC to
resolve an investigation relating to market timing activity and related issues
in the AIM Funds. The SEC also alleged that ADI violated various Federal
securities laws. The SEC also has settled related market timing enforcement
actions brought against certain former officers and employees of IFG.
Under the terms of the settlements, IFG agreed to pay a total of $325
million, of which $110 million is civil penalties. Of this $325 million total
payment, half has been paid 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, all of which has been paid. The entire $325
million IFG settlement payment will be made 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 made 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. 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 certain equity and balanced AIM
F-16
NOTE 12--LEGAL PROCEEDINGS (CONTINUED)
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.
Under the terms of the settlements, AIM will make certain governance and
compliance reforms, including maintaining an internal controls committee and
retaining an independent compliance consultant and a corporate ombudsman. 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.
At the request of the trustees of the AIM Funds, AMVESCAP PLC ("AMVESCAP"),
the parent company of IFG and AIM, has agreed to pay expenses incurred by such
Funds related to market timing matters.
The SEC has also settled market timing enforcement actions 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), 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 these settlements, the SEC ordered these individuals to
pay restitution and civil penalties in various amounts and prohibited them from
associating with, or serving as an officer or director of, an investment
advisor, broker, dealer and/or investment company, as applicable, for certain
periods of time.
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 certain equity and balanced 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 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 payments 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 Regulatory Inquiries and Pending
Litigation described below may have on AIM, ADI or the Fund.
Regulatory Inquiries and Pending Litigation
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 but not limited to revenue sharing and directed-brokerage
arrangements, investments in securities of other registered investment
companies, contractual plans, issues related to Section 529 college savings
plans, procedures for locating lost security holders and participation in class
action settlements.
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.
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,
F-17
NOTE 12--LEGAL PROCEEDINGS (CONTINUED)
the DOL, the Internal Revenue Service, the United States Attorney's Office for
the Southern District of New York, the United States Attorney's Office for the
Central District of California, the United States Attorney's Office for the
District of Massachusetts, the Massachusetts Securities Division, the U.S.
Postal Inspection Service and the Commodity Futures Trading Commission, 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, 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 ("ERISA")
purportedly brought on behalf of participants in AMVESCAP's 401(k) plan. The
plaintiffs in one of the underlying lawsuits continue to seek remand of their
lawsuit 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. ("IINA"), ADI
and/or INVESCO Distributors, Inc. ("INVESCO Distributors")) 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. All of these lawsuits have been transferred to
the United States District Court for the Southern District of Texas, Houston
Division by order of the applicable United States District Court in which they
were initially filed. The plaintiff in one of these lawsuits has challenged this
order.
Private Civil Actions Alleging Improper Charging of Distribution Fees on Limited
Offering Funds or Share Classes
Multiple civil lawsuits, including 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. ("AIS")
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-18
NOTE 12--LEGAL PROCEEDINGS (CONTINUED)
Private Civil Action Alleging Failure to Ensure Participation in Class Action
Settlements
A civil lawsuit, purporting to be a class action lawsuit, has been filed
against AIM, IINA, A I M Capital Management, Inc. and the trustees of the AIM
Funds alleging that the defendants breached their fiduciary duties by failing to
ensure that the AIM Funds participated in class action settlements in which the
AIM Funds were eligible to participate. This lawsuit alleges as theories of
recovery: (i) violation of various provisions of the Federal securities laws;
(ii) common law breach of fiduciary duty; and (iii) common law negligence. This
lawsuit has been filed in Federal court and seeks such remedies as compensatory
and punitive damages; forfeiture of all commissions and fees paid by the class
of plaintiffs; and costs and attorneys' fees.
* * *
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
As a result of the matters discussed above, 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-19
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees and Shareholders of
AIM International Small Company Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of AIM International Small Company
Fund, formerly AIM International Emerging Growth Fund (one of the funds
constituting AIM Funds Group hereafter referred to as the "Fund") at December
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 periods indicated, in conformity with
accounting principles generally accepted in the United States of America. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with 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 December 31, 2004 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
/S/ PRICEWATERHOUSECOOPERS LLP
February 18, 2005
Houston, Texas
F-20
OTHER INFORMATION
TRUSTEES AND OFFICERS
As of December 31, 2004
The address of each trustee and officer of AIM Funds Group (the "Trust"), is 11
Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee oversees 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 1992 Director and Chairman, A I M Management None
Trustee, Vice Chair and Group Inc. (financial services holding
President 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 1987 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 2001 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 2000 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 1998 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 1997 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)
- ---------------------------------------------------------------------------------------------------------------------------------
Carl Frischling -- 1937 1993 Partner, law firm of Kramer Levin Cortland Trust, Inc. (registered
Trustee Naftalis and Frankel LLP investment 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 December 31, 2004
The address of each trustee and officer of AIM Funds Group (the "Trust"), is 11
Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee oversees 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
- -----------------------------------------------------------------------------------------------------------------------------------
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 1998 Formerly: Chief Executive Officer, YWCA None
Trustee of the USA
- -----------------------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 1992 Partner, law firm of Pennock & Cooper None
Trustee
- -----------------------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2001 Retired None
Trustee
- -----------------------------------------------------------------------------------------------------------------------------------
Louis S. Sklar(4) -- 1939 1993 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(5) -- 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.; and Senior Vice
President and General Counsel, Liberty
Funds Group, LLC and Vice President,
A I M Distributors, Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
Robert G. Alley -- 1948 1992 Managing Director, Chief Fixed Income N/A
Vice President Officer and Senior Investment Officer,
A I M Capital Management, Inc. and Vice
President, A I M Advisors, Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
Stuart W. Coco -- 1955 1992 Managing Director and 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 1992 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(4) -- 1940 1999 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. (See footnote (4)
below.)
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) Mr. Sklar and Mr. Larsen retired effective December 31, 2004.
(5) 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 Street
Houston, TX 77046-1173 Suite 100 Suite 2900
Houston, TX 77046-1173 Houston, Texas
77002-5678
COUNSEL TO THE FUND COUNSEL TO THE TRANSFER AGENT CUSTODIAN
INDEPENDENT TRUSTEES
Ballard Spahr AIM Investment State Street Bank and
Andrews & Ingersoll, LLP Kramer, Levin, Naftalis Services, Inc. Trust Company
1735 Market Street & Frankel LLP P.O. Box 4739 225 Franklin Street
Philadelphia, PA 19103-7599 919 Third Avenue Houston, TX 77210-4739 Boston, MA 02110-2801
New York, NY 10022-3852
</Table>
REQUIRED FEDERAL INCOME TAX INFORMATION (UNAUDITED)
Of ordinary dividends paid to shareholders during the Fund's tax year ended
December 31, 2004, 0% is eligible for the dividends received deduction for
corporations. The Fund distributed long-term capital gain of $4,367,882 for the
Fund's tax year ended December 31, 2004.
For its tax year ended December 31, 2004, the Fund designated 100%, or the
maximum amount allowable, of its dividend distribution 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 Growth Fund AIM Total Return Bond Fund
AIM Diversified Dividend Fund AIM International Small Company Fund(7) 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 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. 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) Effective December 30, 2004, AIM
International Emerging Growth Fund was renamed AIM International Small Company
Fund. The fund will close to new investors when net assets reach $500 million.
If used after April 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 $138 billion in assets. AIM is a subsidiary of
AMVESCAP PLC, one of the world's largest independent financial services
companies with $382 billion in assets under management. Data as of December 31,
2004.
AIMinvestments.com ISC-AR-1 A I M Distributors, Inc.
<Table>
[YOUR GOALS. OUR SOLUTIONS.]--Registered Trademark--
- ------------------------------------------------------------------------
Mutual Retirement Annuities College Separately Offshore Cash [AIM INVESTMENTS LOGO APPEARS HERE]
Funds Products Savings Managed Products Management --Registered Trademark--
Plans Accounts
- ------------------------------------------------------------------------
</Table>
AIM MID CAP BASIC VALUE FUND
Annual Report to Shareholders o December 31, 2004
[COVER IMAGE]
YOUR GOALS. OUR SOLUTIONS. [AIM INVESTMENTS LOGO APPEARS HERE]
--Registered Trademark-- --Registered Trademark--
<Table>
====================================================================================================================================
AIM MID CAP BASIC VALUE FUND SEEKS TO ACHIEVE LONG-TERM GROWTH OF CAPITAL.
o Unless otherwise stated, information presented in this report is as of 12/31/04 and is based on total net assets.
====================================================================================================================================
ABOUT SHARE CLASSES o The unmanaged Lipper Mid-Cap Value o Industry classifications used in this
Fund Index represents an average of the report are generally according to the
o Effective 9/30/03, Class B shares are performance of the 30 largest Global Industry Classification Standard,
not available as an investment for mid-capitalization value funds tracked which was developed by and is the
retirement plans maintained pursuant to by Lipper, Inc., an independent mutual exclusive property and a service mark of
Section 401 of the Internal Revenue fund performance monitor. Morgan Stanley Capital International
Code, including 401(k) plans, money Inc. and Standard & Poor's.
purchase pension plans and profit o The unmanaged Russell
sharing plans. Plans that have existing Midcap--Registered Trademark-- Value o Commonality measures the similarity of
accounts invested in Class B shares will Index is a subset of the Russell holdings between two portfolios using
continue to be allowed to make Midcap--Registered Trademark-- Index, the lowest common percentage method.
additional purchases. which represents the performance of the This method compares each security's
stocks of domestic mid-capitalization percentage of total net assets in both
o Class R shares are available only to companies; the Value subset measures the portfolios and adds the lower
certain retirement plans. Please see the performance of Russell Midcap companies percentages of the two portfolios to
prospectus for more information. with lower price/book ratios and lower determine commonality.
forecasted growth values.
PRINCIPAL RISKS OF INVESTING IN THE FUND The fund files its complete schedule of
o The unmanaged Lehman U.S. Aggregate portfolio holdings with the Securities
o Investing in small and mid-size Bond Index, which represents the U.S. and Exchange Commission ("SEC") for the
companies involves risks not associated investment-grade fixed-rate bond market 1st and 3rd quarters of each fiscal year
with investing in more established (including government and corporate on Form N-Q. The fund's Form N-Q filings
companies, including business risk, securities, mortgage pass-through are available on the SEC's Web site at
significant stock price fluctuations and securities and asset-backed securities), http://www.sec.gov. Copies of the fund's
illiquidity. is compiled by Lehman Brothers, a global Forms N-Q may be reviewed and copied at
investment bank. the SEC's Public Reference Room at 450
o The fund may invest up to 25% of its Fifth Street, N.W., Washington, D.C.
assets in the securities of non-U.S. o The fund is not managed to track the 20549-0102. You can obtain information on
issuers. International investing performance of any particular index, the operation of the Public Reference
presents certain risks not associated including the indexes defined here, and Room, including information about
with investing solely in the United consequently, the performance of the duplicating fee charges, by calling
States. These include risks relating to fund may deviate significantly from the 1-202-942-8090 or by electronic
fluctuations in the value of the U.S. performance of the indexes. request at the following e-mail address:
dollar relative to the values of other publicinfo@sec.gov. The SEC file numbers
currencies, the custody arrangements o A direct investment cannot be made in for the fund are 811-1540 and 2-27334.
made for the fund's foreign holdings, an index. Unless otherwise indicated, The fund's most recent portfolio
differences in accounting, political index results include reinvested holdings, as filed on Form N-Q, are also
risks and the lesser degree of public dividends, and they do not reflect sales available at AIMinvestments.com.
information required to be provided by charges. Performance of an index of
non-U.S. companies. funds reflects fund expenses; A description of the policies and
performance of a market index does not. procedures that the fund uses to
o The fund may participate in the determine how to vote proxies relating
initial public offering (IPO) market in OTHER INFORMATION to portfolio securities is available
some market cycles. Because of the without charge, upon request, from our
fund's small asset base, any investment o The returns shown in the Management's Client Services department at
the fund may make in IPOs may Discussion of Fund Performance are based 800-959-4246 or on the AIM Web site,
significantly affect the fund's total on net asset values calculated for AIMinvestments.com. On the home page,
return. As the fund's assets grow, the shareholder transactions. Generally scroll down and click on AIM Funds Proxy
impact of IPO investments will decline, accepted accounting principles require Policy. The information is also
which may reduce the effect of IPO adjustments to be made to the net assets available on the Securities and Exchange
investments on the fund's total return. of the fund at period end for financial Commission's Web site, sec.gov.
reporting purposes, and as such, the net
ABOUT INDEXES USED IN THIS REPORT asset values for shareholder Information regarding how the fund voted
transactions and the returns based on proxies related to its portfolio
o The unmanaged Standard & Poor's those net asset values may differ from securities during the 12 months ended
Composite Index of 500 Stocks (the S&P the net asset values and returns 6/30/04 is available at our Web site. Go
500--Registered Trademark-- Index) is reported in the Financial Highlights. to AIMinvestments.com, access the About
an index of common stocks frequently Us tab, click on Required Notices and
used as a general measure of U.S. stock then click on Proxy Voting Activity.
market performance. 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
AIM MID CAP BASIC VALUE FUND
<Table>
DEAR FELLOW SHAREHOLDER OF THE AIM FAMILY OF FUNDS--Registered Trademark--:
NEW BOARD CHAIRMAN
[GRAHAM PHOTO] It is our pleasure to introduce you to Bruce Crockett, the new Chairman of the
Board of Trustees of the AIM Funds. Bob 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
[WILLIAMSON PHOTO] in the terms of AIM Advisors' recent settlements with certain regulators.
Accordingly, the AIM Funds' Board recently elected Mr. Crockett, one of the 14
independent trustees on the AIM Funds' Board, as Chairman. His appointment
MARK H. WILLIAMSON 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--.
[CROCKETT PHOTO] 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
BRUCE L. CROCKETT 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
After nine months of slow growth, equity markets rallied late in the year to
produce solid results for 2004. The S&P 500 Index was up 10.87% for the year as
a whole, but that includes the 9.23% total return for the fourth quarter alone.
For bonds, the turning point came earlier. Almost all of the 4.34% return
produced by the Lehman U.S. Aggregate Bond Index came during the second half of
the year, despite the fact that the Federal Reserve had begun raising short-term
interest rates about halfway through the year. Overseas markets followed a
similar pattern, with quite robust double-digit performance across the board,
most of it produced during the second half of the year.
All in all, 2004 was a good year for American investors, with the decline in
the dollar over the course of the year lending a boost to returns from foreign
holdings. And there were a number of solid economic numbers to report as of the
end of the year:
o U.S. gross domestic product (GDP) rose each quarter during 2004. And
respondents to the BusinessWeek magazine survey foresaw 2005 GDP growth at
3.5%, above the post-World War II average of 3.4%.
o The Institute for Supply Management's manufacturing and nonmanufacturing
indexes--based on surveys of purchasing managers in industries that
together cover more than 70% of the U.S. economy--both continued to rise
during December and remained in very strong territory.
o Thomson First Call, which tracks corporate earnings and other information
for clients in financial service industries, estimated S&P 500 earnings to
be up 10.5% in 2005.
Of course, none of this can guarantee that 2005 will be another good year.
Over the short term, the only sure thing about the investment markets is their
unpredictability. Hence, we have always urged shareholders to keep a long-term
perspective on all their investments.
YOUR FUND
The following pages present a discussion of how your fund invests, how it
performed compared to pertinent benchmarks during the fiscal year and how it has
performed over the long term. We hope you find this information helpful. We also
encourage you to visit AIMinvestments.com often. Updated information on your
fund is always available there, as well as general information on a variety of
investing topics.
As always, AIM is committed to building solutions for your investment goals,
and we thank you for your 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
January 28, 2005
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.
</Table>
AIM MID CAP BASIC VALUE FUND
<Table>
MANAGEMENT'S DISCUSSION OF FUND process of a multi-year turnaround. Solid
PERFORMANCE evidence of progress exists, but
restructurings are inherently uneven and
Following a strong fourth quarter in the Strong returns in the period were lengthy. Despite an attractive
equity markets, AIM Mid Cap Basic Value driven by double-digit gains across all valuation, most investors are impatient
Fund produced an attractive, invested sectors. Consumer with uneven quarterly results and the
double-digit return. These returns were discretionary, energy, health care and long timetable it takes to meaningfully
well above those of the S&P 500 Index industrial sectors posted the biggest change the cost structure of a business.
for a second consecutive year but fell returns, with notable contributions
short of beating the fund's coming from our investments in Aetna, We made several changes during 2004
style-specific and peer group indexes. Jackson Hewitt, Brunswick Corp., Acxiom that were driven by opportunities to
Corp. and Waters Corp. increase the portfolio's estimated
======================================== intrinsic value while improving overall
Jackson Hewitt was a new addition to diversification. These investments on
FUND VS. INDEXES the fund in 2004 that we purchased at balance reduced the portfolio's
the time of its initial public offering. sensitivity to economic growth. We
TOTAL RETURNS, 12/31/03-12/31/04, The company is a franchisor and operator believe the extremes created in the
EXCLUDING APPLICABLE SALES CHARGES. IF of income tax preparation services, with recent bear market have largely been
SALES CHARGES WERE INCLUDED, RETURNS a No. 2 market share behind H&R Block, erased and valuation opportunities are
WOULD BE LOWER. which the fund does not own. Jackson more evenly dispersed across sectors and
Hewitt has attractive growth prospects market capitalizations. As a result, we
Class A Shares 16.31% as well as the opportunity for further do not believe that there is a
margin expansion, both of which we significant valuation advantage to
Class B Shares 15.53 believe are likely to contribute to owning more economically sensitive
continued growth in free cash flow. Upon stocks over less cyclical businesses.
Class C Shares 15.54 its offering, the market priced the
company at valuation levels consistent ========================================
Class R Shares 16.17 with H&R Block, but in our opinion this
was not a good comparison for a variety ... our sector weights, which
S&P 500 Index of reasons. As a result, we were able to differ from the Russell
(Broad Market Index) 10.87 buy the stock at a significant discount Midcap Value Index, are
to its estimated intrinsic value. This a reflection of our effort
Russell Mid-cap Value Index discount was quickly recognized by other to achieve greater
(Style-specific Index) 23.71 investors, and by year-end the stock had diversification and lower
appreciated nearly 50%. risk than the Russell
Lipper Mid-Cap Value Fund Index Midcap Value Index.
(Peer Group Index) 19.54 Our largest detractors from
performance were Synopsys, SPX ========================================
Source: Lipper, Inc. Corporation, Federal Agricultural
Mortgage Corp. ("Farmer Mac"), Universal INVESTMENT PROCESS AND EVALUATION
======================================== Health Services and Interpublic Group.
Both Synopsys and SPX Corporation were Our goal is to create wealth by
Despite strong returns relative to plagued with company specific events maintaining a long-term investment
the S&P 500 Index, the fund trailed the that, in our opinion, ultimately reduced horizon and investing in companies that
other two benchmarks. The primary the estimated intrinsic value of both we believe are significantly undervalued
reasons we underperformed the Russell companies. Even after the subsequent on an absolute basis or, said another
Midcap Value Index and Lipper Midcap decline in market value of these two way, selling at a significant discount
Value Index during the period were our holdings, we sold both stocks as we no to their estimated intrinsic value. The
lower returns in financials and longer viewed them as attractive fund's philosophy is based on two
underweight positions in materials and investments. elements that we believe are supported
utilities, which were some of the by empirical evidence:
best-performing sectors in the indexes. The weak results posted by
As we describe later, our sector Interpublic Group during the period o Companies have a measurable estimated
weights, which differ from the Russell resulted in a reversal of price gains intrinsic value that is based on future
Midcap Value Index, are a reflection of achieved in 2003. The advertising agency cash flows generated by the business.
our effort to achieve greater holding company is in the Importantly,
diversification and lower risk than the
Russell Midcap Value Index.
CURRENT PERIOD ANALYSIS
The domestic economy continued to
recover throughout the fiscal year, with
the broader markets responding favorably
during the period. Higher commodity
prices, a more restrictive monetary
policy and concerns about the
sustainability of economic growth were
key issues during the period.
</Table>
2
<Table>
this estimated intrinsic value is We believe popular benchmarks are not difference between market price and
independent of the company's stock optimally constructed to preserve estimated intrinsic value, is about
price. capital and create wealth, even if they average for your fund compared with its
are difficult to beat in certain market history over the past several years, but
o Market prices, in our opinion, are environments. In short, we believe their we estimate it is significantly better
more volatile than estimated intrinsic composition has actually increased risk than that of the market. While there is
values partly because investors largely because of a lower margin no assurance that market value will ever
regularly overreact to negative news. between market value and our estimated reflect our estimate of portfolio
intrinsic value and greater intrinsic value, as managers we believe
We believe a diversified portfolio concentration in certain sectors such as this provides the best indicator of
with greater estimated intrinsic value the S&P 500 Index's focus on information achieving the fund's objective of
context versus the market provides the technology. long-term growth of capital.
opportunity for attractive long-term
investment results. Since our ======================================== IN CLOSING
application of this strategy is highly
disciplined and relatively unique, it is Our process is Market-relative results during this
important to understand the benefits and absolute in nature, period were mixed, but normal market
limitations of our process. First, the which means that volatility predominates in the short
investment strategy is designed to help investment decisions run. Still, we believe that our
preserve your capital while helping to are predicated on a investment discipline is designed to
grow it at above-market rates over the company's estimated provide the opportunity to turn market
long term. Second, our portfolio intrinsic value, not a volatility and investor overreaction
composition has little in common with target price dependent into capital appreciation over the
popular benchmarks and most of our on stock market long-term. As managers and shareholders,
peers. Third, using this strategy we may valuation levels. we believe a long-term investment
post short-term results that lag the horizon and attractive estimated
market. ======================================== intrinsic value content are critical to
creating wealth. We thank you for your
Our process is absolute in nature, Since we began managing the fund, our investment and for sharing our long-term
which means that investment decisions equity holdings have had little in horizon.
are predicated on a company's estimated common with relevant benchmarks. This
intrinsic value, not a target price low portfolio commonality is an The views and opinions expressed in
dependent on stock market valuation important element of any strategy that Management's Discussion of Fund
levels. This has important differences seeks to achieve significant long-term Performance are those of A I M Advisors,
compared to relative performance outperformance but is too low to expect Inc. These views and opinions are
objectives. Funds with relative short-term results to be in line with subject to change at any time based on
performance objectives do not emphasize the market for the simple reason that factors such as market and economic
capital preservation to the same degree your fund does not own exactly the same conditions. These views and opinions may
and typically are more closely tied to stocks as the indexes. not be relied upon as investment advice
performance of market benchmarks and or recommendations, or as an offer for a
have higher portfolio commonality with PORTFOLIO ASSESSMENT particular security. The information is
those benchmarks. Commonality measures not a complete analysis of every aspect
the similarity of holdings between two When assessing our potential to grow of any market, country, industry,
portfolios using the lowest common your capital, we believe the single most security or the Fund. Statements of fact
percentage method. This method compares important measure of AIM Mid Cap Basic are from sources considered reliable,
each security's percentage of total net Value Fund is not its historical but A I M Advisors, Inc. makes no
assets in both portfolios and adds the investment results or popular representation or warranty as to their
lower percentages of the two portfolios statistical measures, but rather the completeness or accuracy. Although
to determine commonality. We emphasize portfolio's estimated intrinsic value. historical performance is no guarantee
capital preservation by requiring a Since we estimate the intrinsic value of of future results, these insights may
large cushion between price and each holding in the portfolio, we can help you understand our investment
estimated intrinsic value. also estimate the estimated intrinsic management philosophy.
value of the entire fund. The
It is our requirement for a large See important fund and index
margin between market price and our disclosures inside front cover.
estimated intrinsic value that has
resulted in little portfolio commonality
with market indexes.
</Table>
3
AIM MID CAP BASIC VALUE FUND
YOUR FUND'S LONG-TERM PERFORMANCE
<Table>
====================================================================================================================================
Past performance cannot guarantee RESULTS OF A $10,000 INVESTMENT
comparable future results. 12/31/01-12/31/04
Your fund's total return includes [MOUNTAIN CHART]
reinvested distributions, applicable
sales charges, fund expenses and AIM MID CAP AIM MID CAP AIM MID CAP RUSSELL LIPPER
management fees. Results for Class B BASIC VALUE BASIC VALUE BASIC VALUE MID CAP MID-CAP
shares are calculated as if a FUND FUND FUND S&P 500 VALUE VALUE
hypothetical shareholder had liquidated DATE CLASS A SHARES CLASS B SHARES CLASS C SHARES INDEX INDEX FUND INDEX
his entire investment in the fund at the 12/31/01 $ 9450 $10000 $10000 $10000 $10000 $10000
close of the reporting period and paid 1/02 9431 9980 9970 9854 10101 9959
the applicable contingent deferred sales 2/02 9507 10050 10040 9664 10265 9995
charges. Index results include 3/02 10357 10949 10939 10028 10790 10623
reinvested dividends, but they do not 4/02 10121 10700 10690 9420 10783 10594
reflect sales charges. Performance of an 5/02 9999 10560 10550 9351 10766 10439
index of funds reflects fund expenses 6/02 9101 9600 9600 8685 10286 9701
and management fees; performance of a 7/02 8099 8540 8541 8008 9279 8750
market index does not. Performance shown 8/02 8137 8570 8570 8061 9387 8774
in the chart does not reflect deduction 9/02 7211 7589 7590 7185 8439 8007
of taxes a shareholder would pay on fund 10/02 7494 7889 7890 7817 8707 8278
distributions or sale of fund shares. 11/02 8279 8709 8700 8277 9256 8946
Performance of the indexes does not 12/02 7778 8179 8180 7791 9036 8534
reflect the effects of taxes. 1/03 7637 8019 8019 7587 8785 8327
2/03 7410 7779 7780 7473 8640 8141
======================================== 3/03 7410 7779 7780 7545 8669 8174
4/03 7968 8360 8350 8167 9328 8801
AVERAGE ANNUAL TOTAL RETURNS 5/03 8847 9279 9270 8597 10149 9593
6/03 8931 9359 9360 8706 10220 9741
AS OF 12/31/04, INCLUDING APPLICABLE 7/03 9480 9929 9930 8860 10538 10048
SALES CHARGES 8/03 9820 10278 10280 9032 10912 10498
9/03 9499 9938 9930 8937 10827 10343
CLASS A SHARES 10/03 10066 10528 10520 9442 11622 11060
Inception (12/31/2001) 7.44% 11/03 10208 10669 10660 9525 11959 11405
1 Year 9.88 12/04 10661 11139 11130 10024 12475 11870
1/04 10992 11469 11469 10208 12804 12212
CLASS B SHARES 2/04 11275 11769 11760 10350 13121 12554
Inception (12/31/2001) 7.92% 3/04 11304 11789 11780 10194 13142 12535
1 Year 10.53 4/04 11228 11700 11690 10034 12586 12199
5/04 11313 11790 11780 10171 12909 12362
CLASS C SHARES 6/04 11597 12080 12070 10369 13369 12811
Inception (12/31/2001) 8.75% 7/04 11078 11519 11519 10026 13007 12313
1 Year 14.54 8/04 10832 11269 11259 10066 13217 12277
9/04 11115 11559 11550 10175 13601 12689
CLASS R SHARES 10/04 11115 11539 11539 10331 13916 12885
Inception 9.32% 11/04 11928 12379 12379 10749 14856 13712
1 Year 16.17 12/04 $12401 $12570 $12860 $11114 $15432 $14190
======================================== Source: Lipper, Inc.
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
historical returns. All other returns Class B and Class C share performance
are blended returns of historical Class reflects the applicable contingent
R share performance and restated Class A deferred sales charge (CDSC) for the
share performance (for periods prior to period involved. The CDSC on Class B
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
higher Rule 12b-1 fees applicable to of the seventh year. The CDSC on Class C
Class R shares. Class A shares' shares is 1% for the first year after
inception date is 12/31/01. purchase. Class R shares do not have a
front-end sales charge; returns shown
The performance data quoted represent are at net asset value and do not
past performance and cannot guarantee reflect a 0.75% CDSC that may be imposed
comparable future results; current on a total redemption of retirement plan
performance may be lower or higher. assets within the first year.
Please visit AIMinvestments.com for the
most recent month-end performance. The performance of the fund's share
Performance figures reflect reinvested classes will differ due to different
distributions, changes in net asset sales charge structures and class
value and the effect of the maximum expenses.
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>
4
AIM MID CAP BASIC VALUE FUND
CALCULATING YOUR ONGOING FUND EXPENSES
<Table>
EXAMPLE together with the amount you invested, compare the ongoing costs of investing
to estimate the expenses that you paid in the fund and other funds. To do so,
As a shareholder of the fund, you incur over the period. Simply divide your compare this 5% hypothetical example
two types of costs: (1) transaction account value by $1,000 (for example, an with the 5% hypothetical examples that
costs, which may include sales charges $8,600 account value divided by $1,000 = appear in the shareholder reports of the
(loads) on purchase payments; contingent 8.6), then multiply the result by 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. any transactional costs, such as sales
HYPOTHETICAL EXAMPLE FOR COMPARISON charges (loads) on purchase payments,
This 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
July 1, 2004 - December 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 your 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
expenses. You may use the information in
this table,
====================================================================================================================================
ACTUAL HYPOTHETICAL
(5% ANNUAL RETURN BEFORE EXPENSES)
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES ENDING ACCOUNT EXPENSES
SHARE VALUE VALUE PAID DURING VALUE PAID DURING
CLASS (7/1/04) (12/31/04)(1) PERIOD(2,3) (12/31/04) PERIOD(2,4)
Class A $1,000.00 $1,069.30 $ 8.74 $1,016.69 $ 8.52
Class B 1,000.00 1,065.40 12.10 1,013.42 11.79
Class C 1,000.00 1,065.50 12.10 1,013.42 11.79
Class R 1,000.00 1,067.60 9.51 1,015.94 9.27
(1) The actual ending account value is based on the actual total return of the fund for the period July 1, 2004, to December 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 July 1, 2004,
to December 31, 2004, was 6.93%, 6.54%, 6.55% and 6.76% for Class A, B, C and R shares, respectively.
(2) Expenses are equal to the fund's annualized expense ratio (1.68%, 2.33%, 2.33% and 1.83% 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).
Effective on January 1, 2005, the advisor contractually agreed to waive a portion of its advisory fees. The annualized expense
ratios restated as if this agreement had been in effect throughout the most recent fiscal half year are 1.63%, 2.28%, 2.28% and
1.77% for Class A, B, C and R shares, respectively.
(3) The actual expenses paid restated as if the change discussed above had been in effect throughout the most recent fiscal half
year are $8.48, $11.84, $11.84 and $9.20 for Class A, B, C and R shares, respectively.
(4) The hypothetical expenses paid restated as if the change discussed above had been in effect throughout the most recent fiscal
half year are $8.26, $11.54, $11.54 and $8.97 for Class A, B, C and R shares, respectively.
====================================================================================================================================
[ARROW
BUTTON For More Information Visit
IMAGE] AIMinvestments.com
</Table>
5
AIM MID CAP BASIC VALUE FUND
<Table>
======================================== ======================================== BRET W. STANLEY,
[STANLEY Chartered Financial
TOP 10 EQUITY HOLDINGS* TOP 10 INDUSTRIES* PHOTO] Analyst, senior
portfolio manager, is
1. Computer Associates 1. Data Processing & Outsourced lead manager of AIM Mid
International, Inc. 3.9% Services 9.7% Cap Basic Value Fund and the head of
AIM's Value Investment Management Unit.
2. Jackson Hewitt Tax Service 2. Diversified Commercial He received a B.B.A. in finance from The
Inc. 3.8 Services 6.1 University of Texas at Austin and an
M.S. in finance from the University of
3. ACE Ltd. (Cayman Islands) 3.4 3. Thrifts & Mortgage Finance 6.1 Houston.
4. Radian Group Inc. 3.1 4. Managed Health Care 5.4 R. CANON COLEMAN II,
[COLEMAN Chartered Financial
5. McKesson Corp. 3.0 5. Oil & Gas Drilling 5.4 PHOTO] Analyst, portfolio
manager, is manager of
6. Interpublic Group of 6. Regional Banks 4.5 AIM Mid Cap Basic Value
Cos., Inc. (The) 3.0 Fund. He earned a B.S. and an M.S. in
7. Apparel Retail 4.5 accounting from the University of
7. Aetna Inc. 2.7 Florida. He also has an M.B.A. from The
8. Life & Health Insurance 4.1 Wharton School at the University of
8. DST Systems, Inc. 2.7 Pennsylvania.
9. Restaurants 4.0
9. WellPoint Inc. 2.7 MATTHEW W. SEINSHEIMER,
10. Systems Software 3.9 [SEINSHEIMER Chartered Financial
10. Acxiom Corp. 2.6 PHOTO] Analyst, senior
portfolio manager, is
======================================== ======================================== manager of AIM Mid Cap
Basic Value Fund. He received a B.B.A.
PORTFOLIO COMPOSITION The fund's holdings are subject to from Southern Methodist University and
change, and there is no assurance that an M.B.A. from The University of Texas
By Sector the fund will continue to hold any at Austin.
particular security.
[PIE CHART] MICHAEL J. SIMON,
*Excluding money market fund holdings. [SIMON Chartered Financial
Health Care 13.7% PHOTO] Analyst, senior
portfolio manager, is
Industrials 7.8% manager of AIM Mid Cap
Basic Value Fund. He received a B.B.A.
Energy 5.4% in finance from Texas Christian
University and an M.B.A. from the
Money Market Funds Plus University of Chicago.
Other Assets Less Liabilities 4.9%
Assisted by the Basic Value Team
Consumer Staples 4.3%
Financials 28.2%
Consumer Discretionary 18.6%
Information Technology 17.1%
========================================
TOTAL NET ASSETS $213.7 MILLION
TOTAL NUMBER OF HOLDINGS* 44
========================================
</Table>
6
SUPPLEMENT TO ANNUAL REPORT DATED 12/31/04
AIM MID CAP BASIC VALUE FUND
<Table>
========================================
INSTITUTIONAL CLASS SHARES AVERAGE ANNUAL TOTAL RETURNS Please note that past performance is not
For periods ended 12/31/04 indicative of future results. More
The following information has been Inception 9.61% recent returns may be more or less than
prepared to provide Institutional Class 1 Year 16.75 those shown. All returns assume
shareholders with a performance overview reinvestment of distributions at net
specific to their holdings. ======================================== asset value. Investment return and
Institutional Class shares are offered principal value will fluctuate so your
exclusively to institutional investors, Institutional Class shares' inception shares, when redeemed, may be worth more
including defined contribution plans date os 4/30/04. Returns since that date or less than their original cost. See
that meet certain criteria. are historical returns. All other full report for information on
returns are blended returns of comparative benchmarks. Please consult
historical Institutional Class share your fund prospectus for more
performance and restated Class A share information. For the most current
performance (for periods prior to the month-end performance, please call
inception date of Institutional Class 800-451-4246 or visit
shares) at net asset value and reflect AIMinvestments.com.
the higher Rule 12b-1 fees applicable to
Class A shares. Class A shares'
inception date is 12/31/01.
Institutional Class shares would have
had different returns due to differences
in the expense structure of the
Institutional Class.
Institutional Class shares have no sales
charge; therefore, performance is at net
asset value. Performance of
Institutional Class shares will differ
from performance of other share classes
due to differing sales charges and class
expenses.
</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.
<Table>
AIMinvestments.com MCBV-INS-1 12/04 [YOUR GOALS. OUR SOLUTIONS.] [AIM INVESTMENTS LOGO APPEARS HERE]
--Registered Trademark-- --Registered Trademark--
</Table>
INFORMATION ABOUT YOUR FUND'S EXPENSES
CALCULATING YOUR ONGOING FUND EXPENSES
<Table>
EXAMPLE estimate the expenses that you paid over balance or expenses you paid for the
the period. Simply divide your account period. You may use this information to
As a shareholder of the fund, you incur value by $1,000 (for example, an $8,600 compare the ongoing costs of investing
ongoing costs, including management account value divided by $1,000 = 8.6), in the fund and other funds. To do so,
fees; and other fund expenses. This then multiply the result by the number compare this 5% hypothetical example
example is intended to help you in the table under the heading entitled with the 5% hypothetical examples that
understand your ongoing costs (in "Actual Expenses Paid During Period" to appear in the shareholder reports of the
dollars) of investing in the fund and to estimate the expenses you paid on your other funds.
compare these costs with ongoing costs account during this period.
of investing in other mutual funds. The Please note that the expenses shown
example is based on an investment of HYPOTHETICAL EXAMPLE FOR COMPARISON in the table are meant to highlight your
$1,000 invested at the beginning of the PURPOSES ongoing costs only. Therefore, the
period and held for the entire period, hypothetical information is useful in
July 1, 2004-December 31, 2004. The table below also provides comparing ongoing costs only, and will
information about hypothetical account not help you determine the relative
ACTUAL EXPENSES values and hypothetical expenses based total costs of owning different funds.
on the fund's actual expense ratio and
The table below provides information an assumed rate of return of 5% per year
about actual account values and actual before expenses, which is not the fund's
expenses. You may use the information in actual return. The hypothetical account
this table, together with the amount you values and expenses may not be used to
invested, to estimate the actual ending account
====================================================================================================================================
ACTUAL HYPOTHETICAL
(5% ANNUAL RETURN BEFORE EXPENSES)
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES ENDING ACCOUNT EXPENSES
VALUE VALUE PAID DURING VALUE PAID DURING
(07/01/04) (12/31/04)(1) PERIOD(2,3) (12/31/04) PERIOD(2,4)
Institutional Class $1,000.00 $1,071.60 $5.52 $1,019.81 $5.38
(1)The actual ending account value is based on the actual total return of the fund for the period July 1, 2004, to December 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 July 1, 2004,
to December 31, 2004, was 7.16% for the Institutional Class.
(2)Expenses are equal to the fund's annualized expense ratio, 1.06% for the Institutional Class, multiplied by the average account
value over the period, multiplied by 184/366 (to reflect the one-half year period). Effective on January 1, 2005, the advisor
contractually agreed to waive a portion of its advisory fees. The annualized expense ratio restated as if this agreement had been in
effect throughout the most recent fiscal half year was 1.01% for the Institutional Class.
(3)The actual expenses paid restated as if the change discussed above had been in effect throughout the most recent fiscal half year
were $5.26 for the Institutional Class.
(4)The hypothetical expenses paid restated as if the change discussed above had been in effect throughout the most recent fiscal
half year were $5.13 for the Institutional Class.
====================================================================================================================================
</Table>
AIMinvestments.com MCBV-INS-1 12/04
FINANCIALS
SCHEDULE OF INVESTMENTS
December 31, 2004
<Table>
<Caption>
MARKET
SHARES VALUE
- -----------------------------------------------------------------------
COMMON STOCKS & OTHER EQUITY INTERESTS-95.11%
ADVERTISING-2.95%
Interpublic Group of Cos., Inc. (The)(a) 470,070 $ 6,298,938
=======================================================================
APPAREL RETAIL-4.50%
Gap, Inc. (The) 215,500 4,551,360
- -----------------------------------------------------------------------
TJX Cos., Inc. (The) 201,900 5,073,747
=======================================================================
9,625,107
=======================================================================
APPLICATION SOFTWARE-0.99%
MAPICS, Inc.(a) 200,200 2,112,110
=======================================================================
ASSET MANAGEMENT & CUSTODY BANKS-2.25%
Waddell & Reed Financial, Inc.-Class A 201,490 4,813,596
=======================================================================
BUILDING PRODUCTS-1.69%
American Standard Cos. Inc.(a) 87,250 3,605,170
=======================================================================
CONSUMER FINANCE-1.81%
MoneyGram International, Inc. 183,500 3,879,190
=======================================================================
DATA PROCESSING & OUTSOURCED SERVICES-9.70%
BISYS Group, Inc. (The)(a) 174,900 2,877,105
- -----------------------------------------------------------------------
Ceridian Corp.(a) 239,280 4,374,039
- -----------------------------------------------------------------------
Certegy Inc. 113,850 4,045,090
- -----------------------------------------------------------------------
DST Systems, Inc.(a) 111,270 5,799,392
- -----------------------------------------------------------------------
SunGard Data Systems Inc.(a) 128,300 3,634,739
=======================================================================
20,730,365
=======================================================================
DIVERSIFIED COMMERCIAL SERVICES-6.10%
Corinthian Colleges, Inc.(a) 261,100 4,920,430
- -----------------------------------------------------------------------
Jackson Hewitt Tax Service Inc. 321,400 8,115,350
=======================================================================
13,035,780
=======================================================================
FOOD RETAIL-2.21%
Kroger Co. (The)(a) 268,700 4,712,998
=======================================================================
HEALTH CARE DISTRIBUTORS-3.04%
McKesson Corp. 206,200 6,487,052
=======================================================================
HEALTH CARE EQUIPMENT-2.55%
Waters Corp.(a) 116,500 5,451,035
=======================================================================
HEALTH CARE FACILITIES-1.65%
Universal Health Services, Inc.-Class B 79,350 3,531,075
=======================================================================
HEALTH CARE SERVICES-0.99%
IMS Health Inc. 91,240 2,117,680
=======================================================================
</Table>
<Table>
MARKET
SHARES VALUE
- -----------------------------------------------------------------------
<Caption>
HOTELS, RESORTS & CRUISE LINES-2.57%
Orient-Express Hotels Ltd.-Class A (Bermuda) 140,700 $ 2,894,199
- -----------------------------------------------------------------------
Starwood Hotels & Resorts Worldwide, Inc. 44,380 2,591,792
=======================================================================
5,485,991
=======================================================================
INSURANCE BROKERS-2.38%
Aon Corp. 213,600 5,096,496
=======================================================================
IT CONSULTING & OTHER SERVICES-2.55%
Acxiom Corp. 207,550 5,458,565
=======================================================================
LEISURE FACILITIES-2.24%
Speedway Motorsports, Inc. 122,300 4,791,714
=======================================================================
LEISURE PRODUCTS-2.42%
Brunswick Corp. 104,470 5,171,265
=======================================================================
LIFE & HEALTH INSURANCE-4.14%
Nationwide Financial Services, Inc.-Class A 123,290 4,713,377
- -----------------------------------------------------------------------
Protective Life Corp. 96,900 4,136,661
=======================================================================
8,850,038
=======================================================================
MANAGED HEALTH CARE-5.43%
Aetna Inc. 46,890 5,849,528
- -----------------------------------------------------------------------
WellPoint Inc.(a) 49,980 5,747,700
=======================================================================
11,597,228
=======================================================================
MULTI-LINE INSURANCE-3.62%
American Financial Group, Inc. 114,630 3,589,065
- -----------------------------------------------------------------------
Genworth Financial Inc.-Class A 154,000 4,158,000
=======================================================================
7,747,065
=======================================================================
OIL & GAS DRILLING-5.37%
Nabors Industries, Ltd. (Bermuda)(a) 77,290 3,964,204
- -----------------------------------------------------------------------
Pride International, Inc.(a)(b) 202,910 4,167,771
- -----------------------------------------------------------------------
Todco-Class A(a) 181,000 3,334,020
=======================================================================
11,465,995
=======================================================================
PACKAGED FOODS & MEATS-2.13%
Cadbury Schweppes PLC-ADR (United Kingdom) 120,700 4,550,390
=======================================================================
PROPERTY & CASUALTY INSURANCE-3.39%
ACE Ltd. (Cayman Islands) 169,320 7,238,430
=======================================================================
REGIONAL BANKS-4.52%
Cullen/Frost Bankers, Inc. 90,100 4,378,860
- -----------------------------------------------------------------------
Zions Bancorp 77,570 5,277,087
=======================================================================
9,655,947
=======================================================================
</Table>
F-1
<Table>
<Caption>
MARKET
SHARES VALUE
- -----------------------------------------------------------------------
RESTAURANTS-3.97%
CEC Entertainment Inc.(a) 98,950 $ 3,955,032
- -----------------------------------------------------------------------
Outback Steakhouse, Inc. 99,030 4,533,593
=======================================================================
8,488,625
=======================================================================
SYSTEMS SOFTWARE-3.88%
Computer Associates International, Inc. 266,800 8,286,808
=======================================================================
THRIFTS & MORTGAGE FINANCE-6.07%
Federal Agricultural Mortgage Corp.-Class C 102,100 2,378,930
- -----------------------------------------------------------------------
MGIC Investment Corp. 59,300 4,086,363
- -----------------------------------------------------------------------
Radian Group Inc. 122,280 6,510,187
=======================================================================
12,975,480
=======================================================================
Total Common Stocks & Other Equity
Interests (Cost $161,663,226) 203,260,133
=======================================================================
</Table>
<Table>
MARKET
SHARES VALUE
- -----------------------------------------------------------------------
<Caption>
MONEY MARKET FUNDS-4.57%
Liquid Assets Portfolio-Institutional
Class(c) 4,883,864 $ 4,883,864
- -----------------------------------------------------------------------
STIC Prime Portfolio-Institutional Class(c) 4,883,864 4,883,864
=======================================================================
Total Money Market Funds (Cost
$9,767,728) 9,767,728
=======================================================================
TOTAL INVESTMENTS-99.68% (excluding
investments purchased with cash collateral
from securities loaned) (Cost $171,430,954) 213,027,861
=======================================================================
INVESTMENTS PURCHASED WITH CASH COLLATERAL
FROM SECURITIES LOANED
MONEY MARKET FUNDS-0.72%
STIC Prime Portfolio-Institutional
Class(c)(d) 1,530,900 1,530,900
=======================================================================
Total Money Market Funds (purchased with
cash collateral from securities loaned)
(Cost $1,530,900) 1,530,900
=======================================================================
TOTAL INVESTMENTS-100.40% (Cost $172,961,854) 214,558,761
=======================================================================
OTHER ASSETS LESS LIABILITIES-(0.40%) (856,409)
=======================================================================
NET ASSETS-100.00% $213,702,352
_______________________________________________________________________
=======================================================================
</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
securities lending transactions at December 31, 2004.
(c) The money market fund and the Fund are affiliated by having the same
investment advisor. See Note 3.
(d) The security has been segregated to satisfy the forward commitment to return
the cash collateral received in securities lending transactions upon the
borrower's return of the securities loaned. See Note 8.
See accompanying notes which are an integral part of the financial statements.
F-2
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2004
<Table>
ASSETS:
Investments, at market value (cost
$161,663,226)* $203,260,133
- -----------------------------------------------------------
Investments in affiliated money market funds
(cost $11,298,628) 11,298,628
===========================================================
Total investments (cost $172,961,854) 214,558,761
===========================================================
Receivables for:
Investments sold 319,517
- -----------------------------------------------------------
Fund shares sold 583,161
- -----------------------------------------------------------
Dividends 170,145
- -----------------------------------------------------------
Investment for trustee deferred compensation
and retirement plans 13,369
- -----------------------------------------------------------
Other assets 50,335
===========================================================
Total assets 215,695,288
___________________________________________________________
===========================================================
LIABILITIES:
Payables for:
Fund shares reacquired 232,295
- -----------------------------------------------------------
Trustee deferred compensation and
retirement plans 16,081
- -----------------------------------------------------------
Collateral upon return of securities loaned 1,530,900
- -----------------------------------------------------------
Accrued distribution fees 105,432
- -----------------------------------------------------------
Accrued transfer agent fees 58,420
- -----------------------------------------------------------
Accrued operating expenses 49,808
===========================================================
Total liabilities 1,992,936
===========================================================
Net assets applicable to shares outstanding $213,702,352
___________________________________________________________
===========================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $181,830,611
- -----------------------------------------------------------
Undistributed net investment income (loss) (12,855)
- -----------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities (9,712,311)
- -----------------------------------------------------------
Unrealized appreciation of investment
securities 41,596,907
===========================================================
$213,702,352
___________________________________________________________
===========================================================
NET ASSETS:
Class A $115,163,883
___________________________________________________________
===========================================================
Class B $ 63,374,466
___________________________________________________________
===========================================================
Class C $ 27,601,222
___________________________________________________________
===========================================================
Class R $ 32,984
___________________________________________________________
===========================================================
Institutional Class $ 7,529,797
___________________________________________________________
===========================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER
SHARE, UNLIMITED NUMBER OF SHARES
AUTHORIZED:
Class A 8,777,188
___________________________________________________________
===========================================================
Class B 4,924,252
___________________________________________________________
===========================================================
Class C 2,145,814
___________________________________________________________
===========================================================
Class R 2,516
___________________________________________________________
===========================================================
Institutional Class 571,534
___________________________________________________________
===========================================================
Class A:
Net asset value per share $ 13.12
- -----------------------------------------------------------
Offering price per share:
(Net asset value of $13.12 divided by
94.50%) $ 13.88
___________________________________________________________
===========================================================
Class B:
Net asset value and offering price per
share $ 12.87
___________________________________________________________
===========================================================
Class C:
Net asset value and offering price per
share $ 12.86
___________________________________________________________
===========================================================
Class R:
Net asset value and offering price per
share $ 13.11
___________________________________________________________
===========================================================
Institutional Class:
Net asset value and offering price per
share $ 13.17
___________________________________________________________
===========================================================
</Table>
* At December 31, 2004, securities with an aggregate market value of $1,497,366
were on loan to brokers.
See accompanying notes which are an integral part of the financial statements.
F-3
STATEMENT OF OPERATIONS
For the year ended December 31, 2004
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $4,934) $ 1,176,488
- -------------------------------------------------------------------------
Dividends from affiliated money market funds (including
securities lending income of $1,827*) 113,881
=========================================================================
Total investment income 1,290,369
=========================================================================
EXPENSES:
Advisory fees 1,259,409
- -------------------------------------------------------------------------
Administrative services fees 50,000
- -------------------------------------------------------------------------
Custodian fees 25,507
- -------------------------------------------------------------------------
Distribution fees:
Class A 300,274
- -------------------------------------------------------------------------
Class B 505,689
- -------------------------------------------------------------------------
Class C 189,702
- -------------------------------------------------------------------------
Class R 43
- -------------------------------------------------------------------------
Transfer agent fees -- Class A, B, C and R 504,123
- -------------------------------------------------------------------------
Transfer agent fees -- Institutional Class 1,279
- -------------------------------------------------------------------------
Trustees' fees and retirement benefits 16,965
- -------------------------------------------------------------------------
Other 248,256
=========================================================================
Total expenses 3,101,247
=========================================================================
Less: Fees waived, expenses reimbursed and expense offset
arrangements (40,504)
=========================================================================
Net expenses 3,060,743
=========================================================================
Net investment income (loss) (1,770,374)
=========================================================================
REALIZED AND UNREALIZED GAIN FROM INVESTMENT SECURITIES:
Net realized gain from investment securities 1,517,779
- -------------------------------------------------------------------------
Net increase from payments by affiliates -- See Note 2 146,526
=========================================================================
Change in net unrealized appreciation of investment
securities 24,454,568
=========================================================================
Net gain from investment securities 26,118,873
=========================================================================
Net increase in net assets resulting from operations $24,348,499
_________________________________________________________________________
=========================================================================
</Table>
* Dividends from affiliated money market funds are net of income rebate paid to
securities lending counterparties.
See accompanying notes which are an integral part of the financial statements.
F-4
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 2004 and 2003
<Table>
<Caption>
2004 2003
- ------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (1,770,374) $ (967,184)
- ------------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities 1,517,779 (4,054,747)
- ------------------------------------------------------------------------------------------
Net increase from payments by affiliates 146,526 --
- ------------------------------------------------------------------------------------------
Change in net unrealized appreciation of investment
securities 24,454,568 27,636,943
==========================================================================================
Net increase in net assets resulting from operations 24,348,499 22,615,012
==========================================================================================
Share transactions-net:
Class A 46,344,715 4,929,815
- ------------------------------------------------------------------------------------------
Class B 17,811,507 8,575,378
- ------------------------------------------------------------------------------------------
Class C 11,353,920 2,445,889
- ------------------------------------------------------------------------------------------
Class R 31,275 --
- ------------------------------------------------------------------------------------------
Institutional Class 6,853,263 --
==========================================================================================
Net increase in net assets resulting from share
transactions 82,394,680 15,951,082
==========================================================================================
Net increase in net assets 106,743,179 38,566,094
==========================================================================================
NET ASSETS:
Beginning of year 106,959,173 68,393,079
==========================================================================================
End of year (including undistributed net investment income
(loss) of $(12,855) and $(7,330), respectively) $213,702,352 $106,959,173
__________________________________________________________________________________________
==========================================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
F-5
NOTES TO FINANCIAL STATEMENTS
December 31, 2004
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Mid Cap Basic Value Fund (the "Fund") is a series portfolio of AIM Funds
Group (the "Trust"). The Trust is a Delaware statutory trust registered under
the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
series management investment company consisting of nine separate portfolios,
each authorized to issue an unlimited number of shares of beneficial interest.
The Fund currently offers multiple classes of shares. Matters affecting each
portfolio or class will be voted on exclusively by the shareholders of such
portfolio or class. The assets, liabilities and operations of each portfolio are
accounted for separately. Information presented in these financial statements
pertains only to the Fund.
The Fund's investment objective is long-term growth of capital. Each company
listed in the Schedule of Investments is organized in the United States of
America unless otherwise noted.
Under the Trust's organizational documents, each Trustee, officer, employee
or other agent of the Trust (including the Trust's investment manager) is
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-6
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 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.
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement,
the Fund pays an advisory fee to AIM at the annual rate of 0.80% of the first $1
billion of the Fund's average daily net assets, plus 0.75% of the next $4
billion of the Fund's average daily net assets, plus 0.70% of the Fund's average
daily net assets in excess of $5 billion. Effective January 1, 2005 through
December 31, 2009, AIM has contractually agreed to waive advisory fees to the
extent necessary so that the advisory fees payable by the Fund (based on the
Fund's average daily net assets) do not exceed the annual rate of 0.745% of the
first $250 million, plus 0.73% of the next $250 million, plus 0.715% of the next
$500 million, plus 0.70% of the next $1.5 billion, plus 0.685% of the next $2.5
billion, plus 0.67% of the next $2.5 billion, plus 0.655% of the next $2.5
billion, plus 0.64% of the Fund's average daily net assets in excess of $10
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, Class C, Class R
and Institutional Class shares to 1.80%, 2.45%, 2.45%, 1.95% and 1.45% 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 limit 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. AIM
did not waive fees and/or reimburse expenses during the period under this
expense limitation. 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 December 31, 2004, AIM waived fees of $1,532.
For the year ended December 31, 2004, the advisor reimbursed the Fund
$146,526 for an economic loss due to a trading error.
For the year ended December 31, 2004, at the request of the Trustees of the
Trust, AMVESCAP PLC ("AMVESCAP") agreed to reimburse $36,613 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. Pursuant to such agreement for the year ended
December 31, 2004, AIM was paid $50,000.
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
F-7
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. AISI did not reimburse
fees during the period under this expense limitation. For the year ended
December 31, 2004, the Fund paid AISI $504,123 for Class A, Class B, Class C and
Class R shares and $1,279 for Institutional Class shares. AISI may make payments
to intermediaries that 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 year ended December 31, 2004, the Class A, Class
B, Class C and Class R shares paid $300,274, $505,689, $189,702 and $43,
respectively.
Front-end sales commissions and contingent deferred sales charges ("CDSC")
(collectively the "sales charges") are not recorded as expenses of the Fund.
Front-end sales commissions are deducted from proceeds from the sales of Fund
shares prior to investment in Class A shares of the Fund. CDSC are deducted from
redemption proceeds prior to remittance to the shareholder. During year ended
December 31, 2004, AIM Distributors advised the Fund that it retained $99,857 in
front-end sales commissions from the sale of Class A shares and $2,319, $18,299,
$4,347 and $0 from Class A, Class B, Class C and Class R shares, respectively,
for CDSC imposed upon redemptions by shareholders.
Certain officers and trustees of the Trust are officers and directors of
AIM, AISI and/or AIM Distributors.
NOTE 3--INVESTMENTS IN AFFILIATES
The Fund is permitted, pursuant to an exemptive order from the Securities and
Exchange Commission ("SEC"), to invest daily available cash balances and cash
collateral from securities lending transactions in affiliated money market
funds. The Fund and the money market funds below have the same investment
advisor and therefore, are considered to be affiliated. The tables below show
the transactions in and earnings from investments in affiliated money market
funds for the year ended December 31, 2004.
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 12/31/03 AT COST FROM SALES (DEPRECIATION) 12/31/04 INCOME GAIN (LOSS)
- ----------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $3,469,832 $ 53,717,341 $ (52,303,309) $ -- $ 4,883,864 $ 56,426 $ --
- ----------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-
Institutional
Class 3,469,832 53,717,341 (52,303,309) -- 4,883,864 55,628 --
==================================================================================================================================
Subtotal $6,939,664 $107,434,682 $(104,606,618) $ -- $ 9,767,728 $112,054 $ --
==================================================================================================================================
</Table>
INVESTMENTS OF CASH COLLATERAL FROM SECURITIES LENDING TRANSACTIONS:
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 12/31/03 AT COST FROM SALES (DEPRECIATION) 12/31/04 INCOME* GAIN (LOSS)
- ----------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $1,742,200 $ 28,664,200 $ (30,406,400) $ -- $ -- $ 1,324 $ --
- ----------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-
Institutional
Class -- 24,428,273 (22,897,373) -- 1,530,900 503 --
==================================================================================================================================
Subtotal $1,742,200 $ 53,092,473 $ (53,303,773) $ -- $ 1,530,900 $ 1,827 $ --
==================================================================================================================================
Total $8,681,864 $160,527,155 $(157,910,391) $ -- $11,298,628 $113,881 $ --
__________________________________________________________________________________________________________________________________
==================================================================================================================================
</Table>
* Dividend income is net of income rebate paid to securities 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
F-8
current market price. Pursuant to these procedures, during the year ended
December 31, 2004, the Fund engaged in purchases and sales of securities of
$94,900 and $1,545,616, 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 December 31, 2004, the Fund received credits in transfer agency fees of
$2,175 and credits in custodian fees of $184 under expense offset arrangements,
which resulted in a reduction of the Fund's total expenses of $2,359.
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 December 31, 2004, the Fund paid legal fees of $2,947
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 December 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 December 31, 2004, securities with an aggregate value of $1,497,366 were
on loan to brokers. The loans were secured by cash collateral of $1,530,900
received by the Fund and subsequently invested in affiliated money market funds.
For the year ended December 31, 2004, the Fund received dividends on cash
collateral net of income rebate paid to counterparties of $1,827 for securities
lending transactions.
F-9
NOTE 9--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
DISTRIBUTIONS TO SHAREHOLDERS:
There were no ordinary income or long term capital distributions paid during the
year ended December 31, 2004 and 2003.
TAX COMPONENTS OF NET ASSETS:
As of December 31, 2004, the components of net assets on a tax basis were as
follows:
<Table>
<Caption>
2004
- --------------------------------------------------------------------------
Unrealized appreciation -- investments $ 39,182,328
- --------------------------------------------------------------------------
Temporary book/tax differences (12,855)
- --------------------------------------------------------------------------
Capital loss carryforward (6,979,842)
- --------------------------------------------------------------------------
Post-October capital loss deferral (317,890)
- --------------------------------------------------------------------------
Shares of beneficial interest 181,830,611
==========================================================================
Total net assets $213,702,352
__________________________________________________________________________
==========================================================================
</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 utilized $2,916,017 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 December 31, 2004 which expires as
follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD*
- ---------------------------------------------------------------------------
December 31, 2010 $ 369,421
- ---------------------------------------------------------------------------
December 31, 2011 6,610,421
===========================================================================
Total capital loss carryforward $6,979,842
___________________________________________________________________________
===========================================================================
</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 year ended
December 31, 2004 was $124,871,102 and $50,454,355, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- -------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $40,629,174
- -------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (1,446,846)
===============================================================================
Net unrealized appreciation of investment securities $39,182,328
_______________________________________________________________________________
===============================================================================
Cost of investments for tax purposes is $175,376,433.
</Table>
NOTE 11--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of net operating losses,
on December 31, 2004, undistributed net investment income was increased by
$1,764,849 and shares of beneficial interest decreased by $1,764,849. This
reclassification had no effect on the net assets of the Fund.
F-10
NOTE 12--SHARE INFORMATION
The Fund currently offers five different classes of shares: Class A shares,
Class B shares, Class C shares, Class R shares and 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
- ----------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
2004 2003
-------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------------------------------------------------------------
Sold:
Class A 6,159,742 $ 73,250,446 3,832,986 $ 37,737,367
- ----------------------------------------------------------------------------------------------------------------------
Class B 3,016,119 35,457,428 1,803,614 17,257,750
- ----------------------------------------------------------------------------------------------------------------------
Class C 1,748,301 20,660,237 886,121 8,452,954
- ----------------------------------------------------------------------------------------------------------------------
Class R(a) 2,516 31,275 -- --
- ----------------------------------------------------------------------------------------------------------------------
Institutional Class(a) 575,259 6,898,180 -- --
======================================================================================================================
Automatic conversion of Class B shares to Class A shares:
Class A 286,013 3,430,679 156,161 1,515,851
- ----------------------------------------------------------------------------------------------------------------------
Class B (290,717) (3,430,679) (157,780) (1,515,851)
======================================================================================================================
Reacquired:
Class A (2,577,027) (30,336,910) (3,833,211) (34,323,403)
- ----------------------------------------------------------------------------------------------------------------------
Class B (1,227,626) (14,215,242) (811,030) (7,166,521)
- ----------------------------------------------------------------------------------------------------------------------
Class C (808,272) (9,306,317) (665,740) (6,007,065)
- ----------------------------------------------------------------------------------------------------------------------
Institutional Class(a) (3,725) (44,917) -- --
======================================================================================================================
6,880,583 $ 82,394,680 1,211,121 $ 15,951,082
______________________________________________________________________________________________________________________
======================================================================================================================
</Table>
(a) Class R shares and Institutional Class shares commenced sales on April 30,
2004.
F-11
NOTE 13--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
CLASS A
---------------------------------------------------------
YEAR ENDED DECEMBER 31, DECEMBER 31, 2001
--------------------------------- (DATE OPERATIONS
2004 2003 2002 COMMENCED)
- -----------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 11.28 $ 8.23 $ 9.99 $ 10.00
- -----------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.10)(a) (0.08) (0.06)(a) (0.00)
- -----------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 1.93 3.13 (1.70) (0.01)
- -----------------------------------------------------------------------------------------------------------------------
Net increase from payments by affiliates 0.01 -- -- --
=======================================================================================================================
Total from investment operations 1.84 3.05 (1.76) (0.01)
=======================================================================================================================
Less dividends from net investment income -- -- (0.00) --
=======================================================================================================================
Net asset value, end of period $ 13.12 $ 11.28 $ 8.23 $ 9.99
_______________________________________________________________________________________________________________________
=======================================================================================================================
Total return(b) 16.31%(c) 37.06% (17.62)% (0.10)%
_______________________________________________________________________________________________________________________
=======================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $115,164 $55,372 $39,130 $ 400
_______________________________________________________________________________________________________________________
=======================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.67%(d) 1.80% 1.80% 1.80%(e)
- -----------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.69%(d) 1.92% 1.93% 199.49%(e)
=======================================================================================================================
Ratio of net investment income (loss) to average net assets (0.85)%(d) (1.00)% (0.70)% (0.31)%(e)
_______________________________________________________________________________________________________________________
=======================================================================================================================
Portfolio turnover rate(f) 34% 52% 41% --
_______________________________________________________________________________________________________________________
=======================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Does not include sales charges and is not
annualized for periods less than one year.
(c) Total return is after the reimbursement the advisor paid for an economic
loss due to a trading error. Total return before reimbursement by the
advisor was 16.22%.
(d) Ratios are based on average daily net assets of $85,792,642.
(e) Annualized.
(f) Not annualized for periods less than one year.
F-12
NOTE 13--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS B
--------------------------------------------------------
YEAR ENDED DECEMBER 31, DECEMBER 31, 2001
-------------------------------- (DATE OPERATIONS
2004 2003 2002 COMMENCED)
- ----------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 11.14 $ 8.18 $ 9.99 $ 10.00
- ----------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.18)(a) (0.13) (0.12)(a) (0.00)
- ----------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 1.90 3.09 (1.69) (0.01)
- ----------------------------------------------------------------------------------------------------------------------
Net increase from payments by affiliates 0.01 -- -- --
======================================================================================================================
Total from investment operations 1.73 2.96 (1.81) (0.01)
======================================================================================================================
Less dividends from net investment income -- -- (0.00) --
======================================================================================================================
Net asset value, end of period $ 12.87 $ 11.14 $ 8.18 $ 9.99
______________________________________________________________________________________________________________________
======================================================================================================================
Total return(b) 15.53%(c) 36.19% (18.12)% (0.10)%
______________________________________________________________________________________________________________________
======================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $63,374 $38,165 $21,204 $ 300
______________________________________________________________________________________________________________________
======================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 2.32%(d) 2.45% 2.45% 2.45%(e)
- ----------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 2.34%(d) 2.57% 2.58% 200.14%(e)
======================================================================================================================
Ratio of net investment income (loss) to average net assets (1.50)%(d) (1.65)% (1.35)% (0.96)%(e)
______________________________________________________________________________________________________________________
======================================================================================================================
Portfolio turnover rate(f) 34% 52% 41% --
______________________________________________________________________________________________________________________
======================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Does not include sales charges and is not
annualized for periods less than one year.
(c) Total return is after the reimbursement the advisor paid for an economic
loss due to a trading error. Total return before reimbursement by the
advisor was 15.44%.
(d) Ratios are based on average daily net assets of $50,568,838.
(e) Annualized.
(f) Not annualized for periods less than one year.
F-13
NOTE 13--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS C
--------------------------------------------------------
YEAR ENDED DECEMBER 31, DECEMBER 31, 2001
-------------------------------- (DATE OPERATIONS
2004 2003 2002 COMMENCED)
- ----------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 11.13 $ 8.18 $ 9.99 $ 10.00
- ----------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.18)(a) (0.12) (0.12)(a) (0.00)
- ----------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 1.90 3.07 (1.69) (0.01)
- ----------------------------------------------------------------------------------------------------------------------
Net increase from payments by affiliates 0.01 -- -- --
======================================================================================================================
Total from investment operations 1.73 2.95 (1.81) (0.01)
======================================================================================================================
Less dividends from net investment income -- -- (0.00) --
======================================================================================================================
Net asset value, end of period $ 12.86 $ 11.13 $ 8.18 $ 9.99
______________________________________________________________________________________________________________________
======================================================================================================================
Total return(b) 15.54%(c) 36.06% (18.12)% (0.10)%
______________________________________________________________________________________________________________________
======================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $27,601 $13,422 $ 8,059 $ 300
______________________________________________________________________________________________________________________
======================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 2.32%(d) 2.45% 2.45% 2.45%(e)
- ----------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 2.34%(d) 2.57% 2.58% 200.14%(e)
======================================================================================================================
Ratio of net investment income (loss) to average net assets (1.50)%(d) (1.65)% (1.35)% (0.96)%(e)
______________________________________________________________________________________________________________________
======================================================================================================================
Portfolio turnover rate(f) 34% 52% 41% --
______________________________________________________________________________________________________________________
======================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Does not include sales charges and is not
annualized for periods less than one year.
(c) Total return is after the reimbursement the advisor paid for an economic
loss due to a trading error. Total return before reimbursement by the
advisor was 15.45%.
(d) Ratios are annualized and based on average daily net assets of
$18,970,193.
(e) Annualized.
(f) Not annualized for periods less than one year.
F-14
NOTE 13--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS R
--------------
APRIL 30, 2004
(DATE SALES
COMMENCED) TO
DECEMBER 31,
2004
- ------------------------------------------------------------------------------
Net asset value, beginning of period $11.88
- ------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.08)(a)
- ------------------------------------------------------------------------------
Net gains on securities (both realized and unrealized) 1.30
- ------------------------------------------------------------------------------
Net increase from payments by affiliates 0.01
==============================================================================
Total from investment operations 1.23
==============================================================================
Net asset value, end of period $13.11
______________________________________________________________________________
==============================================================================
Total return(b) 10.35%(c)
______________________________________________________________________________
==============================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 33
______________________________________________________________________________
==============================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.78%(d)
- ------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.80%(d)
==============================================================================
Ratio of net investment income (loss) to average net assets (0.96)%(d)
______________________________________________________________________________
==============================================================================
Portfolio turnover rate(e) 34%
______________________________________________________________________________
==============================================================================
</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) Total return is after the reimbursement the advisor paid for an economic
loss due to a trading error. Total return before reimbursement by the
advisor was 10.27%.
(d) Ratios are annualized and based on average daily net assets of $12,864.
(e) Not annualized for periods less than one year.
F-15
NOTE 13--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
INSTITUTIONAL CLASS
-------------------
APRIL 30, 2004
(DATE SALES
COMMENCED) TO
DECEMBER 31,
2004
- ---------------------------------------------------------------------------------
Net asset value, beginning of period $11.88
- ---------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.02)(a)
- ---------------------------------------------------------------------------------
Net gains on securities (both realized and unrealized) 1.30
- ---------------------------------------------------------------------------------
Net increase from payments by affiliates 0.01
=================================================================================
Total from investment operations 1.29
=================================================================================
Net asset value, end of period $13.17
_________________________________________________________________________________
=================================================================================
Total return(b) 10.86%(c)
_________________________________________________________________________________
=================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $7,530
_________________________________________________________________________________
=================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.03%(d)
- ---------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.05%(d)
=================================================================================
Ratio of net investment income (loss) to average net assets (0.21)%(d)
_________________________________________________________________________________
=================================================================================
Portfolio turnover rate(e) 34%
_________________________________________________________________________________
=================================================================================
</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) Total return is after the reimbursement the advisor paid for an economic
loss due to a trading error. Total return before reimbursement by the
advisor was 10.77%.
(d) Ratios are annualized and based on average daily net assets of
$3,103,341.
(e) Not annualized for periods less than one year.
NOTE 14--LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
Settled Enforcement Actions and Investigations Related to Market Timing
On October 8, 2004, INVESCO Funds Group, Inc. ("IFG") (the former investment
advisor to certain AIM Funds) and A I M Advisors, Inc. ("AIM") (the Fund's
investment advisor) reached final settlements with certain regulators, including
without limitation the Securities and Exchange Commission ("SEC"), the New York
Attorney General ("NYAG") and the Colorado Attorney General ("COAG"), 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.
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 they 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 and
AIM breached various Federal and state securities, business and consumer
protection laws. On the same date, A I M Distributors, Inc. ("ADI") (the
distributor of the retail AIM Funds) reached a final settlement with the SEC to
resolve an investigation relating to market timing activity and related issues
in the AIM Funds. The SEC also alleged that ADI violated various Federal
securities laws. The SEC also has settled related market timing enforcement
actions brought against certain former officers and employees of IFG.
Under the terms of the settlements, IFG agreed to pay a total of $325
million, of which $110 million is civil penalties. Of this $325 million total
payment, half has been paid 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, all of which has been paid. The entire $325
million IFG settlement payment will be made 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 made 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. 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 certain equity and balanced 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.
F-16
NOTE 14--LEGAL PROCEEDINGS (CONTINUED)
Under the terms of the settlements, AIM will make certain governance and
compliance reforms, including maintaining an internal controls committee and
retaining an independent compliance consultant and a corporate ombudsman. 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.
At the request of the trustees of the AIM Funds, AMVESCAP PLC ("AMVESCAP"),
the parent company of IFG and AIM, has agreed to pay expenses incurred by such
Funds related to market timing matters.
The SEC has also settled market timing enforcement actions 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), 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 these settlements, the SEC ordered these individuals to
pay restitution and civil penalties in various amounts and prohibited them from
associating with, or serving as an officer or director of, an investment
advisor, broker, dealer and/or investment company, as applicable, for certain
periods of time.
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 certain equity and balanced 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 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 payments 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 Regulatory Inquiries and Pending
Litigation described below may have on AIM, ADI or the Fund.
Regulatory Inquiries and Pending Litigation
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 but not limited to revenue sharing and directed-brokerage
arrangements, investments in securities of other registered investment
companies, contractual plans, issues related to Section 529 college savings
plans, procedures for locating lost security holders and participation in class
action settlements.
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.
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 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, the U.S. Postal
F-17
NOTE 14--LEGAL PROCEEDINGS (CONTINUED)
Inspection Service and the Commodity Futures Trading Commission, 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, 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 ("ERISA")
purportedly brought on behalf of participants in AMVESCAP's 401(k) plan. The
plaintiffs in one of the underlying lawsuits continue to seek remand of their
lawsuit 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. ("IINA"), ADI
and/or INVESCO Distributors, Inc. ("INVESCO Distributors")) 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. All of these lawsuits have been transferred to
the United States District Court for the Southern District of Texas, Houston
Division by order of the applicable United States District Court in which they
were initially filed. The plaintiff in one of these lawsuits has challenged this
order.
Private Civil Actions Alleging Improper Charging of Distribution Fees on Limited
Offering Funds or Share Classes
Multiple civil lawsuits, including 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. ("AIS")
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-18
NOTE 14--LEGAL PROCEEDINGS (CONTINUED)
Private Civil Action Alleging Failure to Ensure Participation in Class Action
Settlements
A civil lawsuit, purporting to be a class action lawsuit, has been filed
against AIM, IINA, A I M Capital Management, Inc. and the trustees of the AIM
Funds alleging that the defendants breached their fiduciary duties by failing to
ensure that the AIM Funds participated in class action settlements in which the
AIM Funds were eligible to participate. This lawsuit alleges as theories of
recovery: (i) violation of various provisions of the Federal securities laws;
(ii) common law breach of fiduciary duty; and (iii) common law negligence. This
lawsuit has been filed in Federal court and seeks such remedies as compensatory
and punitive damages; forfeiture of all commissions and fees paid by the class
of plaintiffs; and costs and attorneys' fees.
* * *
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
As a result of the matters discussed above, 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-19
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees and Shareholders of
AIM Mid Cap Basic Value Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of AIM Mid Cap Basic Value Fund (one
of the funds constituting AIM Funds Group hereafter referred to as the "Fund")
at December 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 periods indicated, in conformity with
accounting principles generally accepted in the United States of America. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with 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 December 31, 2004 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
/s/ PRICEWATERHOUSECOOPERS LLP
February 18, 2005
Houston, Texas
F-20
OTHER INFORMATION
TRUSTEES AND OFFICERS
As of December 31, 2004
The address of each trustee and officer of AIM Funds Group (the "Trust"), is 11
Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee oversees 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 1992 Director and Chairman, A I M Management None
Trustee, Vice Chair and Group Inc. (financial services holding
President 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 1987 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 2001 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 2000 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 1998 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 1997 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 December 31, 2004
The address of each trustee and officer of AIM Funds Group (the "Trust"), is 11
Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee oversees 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 1993 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 1998 Formerly: Chief Executive Officer, YWCA None
Trustee of the USA
- ---------------------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 1992 Partner, law firm of Pennock & Cooper None
Trustee
- ---------------------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2001 Retired None
Trustee
- ---------------------------------------------------------------------------------------------------------------------------------
Louis S. Sklar(4) -- 1939 1993 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(5) -- 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.; and Senior Vice
President and General Counsel, Liberty
Funds Group, LLC and Vice President,
A I M Distributors, Inc.
- ---------------------------------------------------------------------------------------------------------------------------------
Robert G. Alley -- 1948 1992 Managing Director, Chief Fixed Income N/A
Vice President Officer and Senior Investment Officer,
A I M Capital Management, Inc. and Vice
President, A I M Advisors, Inc.
- ---------------------------------------------------------------------------------------------------------------------------------
Stuart W. Coco -- 1955 1992 Managing Director and 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 1992 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(4) -- 1940 1999 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. (See footnote (4)
below.)
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) Mr. Sklar and Mr. Larsen retired effective December 31, 2004.
(5) 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 Street
Houston, TX 77046-1173 Suite 100 Suite 2900
Houston, TX 77046-1173 Houston, Texas
77002-5678
COUNSEL TO THE FUND COUNSEL TO THE TRANSFER AGENT CUSTODIAN
INDEPENDENT TRUSTEES
Ballard Spahr AIM Investment State Street Bank and
Andrews & Ingersoll, LLP Kramer, Levin, Naftalis Services, Inc. Trust Company
1735 Market Street & Frankel LLP P.O. Box 4739 225 Franklin Street
Philadelphia, PA 19103-7599 919 Third Avenue Houston, TX 77210-4739 Boston, MA 02110-2801
New York, NY 10022-3852
</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 Growth Fund AIM Total Return Bond Fund
AIM Diversified Dividend Fund AIM International Small Company Fund(7) 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) Effective December 30, 2004, AIM
International Emerging Growth Fund was renamed AIM International Small Company
Fund. The fund will close to new investors when net assets reach $500 million.
If used after April 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 $138 billion in assets. AIM is a subsidiary of
AMVESCAP PLC, one of the world's largest independent financial services
companies with $382 billion in assets under management. Data as of December 31,
2004.
AIMinvestments.com MCBV-AR-1 A I M Distributors, Inc.
<Table>
YOUR GOALS. OUR SOLUTIONS.--Registered Trademark--
- -------------------------------------------------------------------------------------
Mutual Retirement Annuities College Separately Offshore Cash [AIM INVESTMENTS LOGO APPEARS HERE]
Funds Products Savings Managed Products Management --Registered Trademark--
Plans Accounts
- -------------------------------------------------------------------------------------
</Table>
AIM PREMIER EQUITY FUND
Annual Report to Shareholders o December 31, 2004
[COVER IMAGE]
YOUR GOALS. OUR SOLUTIONS. [AIM INVESTMENTS LOGO APPEARS HERE]
--Registered Trademark-- --Registered Trademark--
<Table>
====================================================================================================================================
AIM PREMIER EQUITY FUND SEEKS TO PROVIDE LONG-TERM GROWTH OF CAPITAL. INCOME IS A SECONDARY OBJECTIVE.
o Unless otherwise stated, information presented in this report is as of 12/31/04 and is based on total net assets.
====================================================================================================================================
ABOUT SHARE CLASSES o The unmanaged Lipper Large-Cap Core The fund files its complete schedule of
Fund Index represents an average of the portfolio holdings with the Securities
o Effective 9/30/03, Class B shares are performance of the 30 largest and Exchange Commission ("SEC") for the
not available as an investment for large-capitalization core equity funds 1st and 3rd quarters of each fiscal year
retirement plans maintained pursuant to tracked by Lipper, Inc., an independent on Form N-Q. The fund's Form N-Q filings
Section 401 of the Internal Revenue mutual fund performance monitor. are available on the SEC's Web site at
Code, including 401(k) plans, money http://www.sec.gov. Copies of the fund's
purchase pension plans and profit o The fund is not managed to track the Forms N-Q may be reviewed and copied at
sharing plans. Plans that have existing performance of any particular index, the SEC's Public Reference Room at 450
accounts invested in Class B shares will including the indexes defined here, and Fifth Street, N.W., Washington, D.C.
continue to be allowed to make consequently, the performance of the 20549-0102. You can obtain information on
additional purchases. fund may deviate significantly from the the operation of the Public Reference
performance of the indexes. Room, including information about
o Class R shares are available only to duplicating fee charges, by calling
certain retirement plans. Please see the o A direct investment cannot be made in 1-202-942-8090 or by electronic request
prospectus for more information. an index. Unless otherwise indicated, at the following e-mail address:
index results include reinvested publicinfo@sec.gov. The SEC file numbers
PRINCIPAL RISKS OF INVESTING IN THE dividends, and they do not reflect sales for the fund are 811-1540 and 2-27334.
FUND charges. Performance of an index of The fund's most recent portfolio
funds reflects fund expenses; holdings, as filed on Form N-Q, are also
o The fund may invest up to 25% of its performance of a market index does not. available at AIMinvestments.com.
assets in the securities of non-U.S.
issuers. International investing OTHER INFORMATION A description of the policies and
presents certain risks not associated procedures that the fund uses to
with investing solely in the United o The returns shown in the Management's determine how to vote proxies relating
States. These include risks relating to Discussion of Fund Performance are based to portfolio securities is available
fluctuations in the value of the U.S. on net asset values calculated for without charge, upon request, from our
dollar relative to the values of other shareholder transactions. Generally Client Services department at
currencies, the custody arrangements accepted accounting principles require 800-959-4246 or on the AIM Web site,
made for the fund's foreign holdings, adjustments to be made to the net assets AIMinvestments.com. On the home page,
differences in accounting, political of the fund at period end for financial scroll down and click on AIM Funds Proxy
risks and the lesser degree of public reporting purposes, and as such, the net Policy. The information is also
information required to be provided by asset values for shareholder available on the Securities and Exchange
non-U.S. companies. transactions and the returns based on Commission's Web site, sec.gov.
those net asset values may differ from
o The fund's investments in different, the net asset values and returns Information regarding how the fund voted
independently managed investment reported in the Financial Highlights. proxies related to its portfolio
disciplines may result in increased securities during the 12 months ended
transaction costs and/or adverse tax o Industry classifications used in this 6/30/04 is available at our Web site. Go
consequences resulting from transactions report are generally according to the to AIMinvestments.com, access the About
in the same security at or at about the Global Industry Classification Standard, Us tab, click on Required Notices and
same time. which was developed by and is the then click on Proxy Voting Activity.
exclusive property and a service mark of Next, select your fund from the dropdown
ABOUT INDEXES USED IN THIS REPORT Morgan Stanley Capital International menu.
Inc. and Standard & Poor's.
o The unmanaged Standard & Poor's
Composite Index of 500 Stocks (the S&P
500--Registered Trademark-- Index) is an
index of common stocks frequently used
as a general measure of U.S. stock
market performance.
o The unmanaged Lehman U.S. Aggregate
Bond Index, which represents the U.S.
investment-grade fixed-rate bond market
(including government and corporate
securities, mortgage pass-through
securities and asset-backed securities),
is compiled by Lehman Brothers, a global
investment bank.
</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
AIM PREMIER EQUITY FUND
<Table>
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. Accordingly, the AIM Funds' Board recently elected Mr.
WILLIAMSON Crockett, one of the 14 independent trustees on the AIM
Funds' Board, as Chairman. His appointment became effective
on October 4, 2004. Mr. Graham will remain on the funds'
[PHOTO OF Board, as will Mark Williamson, President and Chief
BRUCE L. Executive Officer of AIM. Mr. Graham will also remain
CROCKETT] Chairman of AIM Investments --Registered Trademark--.
BRUCE L. Mr. Crockett has been a member of the AIM Funds' Board
CROCKETT 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
After nine months of slow growth, equity markets rallied
late in the year to produce solid results for 2004. The S&P
500 Index was up 10.87% for the year as a whole, but that
includes the 9.23% total return for the fourth quarter
alone. For bonds, the turning point came earlier. Almost all
of the 4.34% return produced by the Lehman U.S. Aggregate
Bond Index came during the second half of the year, despite
the fact that the Federal Reserve had begun raising
short-term interest rates about halfway through the year.
Overseas markets followed a similar pattern, with quite
robust double-digit performance across the board, most of it
produced during the second half of the year.
All in all, 2004 was a good year for American investors,
with the decline in the dollar over the course of the year
lending a boost to returns from foreign holdings. And there
were a number of solid economic numbers to report as of the
end of the year:
o U.S. gross domestic product (GDP) rose each quarter
during 2004. And respondents to the BusinessWeek
magazine survey foresaw 2005 GDP growth at 3.5%, above
the post-World War II average of 3.4%.
o The Institute for Supply Management's manufacturing
and non-manufacturing indexes--based on surveys of
purchasing managers in industries that together cover
more than 70% of the U.S. economy--both continued to
rise during December and remained in very strong
territory.
o Thomson First Call, which tracks corporate earnings
and other information for clients in financial service
industries, estimated S&P 500 earnings to be up 10.5%
in 2005.
Of course, none of this can guarantee that 2005 will be
another good year. Over the short term, the only sure thing
about the investment markets is their unpredictability.
Hence, we have always urged shareholders to keep a long-term
perspective on all their investments.
YOUR FUND
The following pages present a discussion of how your fund
invests, how it performed compared to pertinent benchmarks
during the fiscal year and how it has performed over the
long term. We hope you find this information helpful. We
also encourage you to visit AIMinvestments.com often.
Updated information on your fund is always available there,
as well as general information on a variety of investing
topics.
As always, AIM is committed to building solutions for
your investment goals, and we thank you for your
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
January 28, 2005
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.
</Table>
AIM PREMIER EQUITY FUND
<Table>
MANAGEMENT'S DISCUSSION OF FUND marked disparity between market price
PERFORMANCE and estimated intrinsic value can result
in strong long-term performance.
Since the fund's last annual report, the to the management of the fund which
fund's management and investment initiated a multi-team approach. As a The growth team, through quantitative
approach have changed. Though it has result, the fund is now managed by three and rigorous fundamental analysis,
only been seven months since these distinct teams, each representing one of identifies companies generating
changes were implemented, we believe the the three investment disciplines: core, sustainable, above-average earnings
long-term result will be consistent, value and growth. Each investment team growth and cash flow growth that is not
competitive performance in a variety of manages its respective discipline fully reflected in investor expectations
market environments. independently. These highly experienced or equity valuations.
AIM teams were put together for this
======================================== fund to ensure complete coverage of the MARKET CONDITIONS AND YOUR FUND
entire spectrum of large-cap
FUND VS. INDEXES opportunities and to offer a large-cap For the first 10 months of 2004, the
core fund designed to capture the upside domestic equity broad market was
TOTAL RETURNS, 12/31/03-12/31/04, of the market while offering better relatively flat, as evidenced by the S&P
EXCLUDING APPLICABLE SALES CHARGES. IF capital preservation in more difficult 500 Index's year-to-date return on
SALES CHARGES WERE INCLUDED, RETURNS times. October 31, 2004, of just over 3%.
WOULD BE LOWER. Though gross domestic product (GDP)
The core team identifies growing growth had been steady and corporate
Class A Shares 5.48% companies whose stock prices may be earnings had been strong, rising oil
experiencing some near-term distress. By prices, geopolitical events and the
Class B Shares 4.69 applying rigorous fundamental research uncertainty surrounding the U.S.
that focuses on cash flow analysis, the presidential election had dampened the
Class C Shares 4.68 team identifies companies with effects of generally good economic news
management teams that are capable of during the period. With the election
Class R Shares 5.25 weathering any near-term challenges results determined and oil prices
while successfully generating improving declining, the market rally during the
S&P 500 Index (Broad Market and levels of free cash flow. last two months of 2004 provided impetus
Style-specific Index) 10.87 for the return of the S&P 500 Index to
The value team capitalizes on the increase to 10.87% for the year.
Lipper Large-Cap Core Fund Index fact that stock prices are more volatile
(Peer Group Index) 8.29 than business values, primarily because As stated, our purpose in managing
investors overreact to news. The team this fund is to capture the upside of
Source: Lipper, Inc. seeks to invest when a significant the market while offering better capital
======================================== difference exists between a stock's preservation in more difficult times.
market price and our estimate of the Our strategy for accomplishing this
For the year ended December 31, 2004, company's intrinsic value. We believe purpose is to provide carefully selected
the fund's underperformance can that a diversified portfolio of stocks exposure to the entire spectrum of
generally be attributed to weak purchased during intervals of large-cap opportunities by employing
performance in the fund's holdings in three distinct investment disciplines.
the financials, information technology During the period, the growth discipline
and consumer discretionary sectors outperformed the core
relative to its peer group and the S&P
500 Index.
HOW WE INVEST
As described in our semiannual report to
shareholders, on April 20, 2004, changes
were made
</Table>
<Table>
<Caption>
====================================================================================================================================
PORTFOLIO COMPOSITION TOP 10 EQUITY HOLDINGS* TOP 10 INDUSTRIES*
By sector
1. Tyco International Ltd. 3.1% 1. Pharmaceuticals 9.2%
(Bermuda)
[PIE CHART] 2. Waste Management, Inc. 1.9 2. Industrial Conglomerates 4.9
Information Technology 16.9% 3. Computer Associates 3. Systems Software 4.7
Health Care 16.3% International, Inc. 1.7
Industrials 15.3% 4. Packaged Foods & Meats 4.0
Financials 14.0% 4. General Mills, Inc. 1.6
Consumer Discretionary 12.3% 5. Integrated Oil & Gas 3.8
Consumer Staples 10.3% 5. Kroger Co. (The) 1.6
Energy 8.4% 6. Oil & Gas Equipment & Services 2.9
Materials 1.9% 6. General Electric Co. 1.5
Utilities 0.9% 7. Property & Casualty Insurance 2.8
Telecommunication Services 0.5% 7. Microsoft Corp. 1.5
Money Market Funds Plus Other 8. Semiconductors 2.6
Assets Less Liabilities 3.2% 8. Citigroup Inc. 1.5
9. Investment Banking & Brokerage 2.4
9. Masco Corp. 1.4
10. Other Diversified Financial
10. Ace Ltd. (Cayman Islands) 1.4 Services 2.3
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>
<Caption>
and value disciplines, which produced than that of the index, and its holdings AND OPINIONS MAY NOT BE RELIED UPON AS
more muted returns. Conversely, we included more companies that have less INVESTMENT ADVICE OR RECOMMENDATIONS, OR
expect that there will be future periods interest-rate sensitivity, such as AS AN OFFER FOR A PARTICULAR SECURITY.
wherein the value and core disciplines investment services giant Merrill Lynch THE INFORMATION IS NOT A COMPLETE
buffer any weakness in the growth and property and casualty insurer Ace ANALYSIS OF EVERY ASPECT OF ANY MARKET,
discipline. Ltd. COUNTRY, INDUSTRY, SECURITY OR THE FUND.
STATEMENTS OF FACT ARE FROM SOURCES
The fund's holdings in energy and Information technology stocks were CONSIDERED RELIABLE, BUT A I M ADVISORS,
industrials were the top contributors to generally flat during the period. Though INC. MAKES NO REPRESENTATION OR WARRANTY
fund performance. Specifically, in the the sector enjoyed a strong fourth AS TO THEIR COMPLETENESS OR ACCURACY.
industrials sector, Tyco and Masco quarter, it was the second ALTHOUGH HISTORICAL PERFORMANCE IS NO
provided excellent returns for the year. worst-performing sector in the index for GUARANTEE OF FUTURE RESULTS, THESE
These companies made specific the year, and the fund's holdings in INSIGHTS MAY HELP YOU UNDERSTAND OUR
improvements in the execution of their this area languished as well. INVESTMENT MANAGEMENT PHILOSOPHY.
businesses, which our research had
identified through our in-depth review The consumer discretionary sector See important fund and index disclosures
of their management practices. As a produced relatively strong performance inside front cover.
result, both companies significantly in the S&P 500 Index in 2004, in line
outperformed the industrials sector of with generally strong growth in consumer
the index. spending. However, despite strong
individual performances from diverse RONALD S. SLOAN,
Oil prices increased throughout the names across the fund's three Chartered Financial
first three quarters of the year, disciplines, including Nike, Starwood [SLOAN Analyst, senior
reaching an all-time high of $55 a Hotels & Resorts, and eBay, consumer PHOTO] portfolio manager, is
barrel in October. Most areas of the discretionary stocks in the fund's lead manager of AIM
energy sector produced strong returns portfolio generally underperformed their Premier Equity Fund.
for the year, including exploration and index counterparts. In particular, Mr. Sloan has 34 years of experience in
production companies, drillers, and oil select media stocks detracted, the investment industry. He joined AIM
services companies. Energy was the coinciding with reports of generally in 1998. Mr. Sloan attended the
best-performing sector in the S&P 500 lower-than-expected advertising revenues University of Missouri, where he
Index, and, as a group, the fund's across the industry. These holdings received both a B.S. in business
holdings in the sector broadly included broadcasting stock Viacom, administration and an M.B.A.
participated in the upswing. which the fund no longer owns,
advertising stock Interpublic and LANNY H. SACHNOWITZ,
The fund's holdings in financials, publishers Gannett, New York Times and senior portfolio
information technology and consumer Tribune Co. At the close of the period, [SACHNOWITZ manager, is a manager
discretionary detracted from its we remained committed to our investments PHOTO] of AIM Premier Equity
performance relative to the index. In in the latter four companies, as we Fund. Mr. Sachnowitz
general, we believe that it is incumbent believe they are guided by strong joined AIM in 1987. He
upon a core fund to avoid clear market management teams with track records of received a B.S. in finance from the
risks. At this time, we believe the growing free cash flow and allocating it University of Southern California, and
financials sector is highly susceptible to the benefit of shareholders he received his M.B.A from the
to risk associated with rising interest irrespective of the advertising University of Houston.
rates, a trend that we expect to environment.
continue. Therefore, the fund's overall BRET W. STANLEY,
exposure to the sector during the year IN CLOSING Chartered Financial
was smaller [STANLEY Analyst, senior
At the end of the period, the fund PHOTO] portfolio manager, is a
======================================== continued to have exposure to most broad manager of AIM Premier
market sectors, and we believe it was Equity Fund. Mr.
TOTAL NET ASSETS $6.9 BILLION appropriately positioned to offer Stanley has 16 years of experience in
shareholders the performance profile the investment industry. He joined AIM
TOTAL NUMBER OF HOLDINGS* 144 they expect in a core fund. in 1998. Mr. Stanley attended the
======================================== Specifically, the fund was relatively University of Texas, where he received
balanced in its exposure to more his B.B.A. in finance, and the
defensive holdings and its exposure to University of Houston, where he earned
more economically sensitive holdings. his M.S. in finance.
This results from our multi-team
approach that is intended to offer both Assisted by the Mid/Large Cap Core Team,
a wider variety of investment Large Cap Growth Team and Basic Value
opportunities and the potential for Team
lower volatility relative to market
benchmarks such as the S&P 500 Index.
THE VIEWS AND OPINIONS EXPRESSED IN [RIGHT ARROW GRAPHIC]
MANAGEMENT'S DISCUSSION OF FUND
PERFORMANCE ARE THOSE OF A I M ADVISORS, FOR A PRESENTATION OF YOUR FUND'S
INC. THESE VIEWS AND OPINIONS ARE LONG-TERM PERFORMANCE RECORD, PLEASE
SUBJECT TO CHANGE AT ANY TIME BASED ON TURN TO PAGE 5.
FACTORS SUCH AS MARKET AND ECONOMIC
CONDITIONS. THESE VIEWS
</Table>
3
AIM PREMIER EQUITY FUND
CALCULATING YOUR ONGOING FUND EXPENSES
<Table>
<Caption>
EXAMPLE estimate the expenses that you paid over and other funds. To do so, compare this
the period. Simply divide your account 5% hypothetical example with the 5%
As a shareholder of the fund, you incur value by $1,000 (for example, an $8,600 hypothetical examples that appear in the
two types of costs: (1) transaction account value divided by $1,000 = 8.6), shareholder reports of the other funds.
costs, which may include sales charges then multiply the result by the number
(loads) on purchase payments; contingent in the table under the heading entitled Please note that the expenses shown
deferred sales charges on redemptions; "Actual Expenses Paid During Period" to in the table are meant to highlight your
and redemption fees, if any; and (2) estimate the expenses you paid on your ongoing costs only and do not reflect
ongoing costs, including management 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 contingent deferred sales charges on
example is intended to help you COMPARISON 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
July 1, 2004--December 31, 2004. actual return. The hypothetical account higher.
values and expenses may not be used to
ACTUAL EXPENSES estimate your 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
this table, together with the amount you
invested, to
===============================================================================================================================
ACTUAL HYPOTHETICAL
(5% annual return before expenses)
Beginning Account Ending Account Expenses Ending Account Expenses
Share Value Value Paid During Value Paid During
Class (7/01/04) (12/31/04)(1) Period(2),(3) (12/31/04) Period(2),(4)
A $1,000.00 $1,043.70 $ 6.58 $1,018.70 $ 6.50
B 1,000.00 1,039.70 10.41 1,014.93 10.28
C 1,000.00 1,039.70 10.41 1,014.93 10.28
R 1,000.00 1,042.40 7.85 1,017.44 7.76
(1) The actual ending account value is based on the actual total return of the fund for the period July 1, 2004, to December 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
July 1, 2004, to December 31, 2004, was 4.37%, 3.97%, 3.97% and 4.24% for Class A, B, C and R shares, respectively, including
fund expenses.
(2) Expenses are equal to the fund's annualized expense ratio (1.28%, 2.03%, 2.03% and 1.53% 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). Effective on January 1, 2005, the advisor contractually agreed to waive a portion of its advisory fees. The annualized
expense ratios restated as if this agreement had been in effect throughout the entire most recent fiscal half year are 1.27%,
2.02%, 2.02% and 1.52% for Class A, B, C and R shares, respectively.
(3) The actual expenses paid restated as if the change discussed above had been in effect throughout the entire most recent
fiscal half year are $6.52, $10.36, $10.36 and $7.80 for Class A, B, C and R shares, respectively.
(4) The hypothetical expenses paid restated as if the change discussed above had been in effect throughout the entire most
recent fiscal half year are $6.44, $10.23, $10.23 and $7.71 for Class A, B, C and R shares, respectively.
===============================================================================================================================
[ARROW
BUTTON For More Information Visit
IMAGE] AIMinvestments.com
</Table>
4
AIM PREMIER EQUITY FUND
<Table>
<Caption>
YOUR FUND'S LONG-TERM PERFORMANCE RESULTS OF A $10,000 INVESTMENT
5/1/84-12/31/04 Index data from 4/30/84
Past performance cannot guarantee
comparable future results. [MOUNTAIN CHART]
AIM PREMIER
Your fund's total return includes DATE EQUITY FUND S&P 500 LIPPER LARGE-CAP
reinvested distributions, applicable CLASS A SHARES INDEX CORE FUND INDEX
sales charges, fund expenses and 4/30/84 $ 9450 $10000 $10000
management fees. Index results include 6/84 9611 9652 9830
reinvested dividends, but they do not 9/84 10413 10587 10649
reflect sales charges. Performance of an 12/84 10384 10786 10960
index of funds reflects fund expenses 3/85 11230 11776 11917
and management fees; performance of a 6/85 11766 12640 12852
market index does not. Performance shown 9/85 11546 12123 12384
in the chart does not reflect deduction 12/85 12741 14208 14204
of taxes a shareholder would pay on fund 3/86 13986 16212 16139
distributions or sale of fund shares. 6/86 14068 17167 16858
Performance of the indexes does not 9/86 13264 15970 15786
reflect the effects of taxes. 12/86 13862 16860 16335
3/87 16375 20460 19211
In evaluating this chart, please note 6/87 16639 21487 19801
that the chart uses a logarithmic scale 9/87 18080 22904 20851
along the vertical axis (the value 12/87 14689 17745 16824
scale). This means that each scale 3/88 15880 18752 17739
increment always represents the same 6/88 17174 19998 18595
percent change in price; in a linear 9/88 16904 20066 18732
chart each scale increment always 12/88 17715 20684 19189
represents the same absolute change in 3/89 18989 22150 20515
price. In this example, the scale 6/89 20666 24101 22254
increment between $5,000 and $10,000 is 9/89 22439 26679 24713
the same as that between $10,000 and 12/89 23303 27227 24665
$20,000. In a linear chart, the latter 3/90 24265 26408 24017
scale increment would be twice as large. 6/90 26638 28065 25670
The benefit of using a logarithmic scale 9/90 21283 24213 22347
is that it better illustrates 12/90 23743 26380 23935
performance during the fund's early 3/91 28961 30206 27450
years before reinvested distributions 6/91 27404 30134 27231
and compounding create the potential for 9/91 31065 31742 28952
the original investment to grow to very 12/91 34058 34400 31427
large numbers. Had the chart used a 3/92 34912 33532 31148
linear scale along its vertical axis, 6/92 33884 34169 30971
you would not be able to see as clearly 9/92 35493 35247 31829
the movements in the value of the fund 12/92 39643 37017 33846
and the indexes during the fund's early 3/93 41857 38633 35281
years. We use a logarithmic scale in 6/93 43509 38818 35705
financial reports of funds that have 9/93 46661 39818 36883
more than five years of performance 12/93 47057 40740 37709
history. 3/94 47735 39198 36434
6/94 45728 39362 36097
9/94 49025 41282 37700
12/94 48595 41275 37302
3/95 53219 45289 40241
6/95 59726 49607 43571
9/95 66512 53546 46814
12/95 65543 56767 49148
3/96 65885 59814 51677
6/96 68986 62495 53551
9/96 70010 64427 55253
12/96 75054 69792 58899
3/97 73919 71668 59388
6/97 87152 84168 69365
9/97 94564 90472 74692
12/97 93033 93069 76112
3/98 104513 106042 86382
6/98 110329 109563 89841
9/98 96989 98689 79544
12/98 123499 119686 96612
3/99 134488 125646 100801
6/99 141455 134486 106378
9/99 136233 126110 99434
12/99 160496 144859 115306
3/00 175016 148177 120225
6/00 159860 144241 117485
9/00 149505 142843 117050
12/00 136476 131675 106809
3/01 120881 116073 93498
6/01 128191 122862 98482
9/01 107786 104835 84408
12/01 118755 116037 93101
3/02 114488 116357 93162
6/02 93183 100777 81596
9/02 77134 83377 68758
12/02 82052 90402 73332
3/03 80857 87555 71053
6/03 90476 101025 80776
9/03 92762 103699 82555
12/03 102490 116317 91522
3/04 103044 118286 92439
6/04 103602 120321 93572
9/04 99561 118070 91352
12/04 $108137 $128963 $99107
Source: Lipper, Inc.
==========================================
AVERAGE ANNUAL TOTAL RETURNS The performance data quoted represent
As of 12/31/04, including applicable sales past performance and cannot guarantee
charges comparable future results; current
performance may be lower or higher.
CLASS A SHARES Please visit AIMinvestments.com for the
Inception (5/1/84) 12.21% most recent month-end performance.
10 Years 7.71 Performance figures reflect reinvested
5 Years -8.64 distributions, changes in net asset
1 Year -0.36 value and the effect of the maximum
sales charge unless otherwise stated.
CLASS B SHARES Investment return and principal value
Inception (10/18/93) 7.03% will fluctuate so that you may have a
10 Years 7.65 gain or loss when you sell shares.
5 Years -8.64
1 Year -0.31 Class A share performance reflects
the maximum 5.50% sales charge, and
CLASS C SHARES Class B and Class C share performance
Inception (8/4/97) 1.30% reflects the applicable contingent
5 Years -8.30 deferred sales charge (CDSC) for the
1 Year 3.68 period involved. The CDSC on Class B
shares declines from 5% beginning at the
CLASS R SHARES time of purchase to 0% at the beginning
10 Years 8.05% of the seventh year. The CDSC on Class C
5 Years -7.83 shares is 1% for the first year after
1 Year 5.25 purchase. Class R shares do not have a
front-end sales charge; returns shown
========================================== are at net asset value and do not
reflect a 0.75% CDSC that may be imposed
Class R shares' inception date is on a total redemption of retirement plan
6/3/02. Returns since that date are assets within the first year.
historical returns. All other returns
are blended returns of historical Class The performance of the fund's share
R share performance and restated Class A classes will differ due to different
share performance (for periods prior to sales charge structures and class
the inception date of Class R shares) at expenses.
net asset value, adjusted to reflect the
higher Rule 12b-1 fees applicable to
Class R shares.
</Table>
5
SUPPLEMENT TO ANNUAL REPORT DATED 12/31/04
AIM PREMIER EQUITY FUND
<Table>
<Caption>
========================================
INSTITUTIONAL CLASS SHARES AVERAGE ANNUAL TOTAL RETURNS Please note that past performance is not
For periods ended 12/31/04 indicative of future results. More
The following information has been Inception (3/15/02) -2.11% recent returns may be more or less than
prepared to provide Institutional Class 1 Year 6.06 those shown. All returns assume
shareholders with a performance overview reinvestment of distributions at net
specific to their holdings. ======================================== asset value. Investment return and
Institutional Class shares are offered principal value will fluctuate so your
exclusively to institutional investors, Institutional Class shares have no sales shares, when redeemed, may be worth more
including defined contribution plans charge; therefore, performance is at net or less than their original cost. See
that meet certain criteria. asset value. Performance of full report for information on
Institutional Class shares will differ comparative benchmarks. Please consult
from performance of other share classes your fund prospectus for more
due to differing sales charges and class information. For the most current
expenses. month-end performance, please call
800-451-4246 or visit
AIMinvestments.com.
</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.
<Table>
AIMinvestments.com PEQ-INS-1 12/04 [YOUR GOALS. OUR SOLUTIONS.] [AIM INVESTMENTS LOGO APPEARS HERE]
--Registered Trademark-- --Registered Trademark--
</Table>
INFORMATION ABOUT YOUR FUND'S EXPENSES
CALCULATING YOUR ONGOING FUND EXPENSES
<Table>
<Caption>
EXAMPLE period. Simply divide your account value use this information to compare the
by $1,000 (for example, an $8,600 ongoing costs of investing in the fund
As a shareholder of the fund, you incur account value divided by $1,000 = 8.6), and other funds. To do so, compare this
ongoing costs, including management then multiply the result by the number 5% hypothetical example with the 5%
fees; and other fund expenses. This in the table under the heading entitled hypothetical examples that appear in the
example is intended to help you "Actual Expenses Paid During Period" to shareholder reports of the other funds.
understand your ongoing costs (in estimate the expenses you paid on your
dollars) of investing in the fund and to account during this period. Please note that the expenses shown
compare these costs with ongoing costs in the table are meant to highlight your
of investing in other mutual funds. The HYPOTHETICAL EXAMPLE FOR COMPARISON ongoing costs only. Therefore, the
example is based on an investment of PURPOSES hypothetical information is useful in
$1,000 invested at the beginning of the comparing ongoing costs only, and will
period and held for the entire period, The table below also provides not help you determine the relative
July 1, 2004-December 31, 2004. information about hypothetical account total costs of owning different funds.
values and hypothetical expenses based
ACTUAL EXPENSES on the fund's actual expense ratio and
an assumed rate of return of 5% per year
The table below provides information before expenses, which is not the fund's
about actual account values and actual actual return. The hypothetical account
expenses. You may use the information in values and expenses may not be used to
this table, together with the amount you estimate the actual ending account
invested, to estimate the expenses that balance or expenses you paid for the
you paid over the period. You may
====================================================================================================================================
ACTUAL HYPOTHETICAL
(5% ANNUAL RETURN BEFORE EXPENSES)
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES ENDING ACCOUNT EXPENSES
VALUE VALUE PAID DURING VALUE PAID DURING
(07/01/04) (12/31/04)(1) PERIOD(2,3) (12/31/04) PERIOD(2,4)
Institutional Class $1,000.00 $1,045.10 $3.44 $1,021.77 $3.40
(1) The actual ending account value is based on the actual total return of the fund for the period July 1, 2004, to December 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 July 1, 2004,
to December 31, 2004, was 4.51% for the Institutional Class.
(2) Expenses are equal to the fund's annualized expense ratio, 0.67% for the Institutional Class, multiplied by the average account
value over the period, multiplied by 184/366 (to reflect the one-half year period). Effective on January 1, 2005, the advisor
contractually agreed to waive a portion of its advisory fees. The annualized expense ratios restated as if this agreement had been
in effect throughout the entire most recent fiscal half year is 0.66% for the Institutional Class.
(3) The actual expenses paid restated as if the change discussed above had been in effect throughout the entire most recent fiscal
half year is $3.39 for the Institutional Class.
(4) The hypothetical expenses paid restated as if the change discussed above had been in effect throughout the entire most recent
fiscal half year is $3.35 for the Institutional Class.
====================================================================================================================================
</Table>
AIMinvestments.com PEQ-INS-1 12/04
FINANCIALS
SCHEDULE OF INVESTMENTS
December 31, 2004
<Table>
<Caption>
MARKET
SHARES VALUE
- ---------------------------------------------------------------------------
COMMON STOCKS & OTHER EQUITY INTERESTS-96.70%
ADVERTISING-1.11%
Interpublic Group of Cos., Inc. (The)(a) 1,582,800 $ 21,209,520
- ---------------------------------------------------------------------------
Omnicom Group Inc. 648,100 54,647,792
===========================================================================
75,857,312
===========================================================================
AEROSPACE & DEFENSE-1.58%
Boeing Co. (The) 350,000 18,119,500
- ---------------------------------------------------------------------------
General Dynamics Corp. 175,000 18,305,000
- ---------------------------------------------------------------------------
Honeywell International Inc. 785,900 27,828,719
- ---------------------------------------------------------------------------
Northrop Grumman Corp. 808,200 43,933,752
===========================================================================
108,186,971
===========================================================================
ALUMINUM-0.35%
Alcoa Inc. 760,700 23,901,194
===========================================================================
APPAREL RETAIL-1.00%
Gap, Inc. (The) 1,670,000 35,270,400
- ---------------------------------------------------------------------------
Limited Brands 1,450,000 33,379,000
===========================================================================
68,649,400
===========================================================================
APPLICATION SOFTWARE-0.71%
Amdocs Ltd. (United Kingdom)(a) 1,175,000 30,843,750
- ---------------------------------------------------------------------------
Intuit Inc.(a) 400,000 17,604,000
===========================================================================
48,447,750
===========================================================================
ASSET MANAGEMENT & CUSTODY BANKS-0.65%
Bank of New York Co., Inc. (The) 1,326,900 44,344,998
===========================================================================
BIOTECHNOLOGY-0.51%
Genentech, Inc.(a) 325,000 17,693,000
- ---------------------------------------------------------------------------
Gilead Sciences, Inc.(a) 500,000 17,495,000
===========================================================================
35,188,000
===========================================================================
BREWERS-0.75%
Heineken N.V. (Netherlands)(b) 1,555,386 51,640,580
===========================================================================
BUILDING PRODUCTS-1.44%
Masco Corp. 2,708,000 98,923,240
===========================================================================
COMMUNICATIONS EQUIPMENT-2.12%
Cisco Systems, Inc.(a) 1,850,000 35,705,000
- ---------------------------------------------------------------------------
Motorola, Inc. 1,526,400 26,254,080
- ---------------------------------------------------------------------------
Nokia Oyj-ADR (Finland) 2,206,500 34,575,855
- ---------------------------------------------------------------------------
QUALCOMM Inc. 875,000 37,100,000
- ---------------------------------------------------------------------------
Research In Motion Ltd. (Canada)(a) 145,000 11,950,900
===========================================================================
145,585,835
===========================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- ---------------------------------------------------------------------------
COMPUTER & ELECTRONICS RETAIL-0.26%
Best Buy Co., Inc. 300,000 $ 17,826,000
===========================================================================
COMPUTER HARDWARE-1.47%
Dell Inc.(a) 1,300,000 54,782,000
- ---------------------------------------------------------------------------
International Business Machines Corp. 470,800 46,411,464
===========================================================================
101,193,464
===========================================================================
COMPUTER STORAGE & PERIPHERALS-0.27%
Lexmark International, Inc.-Class A(a) 220,000 18,700,000
===========================================================================
CONSUMER ELECTRONICS-0.56%
Sony Corp.-ADR (Japan) 980,000 38,180,800
===========================================================================
CONSUMER FINANCE-1.04%
American Express Co. 325,000 18,320,250
- ---------------------------------------------------------------------------
Capital One Financial Corp. 150,000 12,631,500
- ---------------------------------------------------------------------------
MBNA Corp. 675,000 19,028,250
- ---------------------------------------------------------------------------
SLM Corp. 400,000 21,356,000
===========================================================================
71,336,000
===========================================================================
DATA PROCESSING & OUTSOURCED SERVICES-1.37%
First Data Corp. 2,204,100 93,762,414
===========================================================================
DEPARTMENT STORES-1.18%
J.C. Penney Co., Inc. 475,000 19,665,000
- ---------------------------------------------------------------------------
Kohl's Corp.(a) 1,248,900 61,408,413
===========================================================================
81,073,413
===========================================================================
DIVERSIFIED BANKS-1.26%
Bank of America Corp. 1,125,400 52,882,546
- ---------------------------------------------------------------------------
Wachovia Corp. 640,600 33,695,560
===========================================================================
86,578,106
===========================================================================
DIVERSIFIED CHEMICALS-0.83%
Dow Chemical Co. (The) 1,157,400 57,302,874
===========================================================================
DIVERSIFIED COMMERCIAL SERVICES-1.29%
Cendant Corp. 3,776,200 88,287,556
===========================================================================
ELECTRIC UTILITIES-0.49%
FPL Group, Inc. 450,200 33,652,450
===========================================================================
ELECTRICAL COMPONENTS & EQUIPMENT-1.03%
Emerson Electric Co. 485,200 34,012,520
- ---------------------------------------------------------------------------
</Table>
F-1
<Table>
<Caption>
MARKET
SHARES VALUE
- ---------------------------------------------------------------------------
ELECTRICAL COMPONENTS & EQUIPMENT-(CONTINUED)
Rockwell Automation, Inc. 740,000 $ 36,667,000
===========================================================================
70,679,520
===========================================================================
ENVIRONMENTAL SERVICES-1.90%
Waste Management, Inc. 4,364,300 130,667,142
===========================================================================
FOOD RETAIL-1.99%
Kroger Co. (The)(a) 6,094,900 106,904,546
- ---------------------------------------------------------------------------
Safeway Inc.(a) 1,484,300 29,300,082
===========================================================================
136,204,628
===========================================================================
FOOTWEAR-0.76%
NIKE, Inc.-Class B 575,000 52,146,750
===========================================================================
GENERAL MERCHANDISE STORES-1.34%
Target Corp. 1,764,100 91,609,713
===========================================================================
HEALTH CARE DISTRIBUTORS-1.64%
Cardinal Health, Inc. 1,297,000 75,420,550
- ---------------------------------------------------------------------------
McKesson Corp. 1,170,000 36,808,200
===========================================================================
112,228,750
===========================================================================
HEALTH CARE EQUIPMENT-1.50%
Baxter International Inc. 1,010,000 34,885,400
- ---------------------------------------------------------------------------
Becton, Dickinson & Co. 700,000 39,760,000
- ---------------------------------------------------------------------------
Waters Corp.(a) 600,000 28,074,000
===========================================================================
102,719,400
===========================================================================
HEALTH CARE FACILITIES-0.56%
HCA, Inc. 960,000 38,361,600
===========================================================================
HEALTH CARE SERVICES-0.46%
IMS Health Inc. 321,100 7,452,731
- ---------------------------------------------------------------------------
Quest Diagnostics Inc. 250,000 23,887,500
===========================================================================
31,340,231
===========================================================================
HEALTH CARE SUPPLIES-0.45%
Alcon Inc. (Switzerland) 385,000 31,031,000
===========================================================================
HOTELS, RESORTS & CRUISE LINES-0.34%
Starwood Hotels & Resorts Worldwide, Inc. 399,300 23,319,120
===========================================================================
HOUSEHOLD PRODUCTS-1.19%
Kimberly-Clark Corp. 592,300 38,979,263
- ---------------------------------------------------------------------------
Procter & Gamble Co. (The) 775,000 42,687,000
===========================================================================
81,666,263
===========================================================================
HOUSEWARES & SPECIALTIES-0.28%
Fortune Brands, Inc. 250,000 19,295,000
===========================================================================
HYPERMARKETS & SUPER CENTERS-0.39%
Costco Wholesale Corp. 550,000 26,625,500
===========================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- ---------------------------------------------------------------------------
INDUSTRIAL CONGLOMERATES-4.90%
General Electric Co. 2,888,500 $ 105,430,250
- ---------------------------------------------------------------------------
Textron Inc. 250,000 18,450,000
- ---------------------------------------------------------------------------
Tyco International Ltd. (Bermuda) 5,940,300 212,306,322
===========================================================================
336,186,572
===========================================================================
INDUSTRIAL MACHINERY-2.07%
Danaher Corp. 670,000 38,464,700
- ---------------------------------------------------------------------------
Dover Corp. 1,086,700 45,576,198
- ---------------------------------------------------------------------------
Eaton Corp. 325,000 23,517,000
- ---------------------------------------------------------------------------
Illinois Tool Works Inc. 370,000 34,291,600
===========================================================================
141,849,498
===========================================================================
INTEGRATED OIL & GAS-3.79%
Amerada Hess Corp. 579,420 47,732,620
- ---------------------------------------------------------------------------
BP PLC-ADR (United Kingdom) 1,406,900 82,162,960
- ---------------------------------------------------------------------------
ChevronTexaco Corp. 633,200 33,249,332
- ---------------------------------------------------------------------------
Exxon Mobil Corp. 1,244,700 63,803,322
- ---------------------------------------------------------------------------
Murphy Oil Corp. 406,700 32,719,015
===========================================================================
259,667,249
===========================================================================
INTEGRATED TELECOMMUNICATION SERVICES-0.49%
ALLTEL Corp. 577,200 33,916,272
===========================================================================
INTERNET RETAIL-0.95%
eBay Inc.(a) 265,000 30,814,200
- ---------------------------------------------------------------------------
IAC/InterActiveCorp(a)(c) 1,235,400 34,121,748
===========================================================================
64,935,948
===========================================================================
INTERNET SOFTWARE & SERVICES-0.60%
Yahoo! Inc.(a) 1,100,000 41,448,000
===========================================================================
INVESTMENT BANKING & BROKERAGE-2.42%
Goldman Sachs Group, Inc. (The) 300,000 31,212,000
- ---------------------------------------------------------------------------
Merrill Lynch & Co., Inc. 649,700 38,832,569
- ---------------------------------------------------------------------------
Morgan Stanley 1,723,100 95,666,512
===========================================================================
165,711,081
===========================================================================
IT CONSULTING & OTHER SERVICES-1.22%
Accenture Ltd.-Class A (Bermuda)(a) 3,099,500 83,686,500
===========================================================================
LIFE & HEALTH INSURANCE-0.54%
Prudential Financial, Inc. 672,900 36,982,584
===========================================================================
MANAGED HEALTH CARE-1.94%
Aetna Inc. 250,000 31,187,500
- ---------------------------------------------------------------------------
UnitedHealth Group Inc. 515,000 45,335,450
- ---------------------------------------------------------------------------
WellPoint Inc.(a) 492,800 56,672,000
===========================================================================
133,194,950
===========================================================================
</Table>
F-2
<Table>
<Caption>
MARKET
SHARES VALUE
- ---------------------------------------------------------------------------
MOTORCYCLE MANUFACTURERS-0.39%
Harley-Davidson, Inc. 440,000 $ 26,730,000
===========================================================================
MOVIES & ENTERTAINMENT-0.79%
Walt Disney Co. (The) 1,940,000 53,932,000
===========================================================================
MULTI-LINE INSURANCE-0.45%
Hartford Financial Services Group, Inc. (The) 450,000 31,189,500
===========================================================================
MULTI-UTILITIES & UNREGULATED POWER-0.46%
Dominion Resources, Inc. 462,000 31,295,880
===========================================================================
OFFICE ELECTRONICS-1.32%
Xerox Corp.(a) 5,319,300 90,481,293
===========================================================================
OIL & GAS DRILLING-1.71%
GlobalSantaFe Corp. (Cayman Islands) 1,158,000 38,341,380
- ---------------------------------------------------------------------------
Nabors Industries, Ltd. (Bermuda)(a) 661,600 33,933,464
- ---------------------------------------------------------------------------
Transocean Inc. (Cayman Islands)(a) 1,060,000 44,933,400
===========================================================================
117,208,244
===========================================================================
OIL & GAS EQUIPMENT & SERVICES-2.88%
Baker Hughes Inc. 1,089,000 46,467,630
- ---------------------------------------------------------------------------
BJ Services Co. 716,000 33,322,640
- ---------------------------------------------------------------------------
Halliburton Co. 1,280,000 50,227,200
- ---------------------------------------------------------------------------
Schlumberger Ltd. (Netherlands) 548,000 36,688,600
- ---------------------------------------------------------------------------
Smith International, Inc.(a) 570,750 31,054,507
===========================================================================
197,760,577
===========================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES-2.29%
Citigroup Inc. 2,070,400 99,751,872
- ---------------------------------------------------------------------------
JPMorgan Chase & Co. 1,464,000 57,110,640
===========================================================================
156,862,512
===========================================================================
PACKAGED FOODS & MEATS-3.98%
Campbell Soup Co. 1,632,700 48,801,403
- ---------------------------------------------------------------------------
General Mills, Inc. 2,170,600 107,900,526
- ---------------------------------------------------------------------------
Kraft Foods Inc.-Class A 2,277,400 81,098,214
- ---------------------------------------------------------------------------
Sara Lee Corp. 1,453,300 35,082,662
===========================================================================
272,882,805
===========================================================================
PAPER PRODUCTS-0.68%
Georgia-Pacific Corp. 1,223,000 45,838,040
- ---------------------------------------------------------------------------
Neenah Paper, Inc.(a)(c) 17,948 585,105
===========================================================================
46,423,145
===========================================================================
PERSONAL PRODUCTS-1.08%
Estee Lauder Cos. Inc. (The)-Class A 565,000 25,860,050
- ---------------------------------------------------------------------------
Gillette Co. (The) 1,075,000 48,138,500
===========================================================================
73,998,550
===========================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- ---------------------------------------------------------------------------
PHARMACEUTICALS-9.23%
Bristol-Myers Squibb Co. 1,887,800 $ 48,365,436
- ---------------------------------------------------------------------------
Forest Laboratories, Inc.(a) 1,510,000 67,738,600
- ---------------------------------------------------------------------------
GlaxoSmithKline PLC-ADR (United Kingdom) 1,651,100 78,245,629
- ---------------------------------------------------------------------------
Johnson & Johnson 1,472,400 93,379,608
- ---------------------------------------------------------------------------
Merck & Co. Inc. 2,708,600 87,054,404
- ---------------------------------------------------------------------------
Pfizer Inc. 1,572,700 42,289,903
- ---------------------------------------------------------------------------
Sanofi-Aventis (France)(b) 936,600 74,731,005
- ---------------------------------------------------------------------------
Teva Pharmaceutical Industries Ltd.-ADR
(Israel) 1,745,400 52,117,644
- ---------------------------------------------------------------------------
Wyeth 2,091,300 89,068,467
===========================================================================
632,990,696
===========================================================================
PROPERTY & CASUALTY INSURANCE-2.75%
ACE Ltd. (Cayman Islands) 2,285,900 97,722,225
- ---------------------------------------------------------------------------
Allstate Corp. (The) 400,000 20,688,000
- ---------------------------------------------------------------------------
Chubb Corp. (The) 450,000 34,605,000
- ---------------------------------------------------------------------------
St. Paul Travelers Cos., Inc. (The) 956,100 35,442,627
===========================================================================
188,457,852
===========================================================================
PUBLISHING-1.74%
Gannett Co., Inc. 519,600 42,451,320
- ---------------------------------------------------------------------------
New York Times Co. (The)-Class A 815,200 33,260,160
- ---------------------------------------------------------------------------
Tribune Co. 1,030,000 43,404,200
===========================================================================
119,115,680
===========================================================================
RAILROADS-1.12%
Norfolk Southern Corp. 960,200 34,749,638
- ---------------------------------------------------------------------------
Union Pacific Corp. 621,200 41,775,700
===========================================================================
76,525,338
===========================================================================
REGIONAL BANKS-0.94%
BB&T Corp. 819,000 34,438,950
- ---------------------------------------------------------------------------
SunTrust Banks, Inc. 405,400 29,950,952
===========================================================================
64,389,902
===========================================================================
RESTAURANTS-1.24%
McDonald's Corp. 1,250,000 40,075,000
- ---------------------------------------------------------------------------
Yum! Brands, Inc. 950,000 44,821,000
===========================================================================
84,896,000
===========================================================================
SEMICONDUCTOR EQUIPMENT-0.51%
Applied Materials, Inc.(a) 2,030,000 34,713,000
===========================================================================
SEMICONDUCTORS-2.55%
Analog Devices, Inc. 1,744,200 64,395,864
- ---------------------------------------------------------------------------
Intel Corp. 1,881,800 44,015,302
- ---------------------------------------------------------------------------
National Semiconductor Corp. 1,994,700 35,804,865
- ---------------------------------------------------------------------------
Xilinx, Inc. 1,030,600 30,557,290
===========================================================================
174,773,321
===========================================================================
</Table>
F-3
<Table>
<Caption>
MARKET
SHARES VALUE
- ---------------------------------------------------------------------------
SOFT DRINKS-0.88%
Coca-Cola Co. (The) 800,000 $ 33,304,000
- ---------------------------------------------------------------------------
PepsiCo, Inc. 525,000 27,405,000
===========================================================================
60,709,000
===========================================================================
SPECIALTY STORES-0.33%
Staples, Inc. 670,000 22,585,700
===========================================================================
SYSTEMS SOFTWARE-4.73%
Adobe Systems Inc. 350,000 21,959,000
- ---------------------------------------------------------------------------
Computer Associates International, Inc. 3,772,700 117,180,062
- ---------------------------------------------------------------------------
Microsoft Corp. 3,795,200 101,369,792
- ---------------------------------------------------------------------------
Oracle Corp.(a) 2,450,000 33,614,000
- ---------------------------------------------------------------------------
Symantec Corp.(a) 1,950,000 50,232,000
===========================================================================
324,354,854
===========================================================================
THRIFTS & MORTGAGE FINANCE-1.66%
Countrywide Financial Corp. 365,000 13,508,650
- ---------------------------------------------------------------------------
Fannie Mae 911,500 64,907,915
- ---------------------------------------------------------------------------
Washington Mutual, Inc. 832,400 35,193,872
===========================================================================
113,610,437
===========================================================================
Total Common Stocks & Other Equity Interests
(Cost $5,683,380,702) 6,629,977,914
===========================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- ---------------------------------------------------------------------------
MONEY MARKET FUNDS-3.47%
Liquid Assets Portfolio-Institutional
Class(d) 119,054,041 $ 119,054,041
- ---------------------------------------------------------------------------
STIC Prime Portfolio-Institutional Class(d) 119,054,041 119,054,041
===========================================================================
Total Money Market Funds (Cost
$238,108,082) 238,108,082
===========================================================================
TOTAL INVESTMENTS-100.17% (excluding
investments purchased with cash collateral
from securities loaned) (Cost
$5,921,488,784) 6,868,085,996
===========================================================================
INVESTMENTS PURCHASED WITH CASH COLLATERAL
FROM SECURITIES LOANED
MONEY MARKET FUNDS-0.40%
STIC Prime Portfolio-Institutional
Class(d)(e) 27,306,920 27,306,920
===========================================================================
Total Money Market Funds (purchased with
cash collateral from securities loaned)
(Cost $27,306,920) 27,306,920
===========================================================================
TOTAL INVESTMENTS-100.57% (Cost
$5,948,795,704) 6,895,392,916
===========================================================================
OTHER ASSETS LESS LIABILITIES-(0.57%) (39,241,056)
===========================================================================
NET ASSETS-100.00% $6,856,151,860
___________________________________________________________________________
===========================================================================
</Table>
Investment Abbreviations:
<Table>
ADR - American Depositary Receipt
</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 December 31, 2004 was
$126,371,585, which represented 1.83% of the Fund's Total Investments. See
Note 1A.
(c) All or a portion of this security has been pledged as collateral for
securities lending transactions at December 31, 2004.
(d) The money market fund and the Fund are affiliated by having the same
investment advisor. See Note 3.
(e) The security has been segregated to satisfy the forward commitment to return
the cash collateral received in securities lending transactions upon the
borrower's return of the securities loaned. See Note 8.
See accompanying notes which are an integral part of the financial statements.
F-4
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2004
<Table>
ASSETS:
Investments, at market value (cost
$5,683,380,702)* $ 6,629,977,914
- ------------------------------------------------------------
Investments in affiliated money market
funds (cost $265,415,002) 265,415,002
============================================================
Total investments (cost $5,948,795,704) 6,895,392,916
____________________________________________________________
============================================================
Foreign currencies, at market value (cost
$314) 327
- ------------------------------------------------------------
Receivables for:
Investments sold 30,095,164
- ------------------------------------------------------------
Fund shares sold 876,506
- ------------------------------------------------------------
Dividends 11,615,984
- ------------------------------------------------------------
Investment for trustee deferred
compensation and retirement plans 570,984
- ------------------------------------------------------------
Other assets 66,109
============================================================
Total assets 6,938,617,990
____________________________________________________________
============================================================
LIABILITIES:
Payables for:
Investments purchased 10,619,597
- ------------------------------------------------------------
Fund shares reacquired 37,448,126
- ------------------------------------------------------------
Trustee deferred compensation and
retirement plans 1,267,901
- ------------------------------------------------------------
Collateral upon return of securities
loaned 27,306,920
- ------------------------------------------------------------
Accrued distribution fees 2,923,342
- ------------------------------------------------------------
Accrued transfer agent fees 2,446,786
- ------------------------------------------------------------
Accrued operating expenses 453,458
============================================================
Total liabilities 82,466,130
============================================================
Net assets applicable to shares outstanding $ 6,856,151,860
____________________________________________________________
============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $10,092,375,074
- ------------------------------------------------------------
Undistributed net investment income (788,589)
- ------------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities, foreign currencies
and futures contracts (4,182,032,090)
- ------------------------------------------------------------
Unrealized appreciation of investment
securities and foreign currencies 946,597,465
============================================================
$ 6,856,151,860
____________________________________________________________
============================================================
NET ASSETS:
Class A $ 4,225,191,623
____________________________________________________________
============================================================
Class B $ 2,315,118,550
____________________________________________________________
============================================================
Class C $ 312,034,903
____________________________________________________________
============================================================
Class R $ 831,863
____________________________________________________________
============================================================
Institutional Class $ 2,974,921
____________________________________________________________
============================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER
SHARE, UNLIMITED NUMBER OF SHARES
AUTHORIZED:
Class A 427,648,250
____________________________________________________________
============================================================
Class B 252,665,016
____________________________________________________________
============================================================
Class C 34,026,511
____________________________________________________________
============================================================
Class R 84,630
____________________________________________________________
============================================================
Institutional Class 298,926
____________________________________________________________
============================================================
Class A:
Net asset value per share $ 9.88
- ------------------------------------------------------------
Offering price per share:
(Net asset value of $9.88 divided by
94.50%) $ 10.46
____________________________________________________________
============================================================
Class B:
Net asset value and offering price per
share $ 9.16
____________________________________________________________
============================================================
Class C:
Net asset value and offering price per
share $ 9.17
____________________________________________________________
============================================================
Class R:
Net asset value and offering price per
share $ 9.83
____________________________________________________________
============================================================
Institutional Class:
Net asset value and offering price per
share $ 9.95
____________________________________________________________
============================================================
</Table>
* At December 31, 2004, securities with an aggregate market value of $26,012,960
were on loan to brokers.
See accompanying notes which are an integral part of the financial statements.
F-5
STATEMENT OF OPERATIONS
For the year ended December 31, 2004
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $994,634) $ 125,438,615
- ---------------------------------------------------------------------------
Dividends from affiliated money market funds (including
securities lending income of $403,714*) 3,358,823
- ---------------------------------------------------------------------------
Interest 98,725
===========================================================================
Total investment income 128,896,163
===========================================================================
EXPENSES:
Advisory fees 49,234,296
- ---------------------------------------------------------------------------
Administrative services fees 725,065
- ---------------------------------------------------------------------------
Custodian fees 600,725
- ---------------------------------------------------------------------------
Distribution fees:
Class A 11,551,335
- ---------------------------------------------------------------------------
Class B 28,505,751
- ---------------------------------------------------------------------------
Class C 3,624,154
- ---------------------------------------------------------------------------
Class R 3,593
- ---------------------------------------------------------------------------
Transfer agent fees--Class A,B,C,R & Institutional 26,056,032
- ---------------------------------------------------------------------------
Trustees' fees and retirement benefits 225,306
- ---------------------------------------------------------------------------
Other 3,640,523
===========================================================================
Total expenses 124,166,780
===========================================================================
Less: Fees waived, expenses reimbursed and expense offset
arrangements (1,766,556)
===========================================================================
Net expenses 122,400,224
===========================================================================
Net investment income 6,495,939
===========================================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES, FOREIGN CURRENCIES AND FUTURES CONTRACTS:
Net realized gain (loss) from:
Investment securities 528,077,046
- ---------------------------------------------------------------------------
Foreign currencies (259,491)
- ---------------------------------------------------------------------------
Futures contracts 15,858,268
===========================================================================
543,675,823
===========================================================================
Change in net unrealized appreciation (depreciation) of:
Investment securities (222,461,581)
- ---------------------------------------------------------------------------
Foreign currencies (17,361)
- ---------------------------------------------------------------------------
Futures contracts (11,022,800)
===========================================================================
(233,501,742)
===========================================================================
Net gain from investment securities, foreign currencies and
futures contracts 310,174,081
===========================================================================
Net increase in net assets resulting from operations $ 316,670,020
___________________________________________________________________________
===========================================================================
</Table>
* Dividends from affiliated money market funds are net of income rebate paid to
securities lending counterparties.
See accompanying notes which are an integral part of the financial statements.
F-6
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 2004 and 2003
<Table>
<Caption>
2004 2003
- ------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ 6,495,939 $ (25,735,883)
- ------------------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities,
foreign currencies, foreign currency contracts, futures
contracts and option contracts 543,675,823 (519,632,972)
- ------------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities, foreign currencies, foreign
currency contracts and futures contracts (233,501,742) 2,505,788,002
================================================================================================
Net increase in net assets resulting from operations 316,670,020 1,960,419,147
================================================================================================
Distributions to shareholders from net investment income:
Class A (6,005,272) --
- ------------------------------------------------------------------------------------------------
Institutional Class (28,013) --
================================================================================================
Decrease in net assets resulting from distributions (6,033,285) --
================================================================================================
Share transactions-net:
Class A (1,093,570,069) (586,536,341)
- ------------------------------------------------------------------------------------------------
Class B (1,396,211,918) (1,467,119,888)
- ------------------------------------------------------------------------------------------------
Class C (134,394,245) (101,720,007)
- ------------------------------------------------------------------------------------------------
Class R 137,938 318,566
- ------------------------------------------------------------------------------------------------
Institutional Class 603,693 (625,385)
================================================================================================
Net increase (decrease) in net assets resulting from
share transactions (2,623,434,601) (2,155,683,055)
================================================================================================
Net increase (decrease) in net assets (2,312,797,866) (195,263,908)
================================================================================================
NET ASSETS:
Beginning of year 9,168,949,726 9,364,213,634
================================================================================================
End of year (including undistributed net investment income
(loss) of $(788,589) and $(990,003), respectively) $ 6,856,151,860 $ 9,168,949,726
________________________________________________________________________________________________
================================================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
F-7
NOTES TO FINANCIAL STATEMENTS
December 31, 2004
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Premier Equity Fund (the "Fund") is a series portfolio of AIM Funds Group
(the "Trust"). The Trust is a Delaware statutory trust registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
series management investment company consisting of nine separate portfolios,
each authorized to issue an unlimited number of shares of beneficial interest.
The Fund currently offers multiple classes of shares. Matters affecting each
portfolio or class will be voted on exclusively by the shareholders of such
portfolio or class. The assets, liabilities and operations of each portfolio are
accounted for separately. Information presented in these financial statements
pertains only to the Fund.
The Fund's primary investment objective is to achieve long-term growth of
capital. Income is a secondary objective. Each company listed in the Schedule of
Investments is organized in the United States of America unless otherwise noted.
Under the Trust's organizational documents, each Trustee, officer, employee
or other agent of the Trust (including the Trust's investment manager) is
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-8
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 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 -- Foreign currency is valued at the close of
the NYSE based on quotations posted by banks and major currency dealers.
Portfolio securities and other assets and liabilities denominated in
foreign currencies are translated into U.S. dollar amounts at date of
valuation. Purchases and sales of portfolio securities (net of foreign
taxes withheld on disposition) and income items denominated in foreign
currencies are translated into U.S. dollar amounts on the respective dates
of such transactions. The Fund does not separately account for the portion
of the results of operations resulting from changes in foreign exchange
rates on investments and the fluctuations arising from changes in market
prices of securities held. The combined results of changes in foreign
exchange rates and the fluctuation of market prices on investments (net of
estimated foreign tax withholding) are included with the net realized and
unrealized gain or loss from investments in the Statement of Operations.
Reported net realized foreign currency gains or losses arise from, (i)
sales of foreign currencies, (ii) currency gains or losses realized between
the trade and settlement dates on securities transactions, and (iii) the
difference between the amounts of dividends, interest, and foreign
withholding taxes recorded on the Fund's books and the U.S. dollar
equivalent of the amounts actually received or paid. Net unrealized foreign
currency gains and losses arise from changes in the fair values of assets
and liabilities, other than investments in securities at fiscal period end,
resulting from changes in exchange rates.
G. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to attempt
to minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency
contract for the purchase or sale of a security denominated in a foreign
currency in order to "lock in" the U.S. dollar price of that security. The
Fund could be exposed to risk if counterparties to the contracts are unable
to meet the terms of their contracts or if the value of the foreign
currency changes unfavorably.
H. COVERED CALL OPTIONS -- The Fund may write call options, on a covered
basis; that is, the Fund will own the underlying security. When the Fund
writes a covered call option, an amount equal to the premium received by
the Fund is recorded as an asset and an equivalent liability. The amount of
the liability is subsequently "marked-to-market" to reflect the current
market value of the option written. The current market value of a written
option is the mean between the last bid and asked prices on that day. If a
written call option expires on the stipulated expiration date, or if the
Fund enters into a closing purchase transaction, the Fund realizes a gain
(or a loss if the closing purchase transaction exceeds the premium received
when the option was written) without regard to any unrealized gain or loss
on the underlying security, and the liability related to such option is
extinguished. If a written option is exercised, the Fund realizes a gain or
a loss from the sale of the underlying security and the proceeds of the
sale are increased by the premium originally received. A risk in writing a
call option is that the Fund gives up the opportunity for profit if the
market price of the security increases and the option is exercised.
I. FUTURES CONTRACTS -- The Fund may purchase or sell futures contracts as a
hedge against changes in market conditions. Initial margin deposits
required upon entering into futures contracts are satisfied by the
segregation of specific securities as collateral for the account of the
broker (the Fund's agent in acquiring the futures position). During the
period the futures contracts are open, changes in the value of the
contracts are recognized as unrealized gains or losses by "marking to
market" on a daily basis to reflect the market value of the contracts at
the end of each day's trading. Variation margin payments are made or
received depending upon whether unrealized gains or losses are incurred.
When the contracts
F-9
are closed, the Fund recognizes a realized gain or loss equal to the
difference between the proceeds from, or cost of, the closing transaction
and the Fund's basis in the contract. If the Fund were unable to liquidate
a futures contract and/or enter into an offsetting closing transaction, the
Fund would continue to be subject to market risk with respect to the value
of the contracts and continue to be required to maintain the margin
deposits on the futures contracts.
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement,
the Fund pays an advisory fee to AIM at the annual rate of 0.80% of the first
$150 million of the Fund's average daily net assets, plus 0.625% of the Fund's
average daily net assets in excess of $150 million. Effective January 1, 2005
through December 31, 2009, AIM has contractually agreed to waive advisory fees
to the extent necessary so that the advisory fees payable by the Fund (based on
the Fund's average daily net assets) do not exceed the annual rate of 0.75% of
the first $150 million, plus 0.615% of the next $4.85 billion, plus 0.57% of the
next $2.5 billion, plus 0.545% of the next $2.5 billion, plus 0.52% of the
Fund's average daily net assets in excess of $10 billion. Further, AIM has
voluntarily agreed to waive advisory fees of the Fund in the amount of 25% of
the advisory fee AIM receives from the affiliated money market funds on
investments by the Fund in such affiliated money market funds (excluding
investments made in affiliated money market funds with cash collateral from
securities loaned by the Fund). Voluntary fee waivers or reimbursements may be
modified or discontinued at any time upon consultation with the Board of
Trustees without further notice to investors. For the year ended December 31,
2004, AIM waived fees of $770,935.
For the year ended December 31, 2004, at the request of the Trustees of the
Trust, AMVESCAP PLC ("AMVESCAP") agreed to reimburse $885,101 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 December 31, 2004, AIM was
paid $725,065 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. AISI did not reimburse fees during the
period under this expense limitation. For the year ended December 31, 2004, the
Fund paid AISI $26,056,032 for Class A, Class B, Class C, Class R and
Institutional Class shares. AISI may make payments to intermediaries that
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 0.25% of the Fund's average daily net assets
of Class A shares, 1.00% of the average daily net assets of Class B and Class C
shares and 0.50% of the average daily net assets of Class R shares. Of these
amounts, up to 0.25% of the average daily net assets of the Class A, Class B,
Class C or Class R shares may be paid to furnish continuing personal shareholder
services to customers who purchase and own shares of such classes. Any amounts
not paid as a service fee under the Plans would constitute an asset-based sales
charge. NASD Rules also impose a cap on the total sales charges, including
asset-based sales charges that may be paid by any class of shares of the Fund.
Pursuant to the Plans, for the year ended December 31, 2004, the Class A, Class
B, Class C and Class R shares paid $11,551,335, $28,505,751, $3,624,154 and
$3,593, respectively.
Front-end sales commissions and contingent deferred sales charges ("CDSC")
(collectively the "sales charges") are not recorded as expenses of the Fund.
Front-end sales commissions are deducted from proceeds from the sales of Fund
shares prior to investment in Class A shares of the Fund. CDSC are deducted from
redemption proceeds prior to remittance to the shareholder. During year ended
December 31, 2004, AIM Distributors advised the Fund that it retained $388,971
in front-end sales commissions from the sale of Class A shares and $6,192,
$241,988, $19,556 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-10
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 December 31, 2004.
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS FROM APPRECIATION MARKET VALUE DIVIDEND
FUND 12/31/2003 AT COST SALES (DEPRECIATION) 12/31/04 INCOME
- --------------------------------------------------------------------------------------------------------------------------
Liquid Asset Portfolio-
Institutional Class $149,855,268 $1,520,793,513 $(1,551,594,740) $ -- $119,054,041 $1,488,808
- --------------------------------------------------------------------------------------------------------------------------
STIC Prime Portfolio-
Institutional Class 149,855,268 1,520,793,513 (1,551,594,740) -- 119,054,041 1,466,301
==========================================================================================================================
Subtotal $299,710,536 $3,041,587,026 $(3,103,189,480) $ -- $238,108,082 $2,955,109
==========================================================================================================================
<Caption>
REALIZED
FUND GAIN (LOSS)
- -----------------------
Liquid Asset Portfolio-
Institutional Class $ --
- -----------------------
STIC Prime Portfolio-
Institutional Class --
=======================
Subtotal $ --
=======================
</Table>
INVESTMENTS OF CASH COLLATERAL FROM SECURITIES LENDING TRANSACTIONS:
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS FROM APPRECIATION MARKET VALUE DIVIDEND
FUND 12/31/2003 AT COST SALES (DEPRECIATION) 12/31/04 INCOME*
- --------------------------------------------------------------------------------------------------------------------------
Liquid Asset Portfolio-
Institutional Class $119,778,490 $ 649,658,610 $ (769,437,100) $ -- $ -- $ 315,099
- --------------------------------------------------------------------------------------------------------------------------
STIC Prime Portfolio-
Institutional Class -- 300,579,793 (273,272,873) -- 27,306,920 88,615
==========================================================================================================================
Subtotal $119,778,490 $ 950,238,403 $(1,042,709,973) $ -- $27,306,920 $ 403,714
==========================================================================================================================
Total $419,489,026 $3,991,825,429 $(4,145,899,453) $ -- $265,415,002 $3,358,823
__________________________________________________________________________________________________________________________
==========================================================================================================================
<Caption>
REALIZED
FUND GAIN (LOSS)
- -----------------------
Liquid Asset Portfolio-
Institutional Class $ --
- -----------------------
STIC Prime Portfolio-
Institutional Class --
=======================
Subtotal $ --
=======================
Total $ --
_______________________
=======================
</Table>
* Dividend income is net of income rebate paid to securities 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 December 31, 2004, the Fund
engaged in purchases and sales of securities of $208,839,267 and $151,062,573,
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 December 31, 2004, the Fund received credits in transfer agency fees of
$108,971 and credits in custodian fees of $1,549 under expense offset
arrangements, which resulted in a reduction of the Fund's total expenses of
$110,520.
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 December 31, 2004, the Fund paid legal fees of $21,824
for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the
Independent Trustees. A member of that firm is a Trustee of the Trust.
F-11
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 December 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 December 31, 2004, securities with an aggregate value of $26,012,960 were
on loan to brokers. The loans were secured by cash collateral of $27,306,920
received by the Fund and subsequently invested in affiliated money market funds.
For the year ended December 31, 2004, the Fund received dividends on cash
collateral net of income rebate paid to counterparties of $403,714 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 December 31, 2004
and 2003 was as follows:
<Table>
<Caption>
2004 2003
- ----------------------------------------------------------------------------------------
Distributions paid from ordinary income $6,033,285 $ --
________________________________________________________________________________________
========================================================================================
</Table>
TAX COMPONENTS OF NET ASSETS:
As of December 31, 2004, the components of net assets on a tax basis were as
follows:
<Table>
<Caption>
2004
- -------------------------------------------------------------------------------
Undistributed ordinary income $ 239,299
- -------------------------------------------------------------------------------
Unrealized appreciation -- investments 924,089,426
- -------------------------------------------------------------------------------
Temporary book/tax differences (1,121,639)
- -------------------------------------------------------------------------------
Capital loss carryforward (4,159,430,300)
- -------------------------------------------------------------------------------
Shares of beneficial interest 10,092,375,074
===============================================================================
Total net assets $ 6,856,151,860
_______________________________________________________________________________
===============================================================================
</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 return of capital distributions. The tax-basis unrealized
appreciation on investments amount includes appreciation on foreign currencies
of $253.
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 and return of capital distributions.
F-12
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 December
31, 2004 to utilizing $4,144,170,085 of capital loss carryforward in the fiscal
year ended December 31, 2005.
The Fund utilized $543,143,350 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 December 31, 2004 which expires as
follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD*
- ----------------------------------------------------------------------------------
December 31, 2009 $1,147,080,694
- ----------------------------------------------------------------------------------
December 31, 2010 2,279,293,105
- ----------------------------------------------------------------------------------
December 31, 2011 733,056,501
==================================================================================
Total capital loss carryforward $4,159,430,300
__________________________________________________________________________________
==================================================================================
</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. To
the extent that unrealized gains as of November 24, 2003, the date of the
reorganization of AIM Premier Equity II Fund into the Fund, are realized on
securities held in each fund at such date, the capital loss carryforward may
be further limited for up to five years from the date of the reorganization.
NOTE 10--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities
and money market funds) purchased and sold by the Fund during the year ended
December 31, 2004 was $6,524,651,967 and $9,092,451,785, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- ------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $1,060,577,425
- ------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (136,488,252)
==============================================================================
Net unrealized appreciation of investment securities $ 924,089,173
______________________________________________________________________________
==============================================================================
Cost of investments for tax purposes is $5,971,303,743.
</Table>
NOTE 11--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of foreign currency
transactions and return of capital distributions, on December 31, 2004,
undistributed net investment income (loss) was decreased by $261,240,
undistributed net realized gain (loss) was increased by $281,979 and shares of
beneficial interest decreased by $20,739. This reclassification had no effect on
the net assets of the Fund.
F-13
NOTE 12--SHARE INFORMATION
The Fund currently offers five different classes of shares: Class A shares,
Class B shares, Class C shares, Class R shares and 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)
- --------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------
2004 2003
------------------------------- -------------------------------
SHARES AMOUNT SHARES AMOUNT
- --------------------------------------------------------------------------------------------------------------------------------
Sold:
Class A 19,026,912 $ 177,793,866 39,598,262 $ 320,765,623
- --------------------------------------------------------------------------------------------------------------------------------
Class B 7,798,250 67,922,205 13,786,253 105,078,641
- --------------------------------------------------------------------------------------------------------------------------------
Class C 1,961,009 17,069,552 3,249,627 24,835,033
- --------------------------------------------------------------------------------------------------------------------------------
Class R 39,878 369,677 89,985 704,135
- --------------------------------------------------------------------------------------------------------------------------------
Institutional Class 276,850 2,558,155 -- --
================================================================================================================================
Issued as reinvestment of dividends:
Class A 550,080 5,357,824 -- --
- --------------------------------------------------------------------------------------------------------------------------------
Institutional Class 2,565 25,160 -- --
================================================================================================================================
Issued in connection with acquisitions:(b)
Class A -- -- 2,782,677 24,469,013
- --------------------------------------------------------------------------------------------------------------------------------
Class B -- -- 3,838,877 31,511,253
- --------------------------------------------------------------------------------------------------------------------------------
Class C -- -- 1,461,575 11,994,377
================================================================================================================================
Automatic conversion of Class B shares to Class A shares:
Class A 64,231,883 602,604,466 77,425,211 643,745,569
- --------------------------------------------------------------------------------------------------------------------------------
Class B (69,041,635) (602,604,466) (82,660,881) (643,745,569)
================================================================================================================================
Reacquired:
Class A (201,673,468) (1,879,326,225) (192,041,009) (1,575,516,546)
- --------------------------------------------------------------------------------------------------------------------------------
Class B (99,213,876) (861,529,657) (126,732,034) (959,964,213)
- --------------------------------------------------------------------------------------------------------------------------------
Class C (17,405,960) (151,463,797) (18,159,353) (138,549,417)
- --------------------------------------------------------------------------------------------------------------------------------
Class R (24,986) (231,739) (47,869) (385,569)
- --------------------------------------------------------------------------------------------------------------------------------
Institutional Class (205,058) (1,979,622) (74,164) (625,385)
================================================================================================================================
(293,677,556) $(2,623,434,601) (277,482,843) $(2,155,683,055)
________________________________________________________________________________________________________________________________
================================================================================================================================
</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 the own 16% of
the outstanding shares of the Fund. AIM Distributors has an agreement
with this entity to sell the Fund shares. The Fund, AIM and/or AIM
affiliates may make payments to these entities, which are considered to
be related, 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) As of the opening of business on November 24, 2003, the Fund acquired
all of the net assets of AIM Premier Equity II Fund pursuant to a plan
of reorganization approved by AIM Premier Equity II Fund shareholders on
October 28, 2003. The acquisition was accomplished by a tax-free
exchange of 8,083,129 shares of the Fund for 12,162,356 shares of AIM
Premier Equity II Fund outstanding as of the close of business November
21, 2003. AIM Premier Equity II Fund net assets at that date of
$67,974,643 including $(5,277,895) of unrealized appreciation
(depreciation), were combined with those of the Fund. The aggregate net
assets of the Fund immediately before the acquisition were
$8,817,104,791.
F-14
NOTE 13--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
CLASS A
---------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------
2004 2003 2002 2001 2000(A)
- --------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 9.38 $ 7.51 $ 10.87 $ 12.51 $ 16.28
- --------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.04(b)(c) 0.01(b) (0.01)(b) (0.00) (0.04)(b)
- --------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.47 1.86 (3.35) (1.63) (2.42)
================================================================================================================================
Total from investment operations 0.51 1.87 (3.36) (1.63) (2.46)
================================================================================================================================
Less distributions:
Dividends from net investment income (0.01) -- -- -- --
- --------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- -- -- (0.01) (1.31)
================================================================================================================================
Total distributions (0.01) -- -- (0.01) (1.31)
================================================================================================================================
Net asset value, end of period $ 9.88 $ 9.38 $ 7.51 $ 10.87 $ 12.51
________________________________________________________________________________________________________________________________
================================================================================================================================
Total return(d) 5.48% 24.90% (30.91)% (12.99)% (14.95)%
________________________________________________________________________________________________________________________________
================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $4,225,192 $5,116,444 $4,642,361 $8,502,699 $11,223,504
________________________________________________________________________________________________________________________________
================================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.26%(e) 1.26% 1.17% 1.08% 1.00%
- --------------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.28%(e) 1.27% 1.19% 1.12% 1.04%
================================================================================================================================
Ratio of net investment income (loss) to average net
assets 0.39%(c)(e) 0.07% (0.08)% (0.03)% (0.11)%
________________________________________________________________________________________________________________________________
================================================================================================================================
Portfolio turnover rate 86% 37% 36% 38% 67%
________________________________________________________________________________________________________________________________
================================================================================================================================
</Table>
(a) Per share information and shares have been restated to reflect a 3 for 1
stock split, effected in the form of a 200% stock dividend on November
10, 2000.
(b) Calculated using average shares outstanding.
(c) Net investment income (loss) per share and the ratio of net investment
income (loss) to average net assets include a special cash dividend
received of $3.00 per share owned of Microsoft Corp. on December 2,
2004. Net investment income (loss) per share and the ratio of net
investment (loss) to average net assets excluding the special dividend
are $0.03 and 0.24% respectively.
(d) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based on those
net asset values may differ from the net asset value and returns for
shareholder transactions. Does not include sales charges.
(e) Ratios are based on average daily net assets of 4,620,534,125.
F-15
NOTE 13--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS B
---------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------
2004 2003 2002 2001 2000(A)
- --------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 8.75 $ 7.07 $ 10.30 $ 11.94 $ 15.73
- --------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.03)(b)(c) (0.05)(b) (0.07)(b) (0.09) (0.31)(b)
- --------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.44 1.73 (3.16) (1.54) (2.17)
================================================================================================================================
Total from investment operations 0.41 1.68 (3.23) (1.63) (2.48)
================================================================================================================================
Less distributions from net realized gains -- -- -- (0.01) (1.31)
================================================================================================================================
Net asset value, end of period $ 9.16 $ 8.75 $ 7.07 $ 10.30 $ 11.94
________________________________________________________________________________________________________________________________
================================================================================================================================
Total return(d) 4.69% 23.76% (31.36)% (13.61)% (15.65)%
________________________________________________________________________________________________________________________________
================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $2,315,119 $3,616,395 $4,274,489 $9,186,980 $12,491,366
________________________________________________________________________________________________________________________________
================================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 2.01%(e) 2.01% 1.92% 1.84% 1.77%
- --------------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 2.03%(e) 2.02% 1.94% 1.88% 1.81%
================================================================================================================================
Ratio of net investment income (loss) to average net
assets (0.36)%(c)(e) (0.68)% (0.84)% (0.79)% (0.89)%
________________________________________________________________________________________________________________________________
================================================================================================================================
Portfolio turnover rate 86% 37% 36% 38% 67%
________________________________________________________________________________________________________________________________
================================================================================================================================
</Table>
(a) Per share information and shares have been restated to reflect a 3 for 1
stock split, effected in the form of a 200% stock dividend on November
10, 2000.
(b) Calculated using average shares outstanding.
(c) Net investment income (loss) per share and the ratio of net investment
income (loss) to average net assets include a special cash dividend
received of $3.00 per share owned of Microsoft Corp. on December 2,
2004. Net investment income (loss) per share and the ratio of net
investment (loss) to average net assets excluding the special dividend
are $(0.04) and (0.51)% respectively.
(d) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based on those
net asset values may differ from the net asset value and returns for
shareholder transactions. Does not include sales charges.
(e) Ratios are based on average daily net assets of $2,850,575,141.
<Table>
<Caption>
CLASS C
---------------------------------------------------------------
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------
2004 2003 2002 2001 2000(A)
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 8.76 $ 7.07 $ 10.31 $ 11.95 $ 15.74
- -----------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.03)(b)(c) (0.05)(b) (0.07)(b) (0.09) (0.31)(b)
- -----------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.44 1.74 (3.17) (1.54) (2.17)
=============================================================================================================================
Total from investment operations 0.41 1.69 (3.24) (1.63) (2.48)
=============================================================================================================================
Less distributions from net realized gains -- -- -- (0.01) (1.31)
=============================================================================================================================
Net asset value, end of period $ 9.17 $ 8.76 $ 7.07 $ 10.31 $ 11.95
_____________________________________________________________________________________________________________________________
=============================================================================================================================
Total return(d) 4.68% 23.90% (31.43)% (13.60)% (15.62)%
_____________________________________________________________________________________________________________________________
=============================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $312,035 $433,332 $444,901 $943,211 $1,262,192
_____________________________________________________________________________________________________________________________
=============================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 2.01%(e) 2.01% 1.92% 1.84% 1.77%
- -----------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 2.03%(e) 2.02% 1.94% 1.88% 1.81%
=============================================================================================================================
Ratio of net investment income (loss) to average net assets (0.36)%(c)(e) (0.68)% (0.84)% (0.79)% (0.88)%
_____________________________________________________________________________________________________________________________
=============================================================================================================================
Portfolio turnover rate 86% 37% 36% 38% 67%
_____________________________________________________________________________________________________________________________
=============================================================================================================================
</Table>
(a) Per share information and shares have been restated to reflect a 3 for 1
stock split, effected in the form of a 200% stock dividend on November
10, 2000.
(b) Calculated using average shares outstanding.
(c) Net investment income (loss) per share and the ratio of net investment
income (loss) to average net assets include a special cash dividend
received of $3.00 per share owned of Microsoft Corp. on December 2,
2004. Net investment income (loss) per share and the ratio of net
investment (loss) to average net assets excluding the special dividend
are $(0.04) and (0.51)% respectively.
(d) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based on those
net asset values may differ from the net asset value and returns for
shareholder transactions. Does not include sales charges.
(e) Ratios are based on average daily net assets of $362,415,401.
F-16
NOTE 13--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS R
---------------------------------------
JUNE 3, 2002
YEAR ENDED (DATE SALES
DECEMBER 31, COMMENCED) TO
---------------------- DECEMBER 31,
2004 2003 2002
- -----------------------------------------------------------------------------------------------------
Net asset value, beginning of period $9.34 $ 7.50 $ 9.16
- -----------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.01(a)(b) (0.01)(a) (0.02)(a)
- -----------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.48 1.85 (1.64)
=====================================================================================================
Total from investment operations 0.49 1.84 (1.66)
=====================================================================================================
Net asset value, end of period $9.83 $ 9.34 $ 7.50
_____________________________________________________________________________________________________
=====================================================================================================
Total return(c) 5.25% 24.53% (18.12)%
_____________________________________________________________________________________________________
=====================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $832 $ 651 $ 207
_____________________________________________________________________________________________________
=====================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.51%(d) 1.51% 1.48%(e)
- -----------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.53%(d) 1.52% 1.50%(e)
=====================================================================================================
Ratio of net investment income (loss) to average net assets 0.14%(b)(d) (0.18)% (0.40)%(e)
_____________________________________________________________________________________________________
=====================================================================================================
Portfolio turnover rate(f) 86% 37% 36%
_____________________________________________________________________________________________________
=====================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Net investment income (loss) per share and the ratio of net investment
income (loss) to average net assets include a special cash dividend
received of $3.00 per share owned of Microsoft Corp. on December 2,
2004. Net investment income (loss) per share and the ratio of net
investment (loss) to average net assets excluding the special dividend
are $(0.00) and (0.01)% respectively.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based on those
net asset values may differ from the net asset value and returns for
shareholder transactions. Not annualized for periods less than one year.
(d) Ratios are based on average daily net assets of $718,550.
(e) Annualized.
(f) Not annualized for periods less than one year.
F-17
NOTE 13--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
INSTITUTIONAL CLASS
----------------------------------------
MARCH 15,
2002
YEAR ENDED (DATE SALES
DECEMBER 31, COMMENCED) TO
----------------------- DECEMBER 31,
2004 2003 2002
- ------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 9.47 $ 7.55 $10.66
- ------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.10(a)(b) 0.05(a) 0.03(a)
- ------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.47 1.87 (3.14)
======================================================================================================
Total from investment operations 0.57 1.92 (3.11)
======================================================================================================
Less distributions from net realized gains (0.09) -- --
======================================================================================================
Net asset value, end of period $ 9.95 $ 9.47 $ 7.55
______________________________________________________________________________________________________
======================================================================================================
Total return(c) 6.06% 25.43% (29.17)%
______________________________________________________________________________________________________
======================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $2,975 $2,127 $2,255
______________________________________________________________________________________________________
======================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 0.58%(d) 0.71% 0.66%(e)
- ------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 0.60%(d) 0.72% 0.68%(e)
======================================================================================================
Ratio of net investment income to average net assets 1.07%(b)(d) 0.62% 0.42%(e)
______________________________________________________________________________________________________
======================================================================================================
Portfolio turnover rate(f) 86% 37% 36%
______________________________________________________________________________________________________
======================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Net investment income per share and the ratio of net investment income
to average net assets include a special cash dividend received of $3.00
per share owned of Microsoft Corp. on December 2, 2004. Net investment
income per share and the ratio of net investment to average net assets
excluding the special dividend are $0.09 and 0.92% respectively.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based on those
net asset values may differ from the net asset value and returns for
shareholder transactions. Not annualized for periods less than one year.
(d) Ratios are based on average daily net assets of $1,244,088.
(e) Annualized.
(f) Not annualized for periods less than one year.
NOTE 14--LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
SETTLED ENFORCEMENT ACTIONS AND INVESTIGATIONS RELATED TO MARKET TIMING
On October 8, 2004, INVESCO Funds Group, Inc. ("IFG") (the former investment
advisor to certain AIM Funds) and A I M Advisors, Inc. ("AIM") (the Fund's
investment advisor) reached final settlements with certain regulators, including
without limitation the Securities and Exchange Commission ("SEC"), the New York
Attorney General ("NYAG") and the Colorado Attorney General ("COAG"), 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.
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 they 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 and
AIM breached various Federal and state securities, business and consumer
protection laws. On the same date, A I M Distributors, Inc. ("ADI") (the
distributor of the retail AIM Funds) reached a final settlement with the SEC to
resolve an investigation relating to market timing activity and related issues
in the AIM Funds. The SEC also alleged that ADI violated various Federal
securities laws. The SEC also has settled related market timing enforcement
actions brought against certain former officers and employees of IFG.
Under the terms of the settlements, IFG agreed to pay a total of $325
million, of which $110 million is civil penalties. Of this $325 million total
payment, half has been paid 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, all of which has been paid. The entire $325
million IFG settlement payment will be made 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 made 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. 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 certain equity and balanced AIM
F-18
NOTE 14--LEGAL PROCEEDINGS (CONTINUED)
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.
Under the terms of the settlements, AIM will make certain governance and
compliance reforms, including maintaining an internal controls committee and
retaining an independent compliance consultant and a corporate ombudsman. 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.
At the request of the trustees of the AIM Funds, AMVESCAP PLC ("AMVESCAP"),
the parent company of IFG and AIM, has agreed to pay expenses incurred by such
Funds related to market timing matters.
The SEC has also settled market timing enforcement actions 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), 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 these settlements, the SEC ordered these individuals to
pay restitution and civil penalties in various amounts and prohibited them from
associating with, or serving as an officer or director of, an investment
advisor, broker, dealer and/or investment company, as applicable, for certain
periods of time.
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 certain equity and balanced 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 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 payments 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 Regulatory Inquiries and Pending
Litigation described below may have on AIM, ADI or the Fund.
REGULATORY INQUIRIES AND PENDING LITIGATION
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 but not limited to revenue sharing and directed-brokerage
arrangements, investments in securities of other registered investment
companies, contractual plans, issues related to Section 529 college savings
plans, procedures for locating lost security holders and participation in class
action settlements.
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.
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,
F-19
NOTE 14--LEGAL PROCEEDINGS (CONTINUED)
the DOL, the Internal Revenue Service, the United States Attorney's Office for
the Southern District of New York, the United States Attorney's Office for the
Central District of California, the United States Attorney's Office for the
District of Massachusetts, the Massachusetts Securities Division, the U.S.
Postal Inspection Service and the Commodity Futures Trading Commission, 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, 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 ("ERISA")
purportedly brought on behalf of participants in AMVESCAP's 401(k) plan. The
plaintiffs in one of the underlying lawsuits continue to seek remand of their
lawsuit 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. ("IINA"), ADI
and/or INVESCO Distributors, Inc. ("INVESCO Distributors")) 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. All of these lawsuits have been transferred to
the United States District Court for the Southern District of Texas, Houston
Division by order of the applicable United States District Court in which they
were initially filed. The plaintiff in one of these lawsuits has challenged this
order.
Private Civil Actions Alleging Improper Charging of Distribution Fees on Limited
Offering Funds or Share Classes
Multiple civil lawsuits, including 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. ("AIS")
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-20
NOTE 14--LEGAL PROCEEDINGS (CONTINUED)
Private Civil Action Alleging Failure to Ensure Participation in Class Action
Settlements
A civil lawsuit, purporting to be a class action lawsuit, has been filed
against AIM, IINA, A I M Capital Management, Inc. and the trustees of the AIM
Funds alleging that the defendants breached their fiduciary duties by failing to
ensure that the AIM Funds participated in class action settlements in which the
AIM Funds were eligible to participate. This lawsuit alleges as theories of
recovery: (i) violation of various provisions of the Federal securities laws;
(ii) common law breach of fiduciary duty; and (iii) common law negligence. This
lawsuit has been filed in Federal court and seeks such remedies as compensatory
and punitive damages; forfeiture of all commissions and fees paid by the class
of plaintiffs; and costs and attorneys' fees.
* * *
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
As a result of the matters discussed above, 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-21
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees and Shareholders of
AIM Premier Equity Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of AIM Premier Equity Fund (one of the
funds constituting AIM Funds Group hereafter referred to as the "Fund") at
December 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 periods indicated, in conformity with
accounting principles generally accepted in the United States of America. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with 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 December 31, 2004 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
/S/ PRICEWATERHOUSECOOPERS LLP
February 18, 2005
Houston, Texas
F-22
OTHER INFORMATION
TRUSTEES AND OFFICERS
As of December 31, 2004
The address of each trustee and officer of AIM Funds Group (the "Trust"), is 11
Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee oversees 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 1992 Director and Chairman, A I M Management None
Trustee, Vice Chair and Group Inc. (financial services holding
President 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 1987 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 2001 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 2000 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 1998 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 1997 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 December 31, 2004
The address of each trustee and officer of AIM Funds Group (the "Trust"), is 11
Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee oversees 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 1993 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 1998 Formerly: Chief Executive Officer, YWCA None
Trustee of the USA
- -----------------------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 1992 Partner, law firm of Pennock & Cooper None
Trustee
- -----------------------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2001 Retired None
Trustee
- -----------------------------------------------------------------------------------------------------------------------------------
Louis S. Sklar(4) -- 1939 1993 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(5) -- 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.; and Senior Vice
President and General Counsel, Liberty
Funds Group, LLC and Vice President,
A I M Distributors, Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
Robert G. Alley -- 1948 1992 Managing Director, Chief Fixed Income N/A
Vice President Officer and Senior Investment Officer,
A I M Capital Management, Inc. and Vice
President, A I M Advisors, Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
Stuart W. Coco -- 1955 1992 Managing Director and 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 1992 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(4) -- 1940 1999 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. (See footnote (4)
below.)
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) Mr. Sklar and Mr. Larsen retired effective December 31, 2004.
(5) 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 Street
Houston, TX 77046-1173 Suite 100 Suite 2900
Houston, TX 77046-1173 Houston, Texas
77002-5678
COUNSEL TO THE FUND COUNSEL TO THE TRANSFER AGENT CUSTODIAN
INDEPENDENT TRUSTEES
Ballard Spahr AIM Investment State Street Bank and
Andrews & Ingersoll, LLP Kramer, Levin, Naftalis Services, Inc. Trust Company
1735 Market Street & Frankel LLP P.O. Box 4739 225 Franklin Street
Philadelphia, PA 19103-7599 919 Third Avenue Houston, TX 77210-4739 Boston, MA 02110-2801
New York, NY 10022-3852
</Table>
REQUIRED FEDERAL INCOME TAX INFORMATION (UNAUDITED)
Of ordinary dividends paid to shareholders during the Fund's tax year ended
December 31, 2004, 100% is eligible for the dividends received deduction for
corporations.
For its tax year ended December 31, 2004, the Fund designated 100%, 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.
REQUIRED STATE INCOME TAX INFORMATION (UNAUDITED)
Of the ordinary dividends paid, 0.07% was derived from U.S. Treasury
Obligations.
<Table>
<Caption>
DOMESTIC EQUITY SECTOR EQUITY
AIM Aggressive Growth Fund AIM Advantage Health Sciences Fund(1)
AIM Balanced Fund* AIM Energy Fund(1)
AIM Basic Balanced Fund* AIM Financial Services Fund(1)
AIM Basic Value Fund AIM Global Health Care Fund
AIM Blue Chip Fund AIM Gold & Precious Metals Fund(1)
AIM Capital Development Fund AIM Health Sciences Fund(1)
AIM Charter Fund AIM Leisure Fund(1)
AIM Constellation Fund AIM Multi-Sector Fund(1)
AIM Core Stock Fund(1) AIM Real Estate Fund
AIM Dent Demographic Trends Fund AIM Technology Fund(1)
AIM Diversified Dividend Fund AIM Utilities Fund(1)
AIM Dynamics Fund(1)
AIM Emerging Growth Fund
AIM Large Cap Basic Value Fund FIXED INCOME
AIM Large Cap Growth Fund
AIM Libra Fund TAXABLE
AIM Mid Cap Basic Value Fund AIM Floating Rate Fund
AIM Mid Cap Core Equity Fund(2) AIM High Yield Fund
AIM Mid Cap Growth Fund AIM Income Fund
AIM Mid Cap Stock Fund(1) AIM Intermediate Government Fund
AIM Opportunities I Fund AIM Limited Maturity Treasury Fund
AIM Opportunities II Fund AIM Money Market Fund
AIM Opportunities III Fund AIM Short Term Bond Fund
AIM Premier Equity Fund AIM Total Return Bond Fund
AIM S&P 500 Index Fund(1) Premier U.S. Government Money Portfolio(1)
AIM Select Equity Fund
AIM Small Cap Equity Fund(3) TAX-FREE
AIM Small Cap Growth Fund(4)
AIM Small Company Growth Fund(1) AIM High Income Municipal Fund
AIM Total Return Fund*(1) AIM Municipal Bond Fund
AIM Trimark Endeavor Fund AIM Tax-Exempt Cash Fund
AIM Trimark Small Companies Fund AIM Tax-Free Intermediate Fund
AIM Weingarten Fund
AIM ALLOCATION SOLUTIONS
* Domestic equity and income fund
AIM Aggressive Allocation Fund
INTERNATIONAL/GLOBAL EQUITY AIM Conservative Allocation Fund
AIM Moderate Allocation Fund
AIM Asia Pacific Growth Fund
AIM Developing Markets Fund
AIM European Growth Fund
AIM European Small Company Fund(5)
AIM Global Aggressive Growth Fund
AIM Global Equity Fund(6)
AIM Global Growth Fund
AIM Global Value Fund
AIM International Core Equity Fund(1)
AIM International Growth Fund
AIM International Small Company Fund(7)
AIM Trimark Fund
</Table>
(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) Effective December 30, 2004, AIM
International Emerging Growth Fund was renamed AIM International Small Company
Fund. The fund will close to new investors when net assets reach $500 million.
If used after April 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 $138 billion in assets. AIM is a
subsidiary of AMVESCAP PLC, one of the world's largest independent financial
services companies with $382 billion in assets under management. Data as of
December 31, 2004.
CONSIDER THE INVESTMENT OBJECTIVES, RISKS, AND CHARGES AND EXPENSES CAREFULLY.
FOR THIS AND OTHER INFORMATION ABOUT AIM FUNDS, OBTAIN A PROSPECTUS FROM YOUR
FINANCIAL ADVISOR AND READ IT THOROUGHLY BEFORE INVESTING.
AIMinvestments.com PEQ AR-1 A I M Distributors, Inc.
<Table>
YOUR GOALS. OUR SOLUTIONS. --Registered Trademark--
- -------------------------------------------------------------------------
Mutual Retirement Annuities College Separately Offshore Cash [AIM INVESTMENTS LOGO APPEARS HERE]
Funds Products Savings Managed Products Management --Registered Trademark--
Plans Accounts
- -------------------------------------------------------------------------
</Table>
AIM SELECT EQUITY FUND
Annual Report to Shareholders o December 31, 2004
[COVER IMAGE]
YOUR GOALS. OUR SOLUTIONS. [AIM INVESTMENTS LOGO APPEARS HERE]
--Registered Trademark-- --Registered Trademark--
<Table>
===================================================================================================================================
AIM SELECT EQUITY FUND SEEKS TO ACHIEVE LONG-TERM GROWTH OF CAPITAL.
o Unless otherwise stated, information presented in this report is as of 12/31/04 and is based on total net assets.
===================================================================================================================================
ABOUT SHARE CLASSES o The unmanaged Russell 3000--Registered The fund files its complete schedule of
Trademark Index-- is an index of common portfolio holdings with the Securities
o Effective 9/30/03, Class B shares are stocks that measures performance of the and Exchange Commission ("SEC") for the
not available as an investment for largest 3,000 U.S. companies based on 1st and 3rd quarters of each fiscal year
retirement plans maintained pursuant to market capitalization. on Form N-Q. The fund's Form N-Q filings
Section 401 of the Internal Revenue are available on the SEC's Web site at
Code, including 401(k) plans, money o The unmanaged Lehman U.S. Aggregate http://www.sec.gov. Copies of the fund's
purchase pension plans and profit Bond Index, which represents the U.S. Forms N-Q may be reviewed and copied at
sharing plans. Plans that have existing investment-grade fixed-rate bond market the SEC's Public Reference Room at 450
accounts invested in Class B shares will (including government and corporate Fifth Street, N.W., Washington, D.C.
continue to be allowed to make securities, mortgage pass-through 20549-0102. You can obtain information
additional purchases. securities and asset-backed securities), on the operation of the Public Reference
is compiled by Lehman Brothers, a global Room, including information about
PRINCIPAL RISKS OF INVESTING IN THE FUND investment bank. duplicating fee charges, by calling
1-202-942-8090 or by electronic request
o Investing in small and mid-size o The fund is not managed to track the at the following E-mail address:
companies involves risks not associated performance of any particular index, publicinfo@sec.gov. The SEC file numbers
with investing in more established including the indexes defined here, and for the fund are 811-05426 and 33-19338.
companies, including business risk, consequently, the performance of the The fund's most recent portfolio
significant stock price fluctuations and fund may deviate significantly from the holdings, as filed on Form N-Q, are also
illiquidity. performance of the indexes. available at AIMinvestments.com.
o The fund may invest up to 25% of its o A direct investment cannot be made in A description of the policies and
assets in the securities of non-U.S. an index. Unless otherwise indicated, procedures that the fund uses to
issuers. International investing index results include reinvested determine how to vote proxies relating
presents certain risks not associated dividends, and they do not reflect sales to portfolio securities is available
with investing solely in the United charges. Performance of an index of without charge, upon request, from our
States. These include risks relating to funds reflects fund expenses; Client Services department at
fluctuations in the value of the U.S. performance of a market index does not. 800-959-4246 or on the AIM Web site,
dollar relative to the values of other AIMinvestments.com. On the home page,
currencies, the custody arrangements OTHER INFORMATION scroll down and click on AIM Funds Proxy
made for the fund's foreign holdings, Policy. The information is also
differences in accounting, political o The returns shown in the Management's available on the Securities and Exchange
risks and the lesser degree of public Discussion of Fund Performance are based Commission's Web site, sec.gov.
information required to be provided by on net asset values calculated for
non-U.S. companies. shareholder transactions. Generally Information regarding how the fund voted
accepted accounting principles require proxies related to its portfolio
ABOUT INDEXES USED IN THIS REPORT adjustments to be made to the net assets securities during the 12 months ended
of the fund at period end for financial 6/30/04 is available at our Web site. Go
o The unmanaged Standard & Poor's reporting purposes, and as such, the net to AIMinvestments.com, access the About
Composite Index of 500 Stocks (the S&P asset values for shareholder Us tab, click on Required Notices and
500--Registered Trademark-- Index) is an transactions and the returns based on then click on Proxy Voting Activity.
index of common stocks frequently used those net asset values may differ from Next, select your fund from the
as a general measure of U.S. stock the net asset values and returns drop-down menu.
market performance. reported in the Financial Highlights.
o The unmanaged Lipper Multi-Cap Core o Industry classifications used in this
Fund Index represents an average of the report are generally according to the
performance of the 30 largest Global Industry Classification Standard,
multi-capitalization core funds tracked which was developed by and is the
by Lipper, Inc., an independent mutual exclusive property and a service mark of
fund performance monitor. Morgan Stanley Capital International
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
AIM SELECT EQUITY FUND
<Table>
DEAR FELLOW SHAREHOLDER OF THE AIM FAMILY OF
FUNDS--Registered Trademark--:
NEW BOARD CHAIRMAN
It is our pleasure to introduce you to Bruce Crockett, the
[PHOTO OF new Chairman of the Board of Trustees of the AIM Funds. Bob
ROBERT H. Graham has served as Chairman of the Board of Trustees of
GRAHAM] the AIM Funds ever since Ted Bauer retired from that
position in 2000. However, as you may be aware, the U.S.
ROBERT H. GRAHAM 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
[PHOTO OF advisor, serve as chairman of the funds' Board. In addition,
MARK H. a similar provision was included in the terms of AIM
WILLIAMSON] Advisors' recent settlements with certain regulators.
Accordingly, the AIM Funds' Board recently elected Mr.
MARK H. WILLIAMSON Crockett, one of the 14 independent trustees on the AIM
Funds' Board, as Chairman. His appointment became effective
on October 4, 2004. Mr. Graham will remain on the funds'
[PHOTO OF Board, as will Mark Williamson, President and Chief
BRUCE L. Executive Officer of AIM. Mr. Graham will also remain
CROCKETT] 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
After nine months of slow growth, equity markets rallied
late in the year to produce solid results for 2004. The S&P
500 Index was up 10.87% for the year as a whole, but that
includes the 9.23% total return for the fourth quarter
alone. For bonds, the turning point came earlier. Almost all
of the 4.34% return produced by the Lehman U.S. Aggregate
Bond Index came during the second half of the year, despite
the fact that the Federal Reserve had begun raising
short-term interest rates about halfway through the year.
Overseas markets followed a similar pattern, with quite
robust double-digit performance across the board, most of it
produced during the second half of the year.
All in all, 2004 was a good year for American investors,
with the decline in the dollar over the course of the year
lending a boost to returns from foreign holdings. And there
were a number of solid economic numbers to report as of the
end of the year:
o U.S. gross domestic product (GDP) rose each quarter
during 2004. And respondents to the BusinessWeek
magazine survey foresaw 2005 GDP growth at 3.5%, above
the post-World War II average of 3.4%.
o The Institute for Supply Management's manufacturing and
non-manufacturing indexes--based on surveys of
purchasing managers in industries that together cover
more than 70% of the U.S. economy--both continued to
rise during December and remained in very strong
territory.
o Thomson First Call, which tracks corporate earnings
and other information for clients in financial service
industries, estimated S&P 500 earnings to be up 10.5%
in 2005.
Of course, none of this can guarantee that 2005 will be
another good year. Over the short term, the only sure thing
about the investment markets is their unpredictability.
Hence, we have always urged shareholders to keep a long-term
perspective on all their investments.
YOUR FUND
The following pages present a discussion of how your fund
invests, how it performed compared to pertinent benchmarks
during the fiscal year and how it has performed over the
long term. We hope you find this information helpful. We
also encourage you to visit AIMinvestments.com often.
Updated information on your fund is always available there,
as well as general information on a variety of investing
topics.
As always, AIM is committed to building solutions for your
investment goals, and we thank you for your 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
January 28, 2005
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.
</Table>
AIM SELECT EQUITY FUND
<Table>
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE Russell 3000 Index, which measures the
performances of the largest 3,000
The idea that good things sometimes come within the health care sector boosted companies in the United States
in small packages was borne out by AIM the fund's relative performance versus representing 98% of the U.S. stock
Select Equity Fund in 2004. Propelled by the Lipper Multi-Cap Core Fund Index. market, registered gains during the
the market's preference for small- and fiscal year. The highest contributing
mid-cap stocks, the fund enjoyed a HOW WE INVEST sectors to the fund were consumer
strong year. discretionary, health care, industrials,
We seek to maximize returns while financials and energy.
======================================= minimizing risk by adhering to our
investment process in all market Our overweight position and strong
FUND VS. INDEXES environments. Our investment process stock selection within health care was
includes selecting holdings from each of the single-largest boost to fund
Total returns, 12/31/03-12/31/04, AIM's three investment disciplines performance. Fund holdings within this
excluding applicable sales charges. If (growth, blend/core and value), applying sector included medical device
sales charges were included, returns our proprietary stock selection model to manufacturers Cytyc, Fisher Scientific
would be lower. rank stocks and constructing a portfolio and Bard, all of which performed well in
by using risk analysis to identify the the first and second quarters of the
Class A Shares 13.87% best mix of the highest-ranked stocks fiscal year. We sold Cytyc at the
from each discipline. We also use a beginning of November when we believed
Class B Shares 13.04 proprietary model that helps us look for the stock became overvalued.
"red flags" in companies that would Additionally, we questioned the
Class C Shares 12.98 trigger a decision to sell a particular company's ability to sustain its high
stock. level of growth.
S&P 500 Index
(Broad-Market Index) 10.87 MARKET CONDITIONS AND YOUR FUND Information technology had the lowest
return in the Russell 3000 Index, but
Russell 3000 Index For the year, value vastly outperformed strong stock selection within the sector
(Style-specific Index)) 11.95 growth as indicated by the returns of made it the second-largest contributor
the Russell 3000--Registered Trademark-- to relative performance. Information
Lipper Multi-Cap Core Fund Value Index in comparison with the technology stocks were hit hard in the
Index (Peer Group Index) 12.39 Russell 3000--Registered Trademark-- third quarter as many companies delayed
Growth Index. While growth made somewhat spending, and information technology
Source: Lipper, Inc. of a comeback during the fourth quarter, companies were forced to lower their
it was not enough to offset the earnings estimates. In the fourth
======================================= outperformance of value stocks during quarter, however, information technology
the first three quarters of the year. As stocks rallied as companies fleshed out
Although the fund is diversified by a result, the fund benefited from its their remaining budgets and began
market cap (large, mid and small), as exposure to value stocks throughout the buying, and the fund benefited because
well as style (value, core and growth), year. All 10 sectors of the of its overweight position and strong
our overweight position in mid and small stock selection within the information
caps was the driving factor in our technology sector. Consumer
outperformance of all three benchmark discretionary holdings also benefited
indexes during the fiscal year. The the fund. Hotel, restau-
fund's overweight position in health
care, information technology and
consumer discretionary stocks, relative
to its style-specific benchmark, as well
as strong stock selection within those
sectors, helped it outperform the
Russell 3000 Index. Strong stock
selection
</Table>
<Table>
===================================================================================================================================
PORTFOLIO COMPOSITION TOP 10 EQUITY HOLDINGS* TOP 10 INDUSTRIES*
By Sector 1. Computer Associates 1. Systems Software 4.8%
International, Inc. 1.9%
[PIE CHART] 2. Data Processing & Outsourced
2. Citigroup Inc. 1.9 Services 4.6
Financials 18.9%
3. JPMorgan Chase & Co. 1.7 3. Health Care Equipment 4.1
Consumer Discretionary 17.6%
4. Tyco International Ltd. 4. Thrifts & Mortgage Finance 3.9
Information Technology 17.5% (Bermuda) 1.5
5. Other Diversified Financial
Health Care 15.3% 5. Dell, Inc. 1.5 Services 3.6
Industrials 12.9% 6. Fannie Mae 1.4 6. Health Care Services 3.0
Energy 5.7% 7. Transocean Ltd. 7. Diversified Commercial
(Cayman Islands) 1.4 Services 2.9
Consumer Staples 5.2%
8. PepsiCo, Inc. 1.3 8. Apparel Retail 2.9
Materials 3.4%
9. UnitedHealth Group Inc. 1.2 9. Consumer Finance 2.8
Money Market Funds Plus
Other Assets Less Liabilities 3.2% 10. Affiliated Managers 10. Managed Health Care 2.7
Group, Inc. 1.2
Telecommunication Services 0.3%
The fund's holdings are subject to change, and there is no assurance that the
fund will continue to hold any particular security.
* Excluding money market fund holdings.
===================================================================================================================================
</Table>
2
<Table>
rants, casinos and specialty United States, reported third-quarter A I M Advisors, Inc. These views and
retail stocks were among those revenue increased by 36% over the same opinions are subject to change at any
industries that boosted fund period in 2003. In October 2004, Cytyc time based on factors such as market and
performance. announced that the London Region of the economic conditions. These views and
National Health Service intended to opinions may not be relied upon as
Although none of the sectors in the convert all cervical cancer screening to investment advice or recommendations, or
Russell 3000 Index registered negative the ThinPrep--Registered Trademark-- Pap as an offer for a particular security.
performances, the fund lost ground on a Test. We believed the company would The information is not a complete
relative basis in the consumer staples, benefit from its entrance into the analysis of every aspect of any market,
utilities and materials sectors due to European market, which is far less country, industry, security or the Fund.
our underweight positions in comparison developed than that of the United Statements of fact are from sources
to the style-specific benchmark (the States. considered reliable, but A I M Advisors,
fund had no holdings in utilities). Inc. makes no representation or warranty
These sectors are more defensive in Intel, the foremost semiconductor as to their completeness or accuracy.
nature and do not possess many of the manufacturer in the world, was among the Although historical performance is no
growth characteristics we look for in largest individual detractor from fund guarantee of future results, these
selecting stocks for the fund. In the performance. Worldwide sales of insights may help you understand our
financials sector, many of the fund's semiconductor equipment was predicted to investment management philosophy.
insurance industry holdings were fall in 2005 as excess inventory caused
negatively impacted by allegations of chipmakers to pare spending. Intel See important fund and index
the New York Attorney General. reported that profit growth slowed in disclosures inside front cover.
the third quarter, and company shares
Among the individual holdings that fell as investors expressed concern DUY NGUYEN,
most benefited performance were offshore about the unwillingness of Chief Chartered Financial
drilling contractor Transocean and Financial Officer Andy Bryant to provide [NGUYEN Analyst, is
medical equipment manufacturer Cytyc. details about the downward adjustment in PHOTO] portfolio manager of
Transocean's profit rose 14-fold in the the accounting value of Intel's assets. AIM Select Equity
third quarter of 2004 after selling Despite all these factors, we believed Fund. Mr. Nguyen
shares in its Todco unit. The company that Intel's fundamentals remained joined AIM in May 2000. Prior to joining
reported that demand for deepwater oil strong and the company was still AIM, he held the positions of vice
rigs continued to improve amid surging attractively valued. Therefore, we president, assistant vice president and
energy prices. The number of oil and retained the stock at the end of the quantitative equity analyst for two
natural gas drilling rigs operating fiscal year. other financial services firms. Mr.
worldwide rose by 6.6% in the third Nguyen earned a B.B.A. at The University
quarter. Deepwater drilling was only IN CLOSING of Texas and a Master of Science degree
marginally profitable when oil prices in Finance from the University of
were about $20 a barrel, but with prices We are pleased with the fund's Houston.
much higher the company was likely to double-digit returns and relative
see more demand for its services. outperformance during 2004. Thank you Assisted by various domestic equity
for maintaining a long-term investment teams representing AIM's growth, value,
Cytyc, which makes and distributes perspective and for participating in AIM and Growth at a Reasonable Price (GARP)
the ThinPrep Pap Test, the most widely Select Equity Fund. disciplines
used method for screening cervical
cancer in the The views and opinions expressed in
Management's Discussion of Fund
======================================= Performance are those of
TOTAL NET ASSETS $470.7 MILLION
TOTAL NUMBER OF HOLDINGS* 182
======================================= [RIGHT ARROW GRAPHIC]
FOR A PRESENTATION OF YOUR FUND'S
LONG-TERM PERFORMANCE RECORD, PLEASE
TURN TO PAGE 5.
</Table>
3
AIM SELECT EQUITY FUND
CALCULATING YOUR ONGOING FUND EXPENSES
<Table>
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 charges (loads) on purchase payments,
understand your ongoing costs (in COMPARISON 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.
July 1, 2004-December 31, 2004. before expenses, which is not the fund's In addition, if these transactional
actual return. The hypothetical account costs were included, your costs would
ACTUAL EXPENSES values and expenses may not be used to have been 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>
<Caption>
====================================================================================================================================
ACTUAL HYPOTHETICAL
(5% ANNUAL RETURN BEFORE EXPENSES)
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES ENDING ACCOUNT EXPENSES
SHARE VALUE VALUE PAID DURING VALUE PAID DURING
CLASS (07/01/04) (12/31/04)(1) PERIOD(2) (12/31/04) PERIOD(2)
Class A $1,000.00 $1,065.20 $ 7.32 $1,018.05 $ 7.15
Class B 1,000.00 1,061.20 11.19 1,014.28 10.94
Class C 1,000.00 1,061.30 11.19 1,014.28 10.94
(1) The actual ending account value is based on the actual total return of the fund for the period July 1, 2004, to December 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 July 1, 2004,
to December 31, 2004, was 6.52%, 6.12%, and 6.13% for Class A, B, and C shares, respectively.
(2) Expenses are equal to the fund's annualized expense ratio (1.41%, 2.16%, and 2.16% 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 For More Information Visit
BUTTON AIMinvestments.com
IMAGE]
====================================================================================================================================
</Table>
4
AIM SELECT EQUITY FUND
YOUR FUND'S LONG-TERM PERFORMANCE
<Table>
===================================================================================================================================
Past performance cannot guarantee RESULTS OF A $10,000 INVESTMENT
comparable future results. 12/31/94-12/31/04
Your fund's total return includes [MOUNTAIN CHART]
reinvested distributions, applicable
sales charges, fund expenses and ======================================================================================
management fees. Index results include AIM SELECT EQUITY FUND S&P 500 RUSSELL 3000 LIPPER MULTI-CAP
reinvested dividends, but they do not DATE CLASS A SHARES INDEX INDEX CORE FUND INDEX
reflect sales charges. Performance of an
index of funds reflects fund expenses 12/31/94 $ 9450 $10000 $10000 $10000
and management fees; performance of a 3/95 10283 10973 10901 10807
market index does not. Performance shown 6/95 11648 12019 11927 11709
in the chart does not reflect deduction 9/95 13123 12973 13001 12683
of taxes a shareholder would pay on fund 12/95 12694 13753 13680 13221
distributions or sale of fund shares. 3/96 13393 14491 14429 14023
Performance of the indexes does not 6/96 14023 15141 15030 14487
reflect the effects of taxes. 9/96 14577 15609 15474 14959
12/96 15052 16909 16665 15927
The performance of the fund's share 3/97 14563 17363 16810 16018
classes will differ due to different 6/97 16906 20392 19626 18358
sales charge structures and class 9/97 19012 21919 21457 20267
expenses. 12/97 17990 22548 21962 20112
3/98 20159 25691 24827 22685
In evaluating this chart, please note 6/98 20629 26544 25279 22928
that the chart uses a logarithmic scale 9/98 17665 23910 22452 19863
along the vertical axis (the value 12/98 22858 28997 27263 23871
scale). This means that each scale 3/99 24464 30441 28188 24461
increment always represents the same 6/99 26013 32583 30361 26409
percent change in price; in a linear 9/99 24786 30554 28362 24744
chart each scale increment always 12/99 32342 35096 32962 28828
represents the same absolute change in 3/00 38875 35900 34467 30958
price. In this example, the scale 6/00 37570 34946 33275 29986
increment between $5,000 and $10,000 is 9/00 39698 34608 33522 30148
the same as that between $10,000 and 12/00 31765 31902 30503 27866
$20,000. In a linear chart, the latter 3/01 23462 28122 26795 24677
scale increment would be twice as large. 6/01 26099 29767 28639 26438
The benefit of using a logarithmic scale 9/01 20530 25399 24165 21934
is that it better illustrates 12/01 23615 28113 27008 24868
performance during the fund's early 3/02 23740 28191 27269 24845
years before reinvested distributions 6/02 20018 24416 23701 21746
and compounding create the potential for 9/02 15600 20200 19616 18304
the original investment to grow to very 12/02 16628 21902 21190 19461
large numbers. Had the chart used a 3/03 15920 21212 20545 18863
linear scale along its vertical axis, 6/03 18477 24476 23882 22029
you would not be able to see as clearly 9/03 19311 25124 24701 22837
the movements in the value of the fund 12/03 21534 28181 27771 25555
and the indexes during the fund's early 3/04 22534 28658 28391 26260
years. We use a logarithmic scale in 6/04 23020 29151 28769 26591
financial reports of funds that have 9/04 22146 28606 28222 26027
more than five years of performance 12/04 $24538 $31245 $31089 $28721
history.
Source: Lipper, Inc.
======================================================================================
======================================= The performance data quoted represent
AVERAGE ANNUAL TOTAL RETURNS past performance and cannot guarantee
comparable future results; current
As of 12/31/04, including applicable performance may be lower or higher.
sales charges Please visit AIMinvestments.com for the
most recent month-end performance.
CLASS A SHARES Performance figures reflect reinvested
Inception (12/4/67) 8.51% distributions, changes in net asset
10 Years 9.39 value and the effect of the maximum
5 Years -6.45 sales charge unless otherwise stated.
1 Year 7.62 Investment return and principal value
will fluctuate so that you may have a
CLASS B SHARES gain or loss when you sell shares.
Inception (9/1/93) 7.58%
10 Years 9.30 Class A share performance reflects
5 Years -6.41 the maximum 5.50% sales charge, and
1 Year 8.04 Class B and Class C share performance
reflects the applicable contingent
CLASS C SHARES deferred sales charge (CDSC) for the
Inception (8/4/97) 2.96% period involved. The CDSC on Class B
5 Years -6.10 shares declines from 5% beginning at the
1 Year 11.98 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.
====================================================================================================================================
</Table>
5
FINANCIALS
SCHEDULE OF INVESTMENTS
December 31, 2004
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
COMMON STOCKS & OTHER EQUITY INTERESTS-96.83%
ADVERTISING-1.96%
Harte-Hanks, Inc. 36,000 $ 935,280
- ------------------------------------------------------------------------
Interpublic Group of Cos., Inc. (The)(a)(b) 345,100 4,624,340
- ------------------------------------------------------------------------
Omnicom Group Inc. 43,300 3,651,056
========================================================================
9,210,676
========================================================================
AEROSPACE & DEFENSE-0.59%
Rockwell Collins, Inc. 21,900 863,736
- ------------------------------------------------------------------------
United Technologies Corp. 18,300 1,891,305
========================================================================
2,755,041
========================================================================
AIR FREIGHT & LOGISTICS-0.34%
EGL, Inc.(a) 17,700 529,053
- ------------------------------------------------------------------------
Expeditors International of Washington, Inc. 19,000 1,061,720
========================================================================
1,590,773
========================================================================
APPAREL RETAIL-2.85%
Gap, Inc. (The) 231,600 4,891,392
- ------------------------------------------------------------------------
Genesco Inc.(a) 32,800 1,021,392
- ------------------------------------------------------------------------
Jos. A. Bank Clothiers, Inc.(a)(b) 41,250 1,167,375
- ------------------------------------------------------------------------
Men's Wearhouse, Inc. (The)(a) 106,400 3,400,544
- ------------------------------------------------------------------------
Pacific Sunwear of California, Inc.(a) 46,100 1,026,186
- ------------------------------------------------------------------------
TJX Cos., Inc. (The) 76,200 1,914,906
========================================================================
13,421,795
========================================================================
APPAREL, ACCESSORIES & LUXURY GOODS-1.46%
Coach, Inc.(a) 64,000 3,609,600
- ------------------------------------------------------------------------
Liz Claiborne, Inc. 27,800 1,173,438
- ------------------------------------------------------------------------
V. F. Corp. 37,800 2,093,364
========================================================================
6,876,402
========================================================================
APPLICATION SOFTWARE-1.50%
ANSYS, Inc.(a) 53,000 1,699,180
- ------------------------------------------------------------------------
Intuit Inc.(a) 25,000 1,100,250
- ------------------------------------------------------------------------
MICROS Systems, Inc.(a) 19,300 1,506,558
- ------------------------------------------------------------------------
NAVTEQ Corp.(a) 34,900 1,617,964
- ------------------------------------------------------------------------
Reynolds & Reynolds Co. (The)-Class A 42,100 1,116,071
========================================================================
7,040,023
========================================================================
ASSET MANAGEMENT & CUSTODY BANKS-1.85%
Affiliated Managers Group, Inc.(a)(b) 84,150 5,700,321
- ------------------------------------------------------------------------
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
ASSET MANAGEMENT & CUSTODY BANKS-(CONTINUED)
Bank of New York Co., Inc. (The) 89,300 2,984,406
========================================================================
8,684,727
========================================================================
BIOTECHNOLOGY-0.43%
Invitrogen Corp.(a) 30,000 $ 2,013,900
========================================================================
BUILDING PRODUCTS-2.03%
American Standard Cos. Inc.(a) 97,100 4,012,172
- ------------------------------------------------------------------------
Masco Corp. 152,300 5,563,519
========================================================================
9,575,691
========================================================================
CASINOS & GAMING-1.30%
Penn National Gaming, Inc.(a) 44,000 2,664,200
- ------------------------------------------------------------------------
Scientific Games Corp.-Class A(a) 53,900 1,284,976
- ------------------------------------------------------------------------
Shuffle Master, Inc.(a)(b) 46,500 2,190,150
========================================================================
6,139,326
========================================================================
COMMUNICATIONS EQUIPMENT-1.35%
Avaya Inc.(a) 92,000 1,582,400
- ------------------------------------------------------------------------
Cisco Systems, Inc.(a) 65,800 1,269,940
- ------------------------------------------------------------------------
Motorola, Inc. 64,700 1,112,840
- ------------------------------------------------------------------------
Plantronics, Inc. 57,100 2,367,937
========================================================================
6,333,117
========================================================================
COMPUTER & ELECTRONICS RETAIL-0.74%
Best Buy Co., Inc. 30,000 1,782,600
- ------------------------------------------------------------------------
GameStop Corp.-Class A(a) 75,600 1,690,416
========================================================================
3,473,016
========================================================================
COMPUTER HARDWARE-1.69%
Dell Inc.(a) 166,600 7,020,524
- ------------------------------------------------------------------------
International Business Machines Corp. 9,600 946,368
========================================================================
7,966,892
========================================================================
CONSTRUCTION & FARM MACHINERY & HEAVY
TRUCKS-0.22%
PACCAR Inc. 13,000 1,046,240
========================================================================
CONSUMER ELECTRONICS-1.41%
Harman International Industries, Inc. 12,700 1,612,900
- ------------------------------------------------------------------------
Koninklijke (Royal) Philips Electronics
N.V.-New York Shares (Netherlands) 56,007 1,484,186
- ------------------------------------------------------------------------
Sony Corp.-ADR (Japan) 90,900 3,541,464
========================================================================
6,638,550
========================================================================
CONSUMER FINANCE-2.79%
American Express Co. 95,900 5,405,883
- ------------------------------------------------------------------------
</Table>
F-1
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
CONSUMER FINANCE-(CONTINUED)
MBNA Corp. 175,700 $ 4,952,983
- ------------------------------------------------------------------------
MoneyGram International, Inc. 130,500 2,758,770
========================================================================
13,117,636
========================================================================
DATA PROCESSING & OUTSOURCED SERVICES-4.58%
BISYS Group, Inc. (The)(a) 81,500 1,340,675
- ------------------------------------------------------------------------
Ceridian Corp.(a) 222,600 4,069,128
- ------------------------------------------------------------------------
Certegy Inc. 71,500 2,540,395
- ------------------------------------------------------------------------
DST Systems, Inc.(a) 30,100 1,568,812
- ------------------------------------------------------------------------
First Data Corp. 92,300 3,926,442
- ------------------------------------------------------------------------
Fiserv, Inc.(a) 45,500 1,828,645
- ------------------------------------------------------------------------
Paychex, Inc. 54,800 1,867,584
- ------------------------------------------------------------------------
SunGard Data Systems Inc.(a) 155,700 4,410,981
========================================================================
21,552,662
========================================================================
DEPARTMENT STORES-0.26%
Nordstrom, Inc. 26,100 1,219,653
========================================================================
DIVERSIFIED BANKS-0.79%
Comerica Inc. 22,400 1,366,848
- ------------------------------------------------------------------------
U.S. Bancorp 74,600 2,336,472
========================================================================
3,703,320
========================================================================
DIVERSIFIED CHEMICALS-0.34%
Engelhard Corp. 52,900 1,622,443
========================================================================
DIVERSIFIED COMMERCIAL SERVICES-2.89%
Apollo Group, Inc.-Class A(a)(c) 36,861 2,975,051
- ------------------------------------------------------------------------
Cendant Corp. 213,000 4,979,940
- ------------------------------------------------------------------------
Cintas Corp. 22,300 978,078
- ------------------------------------------------------------------------
H&R Block, Inc. 26,600 1,303,400
- ------------------------------------------------------------------------
Jackson Hewitt Tax Service Inc. 77,300 1,951,825
- ------------------------------------------------------------------------
NCO Group, Inc.(a) 54,900 1,419,165
========================================================================
13,607,459
========================================================================
DIVERSIFIED METALS & MINING-0.18%
Compass Minerals International, Inc. 35,100 850,473
========================================================================
ELECTRICAL COMPONENTS & EQUIPMENT-0.80%
II-VI Inc.(a) 24,000 1,019,760
- ------------------------------------------------------------------------
Rockwell Automation, Inc. 55,000 2,725,250
========================================================================
3,745,010
========================================================================
ELECTRONIC EQUIPMENT MANUFACTURERS-1.27%
Amphenol Corp.-Class A(a) 78,600 2,887,764
- ------------------------------------------------------------------------
FLIR Systems, Inc.(a) 19,000 1,212,010
- ------------------------------------------------------------------------
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
ELECTRONIC EQUIPMENT MANUFACTURERS-(CONTINUED)
Mettler-Toledo International Inc.(a) 36,700 $ 1,883,077
========================================================================
5,982,851
========================================================================
ENVIRONMENTAL SERVICES-1.41%
Republic Services, Inc. 74,800 2,508,792
- ------------------------------------------------------------------------
Waste Management, Inc. 138,000 4,131,720
========================================================================
6,640,512
========================================================================
FOOD RETAIL-1.85%
Kroger Co. (The)(a) 243,600 4,272,744
- ------------------------------------------------------------------------
Safeway Inc.(a) 225,100 4,443,474
========================================================================
8,716,218
========================================================================
FOOTWEAR-0.52%
NIKE, Inc.-Class B 14,500 1,315,005
- ------------------------------------------------------------------------
Timberland Co. (The)-Class A(a) 17,900 1,121,793
========================================================================
2,436,798
========================================================================
GENERAL MERCHANDISE STORES-0.68%
Dollar General Corp. 53,400 1,109,118
- ------------------------------------------------------------------------
Target Corp. 40,500 2,103,165
========================================================================
3,212,283
========================================================================
HEALTH CARE DISTRIBUTORS-1.62%
Cardinal Health, Inc. 59,300 3,448,295
- ------------------------------------------------------------------------
McKesson Corp. 132,600 4,171,596
========================================================================
7,619,891
========================================================================
HEALTH CARE EQUIPMENT-4.12%
Bard (C.R.), Inc. 44,000 2,815,120
- ------------------------------------------------------------------------
Becton, Dickinson & Co. 19,400 1,101,920
- ------------------------------------------------------------------------
Biomet, Inc. 116,000 5,033,240
- ------------------------------------------------------------------------
Fisher Scientific International Inc.(a)(c) 56,900 3,549,422
- ------------------------------------------------------------------------
Varian Inc.(a) 43,600 1,788,036
- ------------------------------------------------------------------------
Varian Medical Systems, Inc.(a) 36,400 1,573,936
- ------------------------------------------------------------------------
Waters Corp.(a) 75,100 3,513,929
========================================================================
19,375,603
========================================================================
HEALTH CARE FACILITIES-1.16%
HCA, Inc. 51,700 2,065,932
- ------------------------------------------------------------------------
Universal Health Services, Inc.-Class B 55,300 2,460,850
- ------------------------------------------------------------------------
VCA Antech, Inc.(a) 48,600 952,560
========================================================================
5,479,342
========================================================================
HEALTH CARE SERVICES-3.02%
Apria Healthcare Group Inc.(a) 34,800 1,146,660
- ------------------------------------------------------------------------
Caremark Rx, Inc.(a) 51,500 2,030,645
- ------------------------------------------------------------------------
DaVita, Inc.(a) 30,400 1,201,712
- ------------------------------------------------------------------------
</Table>
F-2
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
HEALTH CARE SERVICES-(CONTINUED)
Express Scripts, Inc.(a) 37,600 $ 2,874,144
- ------------------------------------------------------------------------
HealthExtras, Inc.(a) 71,200 1,160,560
- ------------------------------------------------------------------------
ICON PLC-ADR (Ireland)(a) 27,700 1,070,605
- ------------------------------------------------------------------------
IMS Health Inc. 162,200 3,764,662
- ------------------------------------------------------------------------
Quest Diagnostics Inc. 10,100 965,055
========================================================================
14,214,043
========================================================================
HEALTH CARE SUPPLIES-0.43%
Sybron Dental Specialties, Inc.(a) 56,900 2,013,122
========================================================================
HOME IMPROVEMENT RETAIL-0.32%
Home Depot, Inc. (The) 34,900 1,491,626
========================================================================
HOTELS, RESORTS & CRUISE LINES-0.62%
Starwood Hotels & Resorts Worldwide, Inc. 49,900 2,914,160
========================================================================
HOUSEHOLD PRODUCTS-0.97%
Procter & Gamble Co. (The) 83,200 4,582,656
========================================================================
HOUSEWARES & SPECIALTIES-0.85%
Fortune Brands, Inc. 27,000 2,083,860
- ------------------------------------------------------------------------
Yankee Candle Co., Inc. (The)(a) 57,200 1,897,896
========================================================================
3,981,756
========================================================================
INDUSTRIAL CONGLOMERATES-1.50%
Tyco International Ltd. (Bermuda) 197,100 7,044,354
========================================================================
INDUSTRIAL MACHINERY-1.32%
Danaher Corp. 29,400 1,687,854
- ------------------------------------------------------------------------
Eaton Corp. 14,400 1,041,984
- ------------------------------------------------------------------------
Graco Inc. 93,400 3,488,490
========================================================================
6,218,328
========================================================================
INSURANCE BROKERS-0.87%
Aon Corp. 172,300 4,111,078
========================================================================
INTEGRATED OIL & GAS-1.66%
ChevronTexaco Corp. 25,600 1,344,256
- ------------------------------------------------------------------------
Exxon Mobil Corp. 107,900 5,530,954
- ------------------------------------------------------------------------
Occidental Petroleum Corp. 16,100 939,596
========================================================================
7,814,806
========================================================================
INTEGRATED TELECOMMUNICATION SERVICES-0.31%
CenturyTel, Inc. 41,700 1,479,099
========================================================================
INTERNET RETAIL-0.45%
eBay Inc.(a) 18,200 2,116,296
========================================================================
INTERNET SOFTWARE & SERVICES-0.30%
Yahoo! Inc.(a) 37,600 1,416,768
========================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
INVESTMENT BANKING & BROKERAGE-1.35%
Goldman Sachs Group, Inc. (The) 9,000 $ 936,360
- ------------------------------------------------------------------------
Merrill Lynch & Co., Inc. 40,300 2,408,731
- ------------------------------------------------------------------------
Morgan Stanley 54,200 3,009,184
========================================================================
6,354,275
========================================================================
IT CONSULTING & OTHER SERVICES-0.23%
Acxiom Corp. 41,600 1,094,080
========================================================================
LEISURE PRODUCTS-0.43%
Brunswick Corp. 41,300 2,044,350
========================================================================
LIFE & HEALTH INSURANCE-0.88%
MetLife, Inc. 23,700 960,087
- ------------------------------------------------------------------------
Prudential Financial, Inc. 57,900 3,182,184
========================================================================
4,142,271
========================================================================
MANAGED HEALTH CARE-2.67%
AMERIGROUP Corp.(a) 17,000 1,286,220
- ------------------------------------------------------------------------
UnitedHealth Group Inc. 66,200 5,827,586
- ------------------------------------------------------------------------
WellChoice Inc.(a) 26,100 1,393,740
- ------------------------------------------------------------------------
WellPoint Inc.(a) 35,100 4,036,500
========================================================================
12,544,046
========================================================================
METAL & GLASS CONTAINERS-1.84%
AptarGroup, Inc. 36,400 1,921,192
- ------------------------------------------------------------------------
Ball Corp. 62,400 2,744,352
- ------------------------------------------------------------------------
Pactiv Corp.(a) 158,200 4,000,878
========================================================================
8,666,422
========================================================================
MOTORCYCLE MANUFACTURERS-0.50%
Harley-Davidson, Inc. 39,000 2,369,250
========================================================================
MOVIES & ENTERTAINMENT-0.61%
Walt Disney Co. (The) 103,700 2,882,860
========================================================================
MULTI-LINE INSURANCE-0.17%
Genworth Financial Inc.-Class A 30,000 810,000
========================================================================
OFFICE SERVICES & SUPPLIES-0.31%
Brady Corp.-Class A 23,100 1,445,367
========================================================================
OIL & GAS DRILLING-1.58%
Todco-Class A(a) 58,000 1,068,360
- ------------------------------------------------------------------------
Transocean Ltd. (Cayman Islands)(a)(c) 149,700 6,345,783
========================================================================
7,414,143
========================================================================
OIL & GAS EQUIPMENT & SERVICES-1.05%
BJ Services Co.(c) 71,300 3,318,302
- ------------------------------------------------------------------------
</Table>
F-3
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
OIL & GAS EQUIPMENT & SERVICES-(CONTINUED)
Halliburton Co. 41,900 $ 1,644,156
========================================================================
4,962,458
========================================================================
OIL & GAS EXPLORATION & PRODUCTION-1.43%
Anadarko Petroleum Corp. 21,100 1,367,491
- ------------------------------------------------------------------------
Barrett (Bill) Corp.(a) 11,300 361,487
- ------------------------------------------------------------------------
Comstock Resources, Inc.(a) 68,000 1,499,400
- ------------------------------------------------------------------------
Ultra Petroleum Corp. (Canada)(a)(c) 33,500 1,612,355
- ------------------------------------------------------------------------
XTO Energy Inc. 52,800 1,868,064
========================================================================
6,708,797
========================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES-3.60%
Citigroup Inc. 182,000 8,768,760
- ------------------------------------------------------------------------
JPMorgan Chase & Co. 209,984 8,191,476
========================================================================
16,960,236
========================================================================
PACKAGED FOODS & MEATS-0.39%
Flowers Foods, Inc. 58,200 1,837,956
========================================================================
PAPER PRODUCTS-0.20%
Wausau-Mosinee Paper Corp. 53,000 946,580
========================================================================
PERSONAL PRODUCTS-0.72%
Estee Lauder Cos. Inc. (The)-Class A 29,500 1,350,215
- ------------------------------------------------------------------------
Gillette Co. (The) 45,700 2,046,446
========================================================================
3,396,661
========================================================================
PHARMACEUTICALS-1.89%
Johnson & Johnson 54,000 3,424,680
- ------------------------------------------------------------------------
Medicis Pharmaceutical Corp.-Class A 30,300 1,063,833
- ------------------------------------------------------------------------
Wyeth 103,600 4,412,324
========================================================================
8,900,837
========================================================================
PROPERTY & CASUALTY INSURANCE-0.93%
ACE Ltd. (Cayman Islands) 102,800 4,394,700
========================================================================
REGIONAL BANKS-1.76%
Bank of the Ozarks, Inc. 20,000 680,600
- ------------------------------------------------------------------------
East West Bancorp, Inc. 95,100 3,990,396
- ------------------------------------------------------------------------
Hibernia Corp.-Class A 62,800 1,853,228
- ------------------------------------------------------------------------
Marshall & Ilsley Corp. 39,300 1,737,060
========================================================================
8,261,284
========================================================================
RESTAURANTS-1.55%
CBRL Group, Inc. 72,600 3,038,310
- ------------------------------------------------------------------------
Ruby Tuesday, Inc. 47,000 1,225,760
- ------------------------------------------------------------------------
Yum! Brands, Inc. 64,400 3,038,392
========================================================================
7,302,462
========================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
SEMICONDUCTOR EQUIPMENT-0.17%
Cabot Microelectronics Corp.(a) 20,400 $ 817,020
========================================================================
SEMICONDUCTORS-0.87%
Freescale Semiconductor Inc.-Class B(a) 7,143 131,145
- ------------------------------------------------------------------------
Intel Corp. 115,500 2,701,545
- ------------------------------------------------------------------------
Microchip Technology Inc. 48,000 1,279,680
========================================================================
4,112,370
========================================================================
SOFT DRINKS-1.26%
PepsiCo, Inc. 113,200 5,909,040
========================================================================
SPECIALTY CHEMICALS-0.86%
Albemarle Corp. 37,000 1,432,270
- ------------------------------------------------------------------------
Ecolab Inc. 30,000 1,053,900
- ------------------------------------------------------------------------
Nalco Holding Co.(a) 80,900 1,579,168
========================================================================
4,065,338
========================================================================
SPECIALTY STORES-1.02%
Staples, Inc. 142,700 4,810,417
========================================================================
SYSTEMS SOFTWARE-4.82%
Adobe Systems Inc. 35,300 2,214,722
- ------------------------------------------------------------------------
Computer Associates International, Inc. 282,600 8,777,556
- ------------------------------------------------------------------------
Microsoft Corp. 182,000 4,861,220
- ------------------------------------------------------------------------
Oracle Corp.(a) 306,500 4,205,180
- ------------------------------------------------------------------------
Symantec Corp.(a) 102,000 2,627,520
========================================================================
22,686,198
========================================================================
TECHNOLOGY DISTRIBUTORS-0.75%
Global Imaging Systems, Inc.(a) 59,500 2,350,250
- ------------------------------------------------------------------------
ScanSource, Inc.(a)(c) 18,600 1,156,176
========================================================================
3,506,426
========================================================================
THRIFTS & MORTGAGE FINANCE-3.90%
Doral Financial Corp. (Puerto Rico)(b) 109,200 5,378,100
- ------------------------------------------------------------------------
Fannie Mae 95,000 6,764,950
- ------------------------------------------------------------------------
MGIC Investment Corp. 22,500 1,550,475
- ------------------------------------------------------------------------
Radian Group Inc. 41,500 2,209,460
- ------------------------------------------------------------------------
Washington Mutual, Inc. 57,500 2,431,100
========================================================================
18,334,085
========================================================================
TRADING COMPANIES & DISTRIBUTORS-0.41%
MSC Industrial Direct Co., Inc.-Class A 54,100 1,946,518
========================================================================
TRUCKING-1.08%
Landstar System, Inc.(a) 41,700 3,070,788
- ------------------------------------------------------------------------
Old Dominion Freight Line, Inc.(a) 31,600 1,099,680
- ------------------------------------------------------------------------
</Table>
F-4
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
TRUCKING-(CONTINUED)
Overnite Corp. 25,000 $ 931,000
========================================================================
5,101,468
========================================================================
Total Common Stocks & Other Equity
Interests (Cost $343,837,044) 455,774,330
========================================================================
MONEY MARKET FUNDS-3.35%
Liquid Assets Portfolio-Institutional
Class(d) 7,878,327 7,878,327
- ------------------------------------------------------------------------
STIC Prime Portfolio-Institutional Class(d) 7,878,327 7,878,327
========================================================================
Total Money Market Funds (Cost
$15,756,654) 15,756,654
========================================================================
TOTAL INVESTMENTS-100.18% (excluding
investments purchased with cash collateral
from securities loaned) (Cost $359,593,698) 471,530,984
========================================================================
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- ------------------------------------------------------------------------
INVESTMENTS PURCHASED WITH CASH COLLATERAL
FROM SECURITIES LOANED
MONEY MARKET FUNDS-2.16%
STIC Prime Portfolio-Institutional
Class(d)(e) 10,195,750 $ 10,195,750
========================================================================
Total Money Market Funds (purchased with
cash collateral from securities loaned)
(Cost $10,195,750) 10,195,750
========================================================================
TOTAL INVESTMENTS-102.34% (Cost $369,789,448) 481,726,734
========================================================================
OTHER ASSETS LESS LIABILITIES-(2.34%) (11,036,555)
========================================================================
NET ASSETS-100.00% $470,690,179
________________________________________________________________________
========================================================================
</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 December 31, 2004.
(c) A portion of this security is subject to call options written. See Note 1F
and Note 9.
(d) The money market fund and the Fund are affiliated by having the same
investment advisor. See Note 3.
(e) The security has been segregated to satisfy the forward commitment to return
the cash collateral received in securities lending transactions upon the
borrower's return of the securities loaned. See Note 8.
See accompanying notes which ae an integral part of the financial statements.
F-5
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2004
<Table>
ASSETS:
Investments, at market value (cost
$343,837,044)* $455,774,330
- -----------------------------------------------------------
Investments in affiliated money market funds
(cost $25,952,404) 25,952,404
===========================================================
Total investments (cost $369,789,448) 481,726,734
===========================================================
Receivables for:
Investments sold 285,375
- -----------------------------------------------------------
Fund shares sold 452,947
- -----------------------------------------------------------
Dividends 363,785
- -----------------------------------------------------------
Investment for trustee deferred compensation
and retirement plans 90,092
- -----------------------------------------------------------
Other assets 15,117
===========================================================
Total assets 482,934,050
___________________________________________________________
===========================================================
LIABILITIES:
Payables for:
Fund shares reacquired 1,370,082
- -----------------------------------------------------------
Options written, at market value (premiums
received $61,920) 70,145
- -----------------------------------------------------------
Trustee deferred compensation and
retirement plans 124,817
- -----------------------------------------------------------
Collateral upon return of securities loaned 10,195,750
- -----------------------------------------------------------
Accrued distribution fees 200,201
- -----------------------------------------------------------
Accrued transfer agent fees 189,169
- -----------------------------------------------------------
Accrued operating expenses 93,707
===========================================================
Total liabilities 12,243,871
===========================================================
Net assets applicable to shares outstanding $470,690,179
___________________________________________________________
===========================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $531,397,021
- -----------------------------------------------------------
Undistributed net investment income (loss) (114,811)
- -----------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities and option contracts (172,521,092)
- -----------------------------------------------------------
Unrealized appreciation of investment
securities and option contracts 111,929,061
===========================================================
$470,690,179
___________________________________________________________
===========================================================
NET ASSETS:
Class A $292,680,771
___________________________________________________________
===========================================================
Class B $148,299,721
___________________________________________________________
===========================================================
Class C $ 29,709,687
___________________________________________________________
===========================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER
SHARE, UNLIMITED NUMBER OF SHARES
AUTHORIZED:
Class A 16,582,529
___________________________________________________________
===========================================================
Class B 9,400,646
___________________________________________________________
===========================================================
Class C 1,886,263
___________________________________________________________
===========================================================
Class A:
Net asset value per share $ 17.65
- -----------------------------------------------------------
Offering price per share:
(Net asset value of $17.65 divided
by 94.50%) $ 18.68
___________________________________________________________
===========================================================
Class B:
Net asset value and offering price per
share $ 15.78
___________________________________________________________
===========================================================
Class C:
Net asset value and offering price per
share $ 15.75
___________________________________________________________
===========================================================
</Table>
* At December 31, 2004, securities with an aggregate market value of $9,951,991
were on loan to brokers.
See accompanying notes which are an integral part of the financial statements.
F-6
STATEMENT OF OPERATIONS
For the year ended December 31, 2004
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $15,206) $ 4,532,260
- -------------------------------------------------------------------------
Dividends from affiliated money market funds (including
securities lending income of $11,193*) 212,040
=========================================================================
Total investment income 4,744,300
=========================================================================
EXPENSES:
Advisory fees 3,284,662
- -------------------------------------------------------------------------
Administrative services fees 131,215
- -------------------------------------------------------------------------
Custodian fees 48,587
- -------------------------------------------------------------------------
Distribution fees:
Class A 708,687
- -------------------------------------------------------------------------
Class B 1,691,392
- -------------------------------------------------------------------------
Class C 309,320
- -------------------------------------------------------------------------
Transfer agent fees 1,712,470
- -------------------------------------------------------------------------
Trustees' fees and retirement benefits 25,993
- -------------------------------------------------------------------------
Other 355,800
=========================================================================
Total expenses 8,268,126
=========================================================================
Less: Fees waived, expenses reimbursed and expense offset
arrangement (87,738)
=========================================================================
Net expenses 8,180,388
=========================================================================
Net investment income (loss) (3,436,088)
=========================================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES AND OPTION CONTRACTS:
Net realized gain from:
Investment securities 43,506,147
- -------------------------------------------------------------------------
Option contracts written 503,131
=========================================================================
44,009,278
=========================================================================
Change in net unrealized appreciation (depreciation) of:
Investment securities 19,637,060
- -------------------------------------------------------------------------
Option contracts written (8,225)
=========================================================================
19,628,835
=========================================================================
Net gain from investment securities and option contracts 63,638,113
=========================================================================
Net increase in net assets resulting from operations $60,202,025
_________________________________________________________________________
=========================================================================
</Table>
* Dividends from affiliated money market funds are net of income rebate paid to
securities lending counterparties.
See accompanying notes which are an integral part of the financial statements.
F-7
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 2004 and 2003
<Table>
<Caption>
2004 2003
- --------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (3,436,088) $ (4,907,964)
- --------------------------------------------------------------------------------------------
Net realized gain from investment securities, futures
contracts and option contracts 44,009,278 14,119,689
- --------------------------------------------------------------------------------------------
Change in net unrealized appreciation of investment
securities and option contracts 19,628,835 116,271,789
============================================================================================
Net increase in net assets resulting from operations 60,202,025 125,483,514
============================================================================================
Share transactions-net:
Class A (33,113,988) (29,873,189)
- --------------------------------------------------------------------------------------------
Class B (69,580,725) (65,917,432)
- --------------------------------------------------------------------------------------------
Class C (7,526,304) (6,917,020)
============================================================================================
Net increase (decrease) in net assets resulting from
share transactions (110,221,017) (102,707,641)
============================================================================================
Net increase (decrease) in net assets (50,018,992) 22,775,873
============================================================================================
NET ASSETS:
Beginning of year 520,709,171 497,933,298
============================================================================================
End of year (including undistributed net investment income
(loss) of $(114,811) and $(104,405), respectively) $ 470,690,179 $ 520,709,171
____________________________________________________________________________________________
============================================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
F-8
NOTES TO FINANCIAL STATEMENTS
December 31, 2004
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Select Equity Fund (the "Fund") is a series portfolio of AIM Funds Group
(the "Trust"). The Trust is a Delaware statutory trust registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
series management investment company consisting of nine separate portfolios,
each authorized to issue an unlimited number of shares of beneficial interest.
The Fund currently offers multiple classes of shares. Matters affecting each
portfolio or class will be voted on exclusively by the shareholders of such
portfolio or class. The assets, liabilities and operations of each portfolio are
accounted for separately. Information presented in these financial statements
pertains only to the Fund.
The Fund's investment objective is to achieve long-term growth of capital.
Each company listed in the Schedule of Investments is organized in the United
States of America unless otherwise noted.
Under the Trust's organizational documents, each Trustee, officer, employee
or other agent of the Trust (including the Trust's investment manager) is
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-9
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. COVERED CALL OPTIONS -- The Fund may write call options, on a covered
basis; that is, the Fund will own the underlying security. When the Fund
writes a covered call option, an amount equal to the premium received by
the Fund is recorded as an asset and an equivalent liability. The amount of
the liability is subsequently "marked-to-market" to reflect the current
market value of the option written. The current market value of a written
option is the mean between the last bid and asked prices on that day. If a
written call option expires on the stipulated expiration date, or if the
Fund enters into a closing purchase transaction, the Fund realizes a gain
(or a loss if the closing purchase transaction exceeds the premium received
when the option was written) without regard to any unrealized gain or loss
on the underlying security, and the liability related to such option is
extinguished. If a written option is exercised, the Fund realizes a gain or
a loss from the sale of the underlying security and the proceeds of the
sale are increased by the premium originally received. A risk in writing a
call option is that the Fund gives up the opportunity for profit if the
market price of the security increases and the option is exercised.
G. FUTURES CONTRACTS -- The Fund may purchase or sell futures contracts as a
hedge against changes in market conditions. Initial margin deposits
required upon entering into futures contracts are satisfied by the
segregation of specific securities as collateral for the account of the
broker (the Fund's agent in acquiring the futures position). During the
period the futures contracts are open, changes in the value of the
contracts are recognized as unrealized gains or losses by "marking to
market" on a daily basis to reflect the market value of the contracts at
the end of each day's trading. Variation margin payments are made or
received depending upon whether unrealized gains or losses are incurred.
When the contracts are closed, the Fund recognizes a realized gain or loss
equal to the difference between the proceeds from, or cost of, the closing
transaction and the Fund's basis in the contract. If the Fund were unable
to liquidate a futures contract and/or enter into an offsetting closing
transaction, the Fund would continue to be subject to market risk with
respect to the value of the contracts and continue to be required to
maintain the margin deposits on the futures contracts.
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement,
the Fund pays an advisory fee to AIM at the annual rate of 0.80% of the first
$150 million of the Fund's average daily net assets, plus 0.625% of the Fund's
average daily net assets in excess of $150 million. AIM has voluntarily agreed
to waive advisory fees of the Fund in the amount of 25% of the advisory fee AIM
receives from the affiliated money market funds on investments by the Fund in
such affiliated money market funds (excluding investments made in affiliated
money market funds with cash collateral from securities loaned by the Fund).
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 December 31, 2004, AIM waived fees of $3,147.
For the year ended December 31, 2004, at the request of the Trustees of the
Trust, AMVESCAP PLC ("AMVESCAP") agreed to reimburse $77,679 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. Pursuant to such agreement for the year ended
December 31, 2004, AIM was paid $131,215.
F-10
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
December 31, 2004, the Fund paid AISI $1,712,470. AISI may make payments to
intermediaries that provide omnibus account services, sub-accounting services
and/or networking services.
The Trust has entered into a master distribution agreement with A I M
Distributors, Inc. ("AIM Distributors") to serve as the distributor for the
Class A, Class B and Class C shares of the Fund. The Trust has adopted plans
pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund's Class A,
Class B and Class C shares (collectively the "Plans"). The Fund, pursuant to the
Plans, pays AIM Distributors compensation at the annual rate of 0.25% of the
Fund's average daily net assets of Class A shares and 1.00% of the average daily
net assets of Class B and Class C shares. Of these amounts, up to 0.25% of the
average daily net assets of the Class A, Class B or Class C shares may be paid
to furnish continuing personal shareholder services to customers who purchase
and own shares of such classes. Any amounts not paid as a service fee under the
Plans would constitute an asset-based sales charge. NASD Rules also impose a cap
on the total sales charges, including asset-based sales charges, that may be
paid by any class of shares of the Fund. Pursuant to the Plans, for the year
ended December 31, 2004, the Class A, Class B and Class C shares paid $708,687,
$1,691,392 and $309,320, respectively.
Front-end sales commissions and contingent deferred sales charges ("CDSC")
(collectively the "sales charges") are not recorded as expenses of the Fund.
Front-end sales commissions are deducted from proceeds from the sales of Fund
shares prior to investment in Class A shares of the Fund. CDSC are deducted from
redemption proceeds prior to remittance to the shareholder. During the year
ended December 31, 2004, AIM Distributors advised the Fund that it retained
$47,026 in front-end sales commissions from the sale of Class A shares and $776,
$18,610 and $1,866 from Class A, Class B and Class C shares, respectively, for
CDSC imposed upon redemptions by shareholders.
Certain officers and trustees of the Trust are officers and directors of
AIM, AISI and/or AIM Distributors.
NOTE 3--INVESTMENTS IN AFFILIATES
The Fund is permitted, pursuant to an exemptive order from the Securities and
Exchange Commission ("SEC"), to invest daily available cash balances and cash
collateral from securities lending transactions in affiliated money market
funds. The Fund and the money market funds below have the same investment
advisor and therefore, are considered to be affiliated. The tables below show
the transactions in and earnings from investments in affiliated money market
funds for the year ended December 31, 2004.
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 12/31/03 AT COST FROM SALES (DEPRECIATION) 12/31/04 INCOME GAIN (LOSS)
- ----------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $ 8,261,408 $ 51,027,829 $ (51,410,910) $ -- $ 7,878,327 $101,263 $ --
- ----------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-
Institutional
Class 8,261,408 51,027,829 (51,410,910) -- 7,878,327 99,584 --
==================================================================================================================================
Subtotal $16,522,816 $102,055,658 $(102,821,820) $ -- $15,756,654 $200,847 $ --
==================================================================================================================================
</Table>
INVESTMENTS OF CASH COLLATERAL FROM SECURITIES LENDING TRANSACTIONS:
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 12/31/03 AT COST FROM SALES (DEPRECIATION) 12/31/04 INCOME* GAIN (LOSS)
- ----------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $11,874,485 $ 50,207,098 $ (62,081,583) $ -- $ -- $ 6,931 $ --
- ----------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-
Institutional
Class -- 29,128,863 (18,933,113) -- 10,195,750 4,262 --
==================================================================================================================================
Subtotal $11,874,485 $ 79,335,961 $ (81,014,696) $ -- $10,195,750 $ 11,193 $ --
==================================================================================================================================
Total $28,397,301 $181,391,619 $(183,836,516) $ -- $25,952,404 $212,040 $ --
__________________________________________________________________________________________________________________________________
==================================================================================================================================
</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 December 31, 2004, the Fund
engaged in purchases and sales of securities of $1,008,739 and $1,824,629,
respectively.
F-11
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 December 31, 2004, the
Fund received credits in transfer agency fees of $6,912 under an expense offset
arrangement, which resulted in a reduction of the Fund's total expenses of
$6,912.
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 December 31, 2004, the Fund paid legal fees of $3,757
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 December 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 December 31, 2004, securities with an aggregate value of $9,951,991 were
on loan to brokers. The loans were secured by cash collateral of $10,195,750
received by the Fund and subsequently invested in affiliated money market funds.
For the year ended December 31, 2004, the Fund received dividends on cash
collateral net of income rebate paid to counterparties of $11,193 for securities
lending transactions.
F-12
NOTE 9--OPTION CONTRACTS WRITTEN
<Table>
<Caption>
TRANSACTIONS DURING THE PERIOD CALL OPTION CONTRACTS
----------------------
- ------------------------------------------------------------------------------------
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
- ------------------------------------------------------------------------------------
Beginning of year -- $ --
- ------------------------------------------------------------------------------------
Written 9,699 827,661
- ------------------------------------------------------------------------------------
Closed (263) (107,038)
- ------------------------------------------------------------------------------------
Exercised (3,792) (260,769)
- ------------------------------------------------------------------------------------
Expired (4,950) (397,934)
====================================================================================
End of year 694 $ 61,920
____________________________________________________________________________________
====================================================================================
</Table>
<Table>
<Caption>
OPEN OPTIONS WRITTEN AT PERIOD END
- -----------------------------------------------------------------------------------------------------------------------------
DECEMBER 31,
2004 UNREALIZED
CONTRACT STRIKE NUMBER OF PREMIUMS MARKET APPRECIATION
CALLS MONTH PRICE CONTRACTS RECEIVED VALUE (DEPRECIATION)
- -----------------------------------------------------------------------------------------------------------------------------
Apollo Group, Inc. -- Class A Jan-05 $95.0 60 $ 5,280 $ 300 $ 4,980
- -----------------------------------------------------------------------------------------------------------------------------
BJ Services Co. Jan-05 50.0 300 28,699 9,750 18,949
- -----------------------------------------------------------------------------------------------------------------------------
Fisher Scientific International Inc. Jan-05 60.0 80 6,240 23,600 (17,360)
- -----------------------------------------------------------------------------------------------------------------------------
ScanSource, Inc. Jan-05 70.0 70 5,510 875 4,635
- -----------------------------------------------------------------------------------------------------------------------------
Transocean Ltd. Jan-05 40.0 120 10,560 34,500 (23,940)
- -----------------------------------------------------------------------------------------------------------------------------
Ultra Petroleum Corp. Jan-05 55.0 64 5,631 1,120 4,511
=============================================================================================================================
Total outstanding options written 694 $61,920 $70,145 $ (8,225)
_____________________________________________________________________________________________________________________________
=============================================================================================================================
</Table>
NOTE 10--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
DISTRIBUTIONS TO SHAREHOLDERS:
There were no ordinary income or long-term gain distributions paid during the
years ended December 31, 2004 and 2003.
TAX COMPONENTS OF NET ASSETS:
As of December 31, 2004, the components of net assets on a tax basis were as
follows:
<Table>
<Caption>
2004
- ---------------------------------------------------------------------------
Unrealized appreciation -- investments $ 109,646,596
- ---------------------------------------------------------------------------
Temporary book/tax differences (114,811)
- ---------------------------------------------------------------------------
Capital loss carryforward (170,238,627)
- ---------------------------------------------------------------------------
Shares of beneficial interest 531,397,021
===========================================================================
Total net assets $ 470,690,179
___________________________________________________________________________
===========================================================================
</Table>
The difference between book-basis and tax-basis unrealized appreciation is
due to differences in the timing of recognition of gains and losses on
investments for tax and book purposes. The Fund's unrealized appreciation
difference is attributable primarily to losses on wash sales. The tax-basis
unrealized appreciation (depreciation) on investments amount includes
appreciation (depreciation) on foreign currencies of $(8,225).
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-13
The Fund utilized $44,003,152 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 December 31, 2004 which expires as
follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD*
- -----------------------------------------------------------------------------
December 31, 2009 $ 3,258,555
- -----------------------------------------------------------------------------
December 31, 2010 120,187,758
- -----------------------------------------------------------------------------
December 31, 2011 46,792,314
=============================================================================
Total capital loss carryforward $170,238,627
_____________________________________________________________________________
=============================================================================
</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 11--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities
and money market funds) purchased and sold by the Fund during the year ended
December 31, 2004 was $180,611,015 and $294,526,455, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- ------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $119,117,730
- ------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (9,462,909)
==============================================================================
Net unrealized appreciation of investment securities $109,654,821
______________________________________________________________________________
==============================================================================
Cost of investments for tax purposes is $372,071,913.
</Table>
NOTE 12--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of partnership income and
net operating losses, on December 31, 2004, undistributed net investment income
was increased by $3,425,682, undistributed net realized gain (loss) was
decreased by $6,126 and shares of beneficial interest decreased by $3,419,556.
This reclassification had no effect on the net assets of the Fund.
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 DECEMBER 31,
----------------------------------------------------------
2004 2003
--------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
- ------------------------------------------------------------------------------------------------------------------------
Sold:
Class A 1,604,107 $ 25,910,160 1,879,248 $ 24,704,966
- ------------------------------------------------------------------------------------------------------------------------
Class B 824,169 11,973,132 1,110,183 13,223,360
- ------------------------------------------------------------------------------------------------------------------------
Class C 400,935 5,803,543 507,573 6,077,786
========================================================================================================================
Automatic conversion of Class B shares to Class A shares:
Class A 2,267,898 36,759,445 2,268,563 30,491,869
- ------------------------------------------------------------------------------------------------------------------------
Class B (2,527,551) (36,759,445) (2,511,307) (30,491,869)
========================================================================================================================
Reacquired:
Class A (5,935,445) (95,783,593) (6,444,289) (85,070,024)
- ------------------------------------------------------------------------------------------------------------------------
Class B (3,094,338) (44,794,412) (4,176,762) (48,648,923)
- ------------------------------------------------------------------------------------------------------------------------
Class C (924,673) (13,329,847) (1,100,332) (12,994,806)
========================================================================================================================
(7,384,898) $(110,221,017) (8,467,123) $(102,707,641)
________________________________________________________________________________________________________________________
========================================================================================================================
</Table>
(a) There is one entity that is a record owner of more than 5% of the
outstanding shares of the Fund and it owns 6% 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 these
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 is also
owned beneficially.
F-14
NOTE 14--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
CLASS A
------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------
2004 2003 2002 2001 2000
- --------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 15.50 $ 11.97 $ 17.00 $ 22.88 $ 26.23
- --------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.06)(a)(b) (0.09)(a) (0.06)(a) (0.08)(a) (0.01)(a)
- --------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 2.21 3.62 (4.97) (5.79) (0.44)
================================================================================================================================
Total from investment operations 2.15 3.53 (5.03) (5.87) (0.45)
================================================================================================================================
Less distributions from net realized gains -- -- -- (0.01) (2.90)
================================================================================================================================
Net asset value, end of period $ 17.65 $ 15.50 $ 11.97 $ 17.00 $ 22.88
________________________________________________________________________________________________________________________________
================================================================================================================================
Total return(c) 13.87% 29.49% (29.59)% (25.64)% (1.77)%
________________________________________________________________________________________________________________________________
================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $292,681 $288,976 $250,666 $396,779 $532,042
________________________________________________________________________________________________________________________________
================================================================================================================================
Ratio of expenses to average net assets 1.38%(d)(e) 1.47% 1.32% 1.24% 1.07%
================================================================================================================================
Ratio of net investment income (loss) to average net assets (0.40)%(b)(d) (0.65)% (0.45)% (0.45)% (0.02)%
________________________________________________________________________________________________________________________________
================================================================================================================================
Portfolio turnover rate 38% 69% 86% 117% 56%
________________________________________________________________________________________________________________________________
================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Net investment income (loss) per share and the ratio of net investment
income (loss) to average net assets include a special cash dividend
received of $3.00 per share owned of Microsoft Corp. on December 2,
2004. Net investment income (loss) per share and the ratio of net
investment (loss) to average net assets excluding the special dividend
are $(0.08) and (0.51)%, respectively.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Does not include sales charges.
(d) Ratios are based on average daily net assets of $283,474,706.
(e) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 1.40%.
<Table>
<Caption>
CLASS B
------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------
2004 2003 2002 2001 2000
- --------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 13.96 $ 10.86 $ 15.54 $ 21.07 $ 24.57
- --------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.17)(a)(b) (0.17)(a) (0.16)(a) (0.20)(a) (0.22)(a)
- --------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 1.99 3.27 (4.52) (5.32) (0.38)
================================================================================================================================
Total from investment operations 1.82 3.10 (4.68) (5.52) (0.60)
================================================================================================================================
Less distributions from net realized gains -- -- -- (0.01) (2.90)
================================================================================================================================
Net asset value, end of period $ 15.78 $ 13.96 $ 10.86 $ 15.54 $ 21.07
________________________________________________________________________________________________________________________________
================================================================================================================================
Total return(c) 13.04% 28.55% (30.12)% (26.19)% (2.50)%
________________________________________________________________________________________________________________________________
================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $148,300 $198,148 $214,709 $432,002 $661,445
________________________________________________________________________________________________________________________________
================================================================================================================================
Ratio of expenses to average net assets 2.13%(d)(e) 2.22% 2.07% 2.00% 1.84%
================================================================================================================================
Ratio of net investment income (loss) to average net assets (1.15)%(b)(d) (1.40)% (1.20)% (1.21)% (0.80)%
________________________________________________________________________________________________________________________________
================================================================================================================================
Portfolio turnover rate 38% 69% 86% 117% 56%
________________________________________________________________________________________________________________________________
================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Net investment income (loss) per share and the ratio of net investment
income (loss) to average net assets include a special cash dividend
received of $3.00 per share owned of Microsoft Corp. on December 2,
2004. Net investment income (loss) per share and the ratio of net
investment (loss) to average net assets excluding the special dividend
are $(0.19) and (1.26)%, respectively.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Does not include sales charges.
(d) Ratios are based on average daily net assets of $169,139,193.
(e) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 2.15%.
F-15
NOTE 14--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS C
--------------------------------------------------------------
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
2004 2003 2002 2001 2000
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 13.94 $ 10.84 $ 15.52 $ 21.05 $ 24.55
- ----------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.17)(a)(b) (0.17)(a) (0.16)(a) (0.20)(a) (0.22)(a)
- ----------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 1.98 3.27 (4.52) (5.32) (0.38)
============================================================================================================================
Total from investment operations 1.81 3.10 (4.68) (5.52) (0.60)
============================================================================================================================
Less distributions from net realized gains -- -- -- (0.01) (2.90)
============================================================================================================================
Net asset value, end of period $ 15.75 $ 13.94 $ 10.84 $ 15.52 $ 21.05
____________________________________________________________________________________________________________________________
============================================================================================================================
Total return(c) 12.98% 28.60% (30.15)% (26.21)% (2.50)%
____________________________________________________________________________________________________________________________
============================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $29,710 $33,585 $32,558 $59,112 $71,989
____________________________________________________________________________________________________________________________
============================================================================================================================
Ratio of expenses to average net assets 2.13%(d)(e) 2.22% 2.07% 2.00% 1.84%
============================================================================================================================
Ratio of net investment income (loss) to average net assets (1.15)%(b)(d) (1.40)% (1.20)% (1.21)% (0.80)%
____________________________________________________________________________________________________________________________
============================================================================================================================
Portfolio turnover rate 38% 69% 86% 117% 56%
____________________________________________________________________________________________________________________________
============================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Net investment income (loss) per share and the ratio of net investment
income (loss) to average net assets include a special cash dividend
received of $3.00 per share owned by Microsoft Corp. on December 2,
2004. Net investment income (loss) per share and the ratio of net
investment (loss) to average net assets excluding the special dividend
are $(0.19) and (1.26)%, respectively.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Does not include sales charges.
(d) Ratios are based on average daily net assets of $30,931,985.
(e) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 2.15%.
NOTE 15--LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
Settled Enforcement Actions and Investigations Related to Market Timing
On October 8, 2004, INVESCO Funds Group, Inc. ("IFG") (the former investment
advisor to certain AIM Funds) and A I M Advisors, Inc. ("AIM") (the Fund's
investment advisor) reached final settlements with certain regulators, including
without limitation the Securities and Exchange Commission ("SEC"), the New York
Attorney General ("NYAG") and the Colorado Attorney General ("COAG"), 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.
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 they 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 and
AIM breached various Federal and state securities, business and consumer
protection laws. On the same date, A I M Distributors, Inc. ("ADI") (the
distributor of the retail AIM Funds) reached a final settlement with the SEC to
resolve an investigation relating to market timing activity and related issues
in the AIM Funds. The SEC also alleged that ADI violated various Federal
securities laws. The SEC also has settled related market timing enforcement
actions brought against certain former officers and employees of IFG.
Under the terms of the settlements, IFG agreed to pay a total of $325 million,
of which $110 million is civil penalties. Of this $325 million total payment,
half has been paid 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, all of which has been paid. The entire $325 million IFG
settlement payment will be made 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
made 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. 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 certain
equity and balanced 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.
Under the terms of the settlements, AIM will make certain governance and
compliance reforms, including maintaining an internal controls committee and
retaining an independent compliance consultant and a corporate ombudsman. 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
F-16
NOTE 15--LEGAL PROCEEDINGS (CONTINUED)
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.
At the request of the trustees of the AIM Funds, AMVESCAP PLC ("AMVESCAP"),
the parent company of IFG and AIM, has agreed to pay expenses incurred by such
Funds related to market timing matters.
The SEC has also settled market timing enforcement actions 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),
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 these settlements, the SEC ordered these individuals to
pay restitution and civil penalties in various amounts and prohibited them from
associating with, or serving as an officer or director of, an investment
advisor, broker, dealer and/or investment company, as applicable, for certain
periods of time.
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 certain equity and balanced 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 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 payments 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 Regulatory Inquiries and Pending
Litigation described below may have on AIM, ADI or the Fund.
Regulatory Inquiries and Pending Litigation
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 but not limited to revenue sharing and directed-brokerage
arrangements, investments in securities of other registered investment
companies, contractual plans, issues related to Section 529 college savings
plans, procedures for locating lost security holders and participation in class
action settlements.
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.
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 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, the U.S. Postal Inspection
Service and the Commodity Futures Trading Commission, some of which concern one
or more AIM Funds. AIM is providing full cooperation with respect to these
inquiries.
F-17
NOTE 15--LEGAL PROCEEDINGS (CONTINUED)
Private Civil Actions Alleging Market Timing
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, certain AIM Funds, IFG, AIM, 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 ("ERISA")
purportedly brought on behalf of participants in AMVESCAP's 401(k) plan. The
plaintiffs in one of the underlying lawsuits continue to seek remand of their
lawsuit 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. ("IINA"), ADI
and/or INVESCO Distributors, Inc. ("INVESCO Distributors")) 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. All of these lawsuits have been transferred to
the United States District Court for the Southern District of Texas, Houston
Division by order of the applicable United States District Court in which they
were initially filed. The plaintiff in one of these lawsuits has challenged this
order.
Private Civil Actions Alleging Improper Charging of Distribution Fees on Limited
Offering Funds or Share Classes
Multiple civil lawsuits, including 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. ("AIS")
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.
Private Civil Action Alleging Failure to Ensure Participation in Class Action
Settlements
A civil lawsuit, purporting to be a class action lawsuit, has been filed
against AIM, IINA, A I M Capital Management, Inc. and the trustees of the AIM
Funds alleging that the defendants breached their fiduciary duties by failing to
ensure that the AIM Funds participated in class action settlements in which the
AIM Funds were eligible to participate. This lawsuit alleges as theories of
recovery: (i) violation of various provisions of the Federal securities laws;
F-18
NOTE 15--LEGAL PROCEEDINGS (CONTINUED)
(ii) common law breach of fiduciary duty; and (iii) common law negligence. This
lawsuit has been filed in Federal court and seeks such remedies as compensatory
and punitive damages; forfeiture of all commissions and fees paid by the class
of plaintiffs; and costs and attorneys' fees.
* * *
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
As a result of the matters discussed above, 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-19
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees and Shareholders of
AIM Select Equity Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of AIM Select Equity Fund (one of the
funds constituting AIM Funds Group hereafter referred to as the "Fund") at
December 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 December 31, 2004 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
/s/ PRICEWATERHOUSECOOPERS LLP
February 18, 2005
Houston, Texas
F-20
OTHER INFORMATION
TRUSTEES AND OFFICERS
As of December 31, 2004
The address of each trustee and officer of AIM Funds Group (the "Trust"), is 11
Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee oversees 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 1992 Director and Chairman, A I M Management None
Trustee, Vice Chair and Group Inc. (financial services holding
President 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 1987 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 2001 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 2000 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 1998 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 1997 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 December 31, 2004
The address of each trustee and officer of AIM Funds Group (the "Trust"), is 11
Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee oversees 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 1993 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 1998 Formerly: Chief Executive Officer, YWCA None
Trustee of the USA
- -----------------------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 1992 Partner, law firm of Pennock & Cooper None
Trustee
- -----------------------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2001 Retired None
Trustee
- -----------------------------------------------------------------------------------------------------------------------------------
Louis S. Sklar(4) -- 1939 1993 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(5) -- 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.; and Senior Vice
President and General Counsel, Liberty
Funds Group, LLC and Vice President,
A I M Distributors, Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
Robert G. Alley -- 1948 1992 Managing Director, Chief Fixed Income N/A
Vice President Officer and Senior Investment Officer,
A I M Capital Management, Inc. and Vice
President, A I M Advisors, Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
Stuart W. Coco -- 1955 1992 Managing Director and 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 1992 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(4) -- 1940 1999 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. (See footnote (4)
below.)
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) Mr. Sklar and Mr. Larsen retired effective December 31, 2004.
(5) 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 Street
Houston, TX 77046-1173 Suite 100 Suite 2900
Houston, TX 77046-1173 Houston, Texas
77002-5678
COUNSEL TO THE FUND COUNSEL TO THE TRANSFER AGENT CUSTODIAN
INDEPENDENT TRUSTEES
Ballard Spahr AIM Investment State Street Bank and
Andrews & Ingersoll, LLP Kramer, Levin, Naftalis Services, Inc. Trust Company
1735 Market Street & Frankel LLP P.O. Box 4739 225 Franklin Street
Philadelphia, PA 19103-7599 919 Third Avenue Houston, TX 77210-4739 Boston, MA 02110-2801
New York, NY 10022-3852
</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 Growth Fund AIM Total Return Bond Fund
AIM Diversified Dividend Fund AIM International Small Company Fund(7) 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) Effective December 30, 2004, AIM
International Emerging Growth Fund was renamed AIM International Small Company
Fund. The fund will close to new investors when net assets reach $500 million.
If used after April 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 $138 billion in assets. AIM is a subsidiary of
AMVESCAP PLC, one of the world's largest independent financial services
companies with $382 billion in assets under management. Data as of December 31,
2004.
AIMinvestments.com SEQ-AR-1 A I M Distributors, Inc.
<Table>
YOUR GOALS. OUR SOLUTIONS.--Registered Trademark--
- ------------------------------------------------------------------------
Mutual Retirement Annuities College Separately Offshore Cash [AIM INVESTMENTS LOGO APPEARS HERE]
Funds Products Savings Managed Products Management --Registered Trademark--
Plans Accounts
- ------------------------------------------------------------------------
</Table>
AIM SMALL CAP EQUITY FUND
Annual Report to Shareholders o December 31, 2004
[COVER IMAGE]
YOUR GOALS. OUR SOLUTIONS. [AIM INVESTMENTS LOGO APPEARS HERE]
--Registered Trademark-- --Registered Trademark--
<Table>
====================================================================================================================================
AIM SMALL CAP EQUITY FUND SEEKS LONG-TERM GROWTH OF CAPITAL.
o Unless otherwise stated, information presented in this report is as of 12/31/04 and is based on total net assets.
====================================================================================================================================
ABOUT SHARE CLASSES the effect of IPO investments on the Classification Standard, which was
fund's total return. developed by and is the exclusive
o Effective 9/30/03, Class B shares are property and a service mark of Morgan
not available as an investment for ABOUT INDEXES USED IN THIS REPORT Stanley Capital International Inc. and
retirement plans maintained pursuant to Standard & Poor's.
Section 401 of the Internal Revenue o The unmanaged Standard & Poor's
Code, including 401(k) plans, money Composite Index of 500 Stocks (the S&P o The returns shown in the Management's
purchase pension plans and profit 500--Registered Trademark-- Index) is Discussion of Fund Performance are based
sharing plans. Plans that have existing an index of common stocks frequently on net asset values calculated for
accounts invested in Class B shares will used as a general measure of U.S. stock shareholder transactions. Generally
continue to be allowed to make market performance. accepted accounting principles require
additional purchases. adjustments to be made to the net assets
o The unmanaged Standard & Poor's Small of the fund at period end for financial
o Class R shares are available only to Cap 600 Index (the S&P 600) is reporting purposes, and as such, the net
certain retirement plans. Please see the representative of small cap domestic asset values for shareholder
prospectus for more information. stocks. transactions and the returns based on
those net asset values may differ from
PRINCIPAL RISKS OF INVESTING IN THE FUND o The unmanaged Russell 2000--Registered the net asset values and returns
Trademark-- Index represents the reported in the Financial Highlights.
o Investing in small and mid-size performance of the stocks of small-
companies involves risks not associated capitalization companies. The fund files its complete schedule of
with investing in more established portfolio holdings with the Securities
companies, including business risk, o The unmanaged Lipper Small-Cap Core and Exchange Commission ("SEC") for the
significant stock price fluctuations and Fund Index represents an average of the 1st and 3rd quarters of each fiscal year
illiquidity. performance of the 30 largest on Form N-Q. The fund's Form N-Q filings
small-capitalization core equity funds are available on the SEC's Web site,
o The fund may invest a portion of its tracked by Lipper, Inc., an independent sec.gov. Copies of the fund's Forms N-Q
assets in synthetic instruments, such as mutual fund performance monitor. may be reviewed and copied at the SEC's
warrants, futures, options, exchange Public Reference Room at 450 Fifth
traded funds and American Depository o The unmanaged Lehman U.S. Aggregate Street, N.W., Washington, D.C. 20549-
Receipts, the value of which may not Bond Index, which represents the U.S. 0102. You can obtain information on the
correlate perfectly with the overall investment-grade fixed-rate bond market operation of the Public Reference Room,
securities market. Risks associated with (including government and corporate including information about duplicating
synthetic instruments may include securities, mortgage pass-through fee charges, by calling 1-202-942-8090
counter party risk and sensitivity to securities and asset-backed securities), or by electronic request at the
interest rate changes and market price is compiled by Lehman Brothers, a global following e-mail address:
fluctuations. See the prospectus for investment bank. publicinfo@sec.gov. The SEC file numbers
more details. for the fund are 811-1540 and 333-
o A direct investment cannot be made in 2-27334. The fund's most recent
o The fund may invest up to 25% of its an index. Unless otherwise indicated, portfolio holdings, as filed on Form
assets in the securities of non-U.S. index results include reinvested N-Q, are also available at
issuers. International investing dividends, and they do not reflect sales AIMinvestments.com.
presents certain risks not associated charges. Performance of an index of
with investing solely in the United funds reflects fund expenses; A description of the policies and
States. These include risks relating to performance of a market index does not. procedures that the fund uses to
fluctuations in the value of the U.S. determine how to vote proxies relating
dollar relative to the values of other o Performance of an index of funds to portfolio securities is available
currencies, the custody arrangements reflect fund expenses; performance of a without charge, upon request, from our
made for the fund's foreign holdings, market index does not. Client Services department at
differences in accounting, political 800-959-4246 or on the AIM Web site,
risks and the lesser degree of public o The fund is not managed to track the AIMinvestments.com. On the home page,
information required to be provided by performance of any particular index, scroll down and click on AIM Funds Proxy
non-U.S. companies. including the indexes defined here, and Policy. The information is also
consequently, the performance of the available on the Securities and Exchange
o The fund may participate in initial fund may deviate significantly from the Commission's Web site, sec.gov.
public offering (IPO) market in some performance of the indexes.
market cycles. Because of the fund's Information regarding how the fund voted
small asset base, any investment the OTHER INFORMATION proxies related to its portfolio
fund may make in IPOs may significantly securities during the 12 months ended
affect the fund's total return. As the o Industry classifications used in this 6/30/04 is available at our Web site. Go
fund's assets grow, the impact of IPO report are generally according to the to AIMinvestments.com, access the About
investments will decline, which may Global Industry Us tab, click on Required Notices and
reduce 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
AIM SMALL CAP EQUITY FUND
<Table>
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 14 independent trustees on the AIM
Funds' Board, as Chairman. His appointment became effective
[PHOTO OF on October 4, 2004. Mr. Graham will remain on the funds'
BRUCE L. 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
After nine months of slow growth, equity markets rallied
late in the year to produce solid results for 2004. The S&P
500 Index was up 10.87% for the year as a whole, but that
includes the 9.23% total return for the fourth quarter
alone. For bonds, the turning point came earlier. Almost all
of the 4.34% return produced by the Lehman U.S. Aggregate
Bond Index came during the second half of the year, despite
the fact that the Federal Reserve had begun raising
short-term interest rates about halfway through the year.
Overseas markets followed a similar pattern, with quite
robust double-digit performance across the board, most of it
produced during the second half of the year.
All in all, 2004 was a good year for American investors,
with the decline in the dollar over the course of the year
lending a boost to returns from foreign holdings. And there
were a number of solid economic numbers to report as of the
end of the year:
o U.S. gross domestic product (GDP) rose each quarter
during 2004. And respondents to the BusinessWeek
magazine survey foresaw 2005 GDP growth at 3.5%,
above the post-World War II average of 3.4%.
o The Institute for Supply Management's manufacturing
and nonmanufacturing indexes--based on surveys of
purchasing managers in industries that together
cover more than 70% of the U.S. economy--both
continued to rise during December and remained in
very strong territory.
o Thomson First Call, which tracks corporate earnings
and other information for clients in financial
service industries, estimated S&P 500 earnings to be
up 10.5% in 2005.
Of course, none of this can guarantee that 2005 will be
another good year. Over the short term, the only sure thing
about the investment markets is their unpredictability.
Hence, we have always urged shareholders to keep a long-term
perspective on all their investments.
YOUR FUND
The following pages present a discussion of how your fund
invests, how it performed compared to pertinent benchmarks
during the fiscal year and how it has performed over the
long term. We hope you find this information helpful. We
also encourage you to visit AIMinvestments.com often.
Updated information on your fund is always available there,
as well as general information on a variety of investing
topics.
As always, AIM is committed to building solutions for
your investment goals, and we thank you for your
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
January 28, 2005
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.
</Table>
AIM SMALL CAP EQUITY FUND
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
<Table>
Stocks, as measured by most domestic Because our primary investments are We seek to deliver the risk and
market indexes, rallied in the fourth generally the stocks of fundamentally return characteristics of the small-cap
quarter of 2004, enabling the fund to sound companies, we may be at a core asset class. We employ a
record positive returns for the year. disadvantage during periods when lower disciplined portfolio construction
quality stocks lead market returns. process that aligns the fund with the
======================================== However, we believe adhering to our benchmark that we believe represents the
FUND VS. INDEXES strategy of investing in companies that small-cap-core asset class--the S&P
exhibit sustainable growth allows the Small Cap 600 Index. We endeavor to
TOTAL RETURNS, 12/31/03-12/31/04, fund to potentially take advantage of diversify the fund in line with the
EXCLUDING APPLICABLE SALES CHARGES. IF continued economic recovery and perform sector diversification of that
SALES CHARGES WERE INCLUDED, RETURNS well over an entire economic cycle. As benchmark, so we stay fully diversified
WOULD BE LOWER. such, we believe our combination of in all those sectors and have a maximum
disciplined portfolio construction and deviation from that sector weight of
Class A Shares 9.45% fundamentally based stock selection can plus or minus 350 basis points (3.5%).
Class B Shares 8.64 potentially lead to attractive absolute
Class C Shares 8.64 returns over a long-term investment We consider selling a stock for any
Class R Shares 9.06 horizon with below-market volatility. of the following reasons:
S&P 500 Index Having recently taken over management of
(Broad Market Index) 10.87 the fund, we encourage shareholders to o A change in industry or company
Russell 2000 Index avoid placing emphasis on short-term fundamentals indicates problems;
(Style-specific Index) 18.33 relative performance and instead measure
Lipper Small-Cap Core Fund Index the success of our investment process o The price target has been exceeded;
(Peer Group Index) 18.37 over the long term.
o The technical profile deteriorates.
SOURCE: LIPPER, INC. HOW WE INVEST
======================================== MARKET CONDITIONS AND YOUR FUND
On September 1, 2004, changes were made
In selecting stocks for the fund, our to the fund's portfolio management team After assuming management of the fund,
focus is on companies with sound with the objective of solidifying the we restructured the portfolio,
fundamentals and strong earnings-growth fund's positioning as a core product. We transitioning to stocks in which we had
potential. We observed that many of the seek to produce consistent and the most confidence in their long-term
stocks that led the fourth-quarter rally attractive risk-adjusted returns for outlook. We increased the fund's
represented smaller, riskier, long-term investors by adhering to our weighting most significantly in the
unprofitable companies that did not meet disciplined investment process of using information technology sector, where we
our investment criteria. We believe that fundamental, valuation and technical found software stocks attractively
this is the main reason the fund lagged analysis to identify attractively valued priced after a sell-off earlier in the
its indexes. The fund also small-cap companies with visible and year. We believe software companies
underperformed the Russell 2000 Index long-term growth opportunities, as could benefit from increased corporate
primarily because it was underweight in demonstrated by consistent and spending.
financials in comparison to the index, accelerating earnings growth.
and its holdings in this sector Within the financials sector, we
generally lagged those of the benchmark. increased the fund's holdings in banks,
specifically those that could benefit
from increased demand for commercial and
industrial loans. Simultaneously, we
reduced the fund's exposure to
mortgage-related securities because of
rising interest rates and to insurance
stocks due to concerns about the
</Table>
<Table>
===================================================================================================================================
PORTFOLIO COMPOSITION TOP 10 EQUITY HOLDINGS* TOP 10 INDUSTRIES*
By sector
1. MICROS Systems, Inc. 1.5% 1. Application Software 6.5
[PIE CHART]
2. Jackson Hewitt Tax 2. Apparel Retail 6.2
Financials 15.0% Service Inc. 1.5
Health Care 12.2% 3. Regional Banks 5.4
Utilities 1.8% 3. Landstar System, Inc. 1.5
Money Market Funds Plus Other 4. Oil & Gas Exploration &
Assets Less Liabilities 0.8% 4. Overnite Corp. 1.4 Production 3.5
Materials 8.4%
Industrials 20.0% 5. Commercial Metals Co. 1.4 5. Technology Distributors 3.2
Consumer Discretionary 15.9%
Consumer Staples 1.2% 6. Compass Minerals 6. Industrial Machinery 3.1
Energy 4.9% International, Inc. 1.3
Information Technology 19.8% 7. Trucking 2.9
7. UTI Worldwide, Inc.
(United Kingdom) 1.3 8. Health Care Facilities 2.7
8. Cache, Inc. 1.3 9. Diversified Commercial
Services 2.4
9. Quiksilver, Inc. 1.3
10. Housewares & Specialties 2.4
10. Chicago Bridge & Iron Co.
N. V. - New York Shares
(Netherlands) 1.3
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>
current pricing cycle in this industry. reported record second quarter earnings, The views and opinions expressed in
citing growing production volume and Management's Discussion of Fund
In industrials, we increased the high oil prices as the key contributing Performance are those of A I M Advisors,
fund's holdings in capital goods factors. We sold the stock, taking Inc. These views and opinions are
companies, which could benefit from profits as the stock exceeded our subject to change at any time based on
increasing global demand. In consumer valuation target. factors such as market and economic
discretionary, we increased the fund's conditions. These views and opinions may
exposure to hotels and gaming, primarily Detracting from fund performance were not be relied upon as investment advice
as a result of our stock-selection DDi a manufacturer of printed circuit or recommendations, or as an offer for a
process, focusing on individual boards, and Primus Telecommunications, particular security. The information is
companies. One of the stocks we added in which caters primarily to international not a complete analysis of every aspect
this industry was the hotel chain La long-distance callers. DDi's stock price of any market, country, industry,
Quinta, which could potentially benefit was adversely affected when the company security or the Fund. Statements of fact
from an ability to increase room rates announced disappointing earnings in the are from sources considered reliable,
because of increased travel. We also first quarter of 2004. Primus' stock but A I M Advisors, Inc. makes no
reduced the fund's cash position, declined as the company's earnings representation or warranty as to their
redirecting these assets into stocks. reflected increasing competition. completeness or accuracy. Although
Neither stock was in the portfolio at historical performance is no guarantee
These changes, combined with an the close of the reporting period. of future results, these insights may
upswing in the market, helped the fund help you understand our investment
post double-digit returns for the fourth IN CLOSING management philosophy.
quarter. Major market indexes, after
struggling for much of the year, rallied We remain committed to our bottom-up See important fund and index
after oil prices peaked in October and investment process of identifying the disclosures inside front cover.
the presidential election cycle drew to attractively valued stocks of small-cap
a close. companies with visible and long-term JULIET S. ELLIS,
growth opportunities while striving to Chartered Financial
For the entire year, sectors that avoid high-risk stocks. We believe our [ELLIS Analyst and Senior
contributed the most to fund performance disciplined investment strategy has the PHOTO] Portfolio Manager, is
were industrials, materials and health potential to provide shareholders with lead portfolio
care. Detracting from performance were reliable, long-term, risk-adjusted manager of AIM Small
information technology, even though performance consistent with a small-cap Cap Equity Fund. Ms. Ellis joined AIM in
stocks in this sector rallied in the core-stock fund, complementing their 2004. She previously served as Senior
fourth quarter, and telecommunication more aggressive equity investments. As Portfolio Manager of two small-cap funds
services. always, we thank you for your continuing for another company and was responsible
investment in AIM Small Cap Equity Fund. for the management of more than $2
Stocks that contributed positively to billion in assets. Ms. Ellis began her
fund performance included Sierra Health investment career in 1981 as a financial
Services, a managed care health consultant. She is a Cum Laude and Phi
provider, and Southwestern Energy, an Beta Kappa graduate of Indiana
oil and gas exploration company. The University with a B.A. in economics and
stock price of Sierra Health Services political science.
appreciated as investors were more
optimistic about the company's prospects JUAN R. HARTSFIELD,
because of its rapidly growing Las Chartered Financial
Vegas, Nevada, market. Southwestern [HARTSFIELD Analyst and Portfolio
Energy Company, which operates in PHOTO] Manager, is portfolio
Arkansas, Louisiana, New Mexico, manager of AIM Small
Oklahoma and Texas, Cap Equity Fund.
Prior to joining AIM in 2004, he began
his investment career in 2000 as an
equity analyst and most recently served
as a portfolio manager. Mr. Hartsfield
earned a B.S. in petroleum engineering
from the University of Texas and his
M.B.A. from the University of Michigan.
Assisted by the Small Cap Core/Growth
Team
=======================================
TOTAL NET ASSETS $481.6 million
TOTAL NUMBER OF HOLDINGS* 115
======================================= [RIGHT ARROW GRAPHIC]
FOR A PRESENTATION OF YOUR FUND'S
LONG-TERM PERFORMANCE RECORD, PLEASE
TURN TO PAGE 5.
</Table>
3
AIM SMALL CAP EQUITY FUND
CALCULATING YOUR ONGOING FUND EXPENSES
<Table>
EXAMPLE estimate the expenses that you paid over To do so, compare this 5% hypothetical
the period. Simply divide your account example with the 5% hypothetical
As a shareholder of the fund, you incur value by $1,000 (for example, an $8,600 examples that appear in the shareholder
two types of costs: (1) transaction account value divided by $1,000 = 8.6), reports of the other funds.
costs, which may include sales charges then multiply the result by the number
(loads) on purchase payments; contingent in the table under the heading entitled Please note that the expenses shown
deferred sales charges on redemptions; "Actual Expenses Paid During Period" to in the table are meant to highlight your
and redemption fees, if any; and (2) estimate the expenses you paid on your ongoing costs only and do not reflect
ongoing costs, including management 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
July 1, 2004 - December 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, to
===================================================================================================================================
ACTUAL HYPOTHETICAL
(5% annual return before expenses)
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES ENDING ACCOUNT EXPENSES
SHARE VALUE VALUE PAID DURING VALUE PAID DURING
CLASS (7/1/04) (12/31/04)(1) PERIOD(2) (12/31/04) PERIOD(2)
A $1,000.00 $1,034.30 $ 8.03 $1,017.24 $ 7.96
B 1,000.00 1,029.50 11.78 1,013.52 11.69
C 1,000.00 1,030.40 11.79 1,013.52 11.69
R 1,000.00 1,031.30 9.24 1,016.04 9.17
(1) The actual ending account value is based on the actual total return of the fund for the period July 1, 2004 to December 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 July 1,
2004 to December 31, 2004 was 3.43%, 2.95%, 3.04% and 3.13% for Class A, B, C and R shares, respectively.
(2) Expenses are equal to the fund's annualized expense ratio (1.57%, 2.31%, 2.31% and 1.81% 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). Effective on January 1, 2005, the advisor contractually agreed to waive a portion of its advisory fees. The annualized
expense ratio restated as if this agreement had been in effect throughout the entire most recent fiscal half year are 1.46%,
2.20%, 2.20%, and 1.70% for Class A, B, C and R shares, respectively.
(3) The actual expenses paid restated as if the changes discussed above had been in effect throughout the most recent fiscal half
year are $7.47, $11.22, $11.23 and $8.68 for Class A, B, C and R shares, respectively.
(4) The hypothetical expenses paid restated as if the changes discussed above had been in effect throughout the most recent fiscal
half year are $7.41, $11.14, $11.14 and $8.62 for Class A, B, C and R shares, respectively.
===================================================================================================================================
[ARROW
BUTTON For More Information Visit
IMAGE] AIMinvestments.com
</Table>
4
AIM SMALL CAP EQUITY FUND
YOUR FUND'S LONG-TERM PERFORMANCE
<Table>
===================================================================================================================================
Past performance cannot guarantee RESULTS OF A $10,000 INVESTMENT
comparable future results. 8/31/00-12/31/04
Your fund's total return includes [MOUNTAIN CHART]
reinvested distributions, applicable
sales charges, fund expenses and AIM SMALL CAP AIM SMALL CAP AIM SMALL CAP LIPPER
management fees. Results for Class B EQUITY FUND EQUITY FUND EQUITY FUND SMALL-CAP
shares are calculated as if a CLASS A CLASS B CLASS C S&P 500 RUSSELL 2000 CORE FUND
hypothetical shareholder had liquidated DATE SHARES SHARES SHARES INDEX INDEX INDEX
his entire investment in the fund at the
close of the reporting period and paid 8/31/00 $ 9450 $10000 $10000 $10000 $10000 $10000
the applicable contingent deferred sales 9/00 9308 9850 9850 9472 9706 9743
charges. Index results include 10/00 9233 9760 9760 9432 9273 9450
reinvested dividends, but they do not 11/00 8193 8660 8660 8689 8321 8509
reflect sales charges. Performance of 12/00 8845 9340 9340 8732 9036 9335
an index of funds reflects fund expenses 1/01 9280 9790 9790 9041 9506 9668
and management fees; performance of a 2/01 8410 8870 8870 8217 8882 9054
market index does not. Performance shown 3/01 7985 8420 8420 7697 8448 8625
in the chart does not reflect deduction 4/01 8722 9191 9191 8295 9109 9313
of taxes a shareholder would pay on fund 5/01 9251 9740 9740 8350 9333 9652
distributions or sale of fund shares. 6/01 9648 10160 10160 8147 9655 9951
Performance of the indexes does not 7/01 9384 9871 9871 8067 9132 9720
reflect the effects of taxes. 8/01 9072 9541 9541 7562 8837 9448
9/01 7985 8391 8391 6952 7648 8210
======================================= 10/01 8288 8702 8702 7084 8095 8698
AVERAGE ANNUAL TOTAL RETURNS 11/01 8883 9322 9322 7628 8722 9344
As of 12/31/04, including applicable 12/01 9634 10113 10103 7695 9260 10000
sales charges 1/02 9530 9992 9992 7582 9164 9882
2/02 9426 9883 9883 7436 8913 9618
CLASS A SHARES 3/02 10325 10812 10812 7716 9629 10357
Inception (8/31/00) 5.19% 4/02 10429 10913 10913 7248 9717 10408
1 Year 3.43 5/02 10211 10683 10683 7195 9286 10020
6/02 9634 10073 10073 6683 8825 9459
CLASS B SHARES 7/02 8046 8413 8403 6162 7492 8173
Inception (8/31/00) 5.45% 8/02 8140 8503 8503 6202 7473 8217
1 Year 3.64 9/02 7374 7692 7692 5529 6936 7635
10/02 7573 7902 7902 6015 7159 7906
CLASS C SHARES 11/02 8036 8383 8383 6369 7798 8490
Inception (8/31/00) 5.84% 12/02 7781 8113 8113 5995 7363 8077
1 Year 7.64 1/03 7573 7883 7883 5838 7160 7841
2/03 7299 7593 7592 5750 6943 7596
CLASS R SHARES 3/03 7497 7803 7803 5806 7033 7660
Inception 6.33% 4/03 8093 8413 8413 6284 7699 8298
1 Year 9.06 5/03 8783 9133 9133 6615 8526 9027
======================================= 6/03 9019 9373 9363 6699 8680 9235
7/03 9596 9964 9963 6817 9223 9709
Class R shares' inception date is 8/03 9964 10345 10334 6950 9646 10129
6/3/02. Returns since that date are 9/03 9785 10154 10154 6876 9468 9909
historical returns. All other returns 10/03 10588 10985 10975 7265 10263 10688
are blended returns of historical Class 11/03 10928 11335 11325 7329 10627 11073
R share performance and restated Class A 12/03 11373 11775 11776 7713 10843 11381
share performance (for periods prior to 1/04 11694 12105 12096 7855 11314 11742
the inception date of Class R shares) at 2/04 11979 12395 12386 7964 11415 11946
net asset value, adjusted to reflect the 3/04 12083 12496 12486 7844 11522 12075
higher Rule 12b-1 fees applicable to 4/04 11563 11946 11946 7721 10934 11660
Class R shares. Class A shares' 5/04 11724 12106 12096 7827 11108 11762
inception date is 8/31/00. 6/04 12036 12427 12417 7979 11576 12264
7/04 11156 11506 11507 7715 10797 11618
The performance data quoted represent 8/04 10702 11026 11027 7746 10741 11516
past performance and cannot guarantee 9/04 11128 11456 11457 7829 11245 12089
comparable future results; current 10/04 11402 11737 11738 7949 11467 12287
performance may be lower or higher. 11/04 12205 12557 12547 8271 12461 13257
Please visit AIMinvestments.com for the 12/04 $12451 $12587 $12787 $ 8552 $12830 $13471
most recent month-end performance. SOURCE: LIPPER, INC.
Performance figures reflect reinvested
distributions, changes in net asset maximum 5.50% sales charge, and Class B
value and the effect of the maximum and Class C share performance reflects
sales charge unless otherwise stated. the applicable contingent deferred sales
Investment return and principal value charge (CDSC) for the period involved.
will fluctuate so that you may have a The CDSC on Class B shares declines from
gain or loss when you sell shares. 5% beginning at the time of purchase to
0% at the beginning of the seventh year.
Class A share performance reflects The CDSC on Class C shares is 1% for the
the first year after purchase. Class R
shares do not have a front-end sales
charge; returns shown are at net asset
value and do not reflect a 0.75% CDSC
that may be imposed on a total
redemption of retirement plan assets
within the first year.
The performance of the fund's share
classes will differ due to different
sales charge structures and class
expenses.
===================================================================================================================================
</Table>
5
FINANCIALS
SCHEDULE OF INVESTMENTS
December 31, 2004
<Table>
<Caption>
MARKET
SHARES VALUE
- -------------------------------------------------------------------------
COMMON STOCKS & OTHER EQUITY INTEREST-99.21%
ADVERTISING-1.22%
R.H. Donnelley Corp.(a) 99,700 $ 5,887,285
=========================================================================
AEROSPACE & DEFENSE-2.01%
Alliant Techsystems Inc.(a) 75,900 4,962,342
- -------------------------------------------------------------------------
Curtiss-Wright Corp. 81,800 4,696,138
=========================================================================
9,658,480
=========================================================================
AIR FREIGHT & LOGISTICS-2.26%
EGL, Inc.(a) 153,000 4,573,170
- -------------------------------------------------------------------------
UTI Worldwide, Inc. (United Kingdom) 92,900 6,319,058
=========================================================================
10,892,228
=========================================================================
ALUMINUM-0.49%
Century Aluminum Co.(a) 90,000 2,363,400
=========================================================================
APPAREL RETAIL-6.15%
Aeropostale, Inc.(a) 152,850 4,498,375
- -------------------------------------------------------------------------
Cache, Inc.(a) 347,250 6,257,445
- -------------------------------------------------------------------------
Finish Line, Inc. (The)-Class A 151,400 2,770,620
- -------------------------------------------------------------------------
Genesco Inc.(a) 177,200 5,518,008
- -------------------------------------------------------------------------
Men's Wearhouse, Inc. (The)(a) 159,200 5,088,032
- -------------------------------------------------------------------------
Stage Stores, Inc.(a) 131,700 5,468,184
=========================================================================
29,600,664
=========================================================================
APPAREL, ACCESSORIES & LUXURY GOODS-1.27%
Quiksilver, Inc.(a) 205,300 6,115,887
=========================================================================
APPLICATION SOFTWARE-6.45%
Altiris, Inc.(a) 73,900 2,618,277
- -------------------------------------------------------------------------
ANSYS, Inc.(a) 99,000 3,173,940
- -------------------------------------------------------------------------
Hyperion Solutions Corp.(a) 120,700 5,627,034
- -------------------------------------------------------------------------
Kronos Inc.(a) 51,900 2,653,647
- -------------------------------------------------------------------------
MICROS Systems, Inc.(a) 94,100 7,345,446
- -------------------------------------------------------------------------
RSA Security Inc.(a) 232,600 4,665,956
- -------------------------------------------------------------------------
SERENA Software, Inc.(a) 128,200 2,774,248
- -------------------------------------------------------------------------
Verint Systems Inc.(a) 61,100 2,219,763
=========================================================================
31,078,311
=========================================================================
ASSET MANAGEMENT & CUSTODY BANKS-1.13%
Affiliated Managers Group, Inc.(a)(b) 80,400 5,446,296
=========================================================================
BIOTECHNOLOGY-2.15%
DOV Pharmaceutical, Inc.(a) 123,000 2,220,150
- -------------------------------------------------------------------------
Neurocrine Biosciences, Inc.(a) 71,400 3,520,020
- -------------------------------------------------------------------------
Serologicals Corp.(a)(b) 208,900 4,620,868
=========================================================================
10,361,038
=========================================================================
</Table>
<Table>
MARKET
SHARES VALUE
- -------------------------------------------------------------------------
<Caption>
BUILDING PRODUCTS-0.55%
NCI Building Systems, Inc.(a) 70,700 $ 2,651,250
=========================================================================
COMMERCIAL PRINTING-0.54%
Banta Corp. 58,000 2,596,080
=========================================================================
COMMUNICATIONS EQUIPMENT-0.89%
CommScope, Inc.(a) 226,500 4,280,850
=========================================================================
COMPUTER HARDWARE-1.56%
Intergraph Corp.(a) 86,900 2,340,217
- -------------------------------------------------------------------------
Stratasys, Inc.(a)(b) 153,900 5,164,884
=========================================================================
7,505,101
=========================================================================
COMPUTER STORAGE & PERIPHERALS-0.83%
Synaptics Inc.(a) 130,400 3,987,632
=========================================================================
CONSTRUCTION & ENGINEERING-1.26%
Chicago Bridge & Iron Co. N.V.-New York
Shares (Netherlands) 151,700 6,068,000
=========================================================================
CONSTRUCTION & FARM MACHINERY & HEAVY
TRUCKS-2.16%
Wabash National Corp.(a)(b) 182,900 4,925,497
- -------------------------------------------------------------------------
Wabtec Corp. 257,800 5,496,296
=========================================================================
10,421,793
=========================================================================
DIVERSIFIED COMMERCIAL SERVICES-2.42%
Jackson Hewitt Tax Service Inc. 285,000 7,196,250
- -------------------------------------------------------------------------
NCO Group, Inc.(a) 171,900 4,443,615
=========================================================================
11,639,865
=========================================================================
DIVERSIFIED METALS & MINING-1.33%
Compass Minerals International, Inc. 263,400 6,382,182
=========================================================================
ELECTRONIC EQUIPMENT MANUFACTURERS-1.00%
Paxar Corp.(a) 217,300 4,817,541
=========================================================================
ENVIRONMENTAL SERVICES-1.08%
Waste Connections, Inc.(a) 152,400 5,219,700
=========================================================================
GAS UTILITIES-0.48%
New Jersey Resources Corp. 53,800 2,331,692
=========================================================================
HEALTH CARE EQUIPMENT-1.61%
Adeza Biomedical Corp.(a) 50,400 884,520
- -------------------------------------------------------------------------
Datascope Corp. 54,388 2,158,660
- -------------------------------------------------------------------------
Invacare Corp. 101,800 4,709,268
=========================================================================
7,752,448
=========================================================================
HEALTH CARE FACILITIES-2.71%
Genesis HealthCare Corp.(a) 71,800 2,515,154
- -------------------------------------------------------------------------
Kindred Healthcare, Inc.(a) 199,700 5,981,015
- -------------------------------------------------------------------------
</Table>
F-1
<Table>
<Caption>
MARKET
SHARES VALUE
- -------------------------------------------------------------------------
HEALTH CARE FACILITIES-(CONTINUED)
VCA Antech, Inc.(a)(b) 233,400 $ 4,574,640
=========================================================================
13,070,809
=========================================================================
HEALTH CARE SERVICES-0.56%
Apria Healthcare Group Inc.(a) 82,300 2,711,785
=========================================================================
HEALTH CARE SUPPLIES-2.04%
Haemonetics Corp.(a) 122,800 4,446,588
- -------------------------------------------------------------------------
Sybron Dental Specialties, Inc.(a) 151,500 5,360,070
=========================================================================
9,806,658
=========================================================================
HOTELS, RESORTS & CRUISE LINES-2.22%
Kerzner International Ltd. (Bahamas)(a) 92,000 5,524,600
- -------------------------------------------------------------------------
La Quinta Corp.(a) 571,100 5,191,299
=========================================================================
10,715,899
=========================================================================
HOUSEWARES & SPECIALTIES-2.38%
Jarden Corp.(a) 134,700 5,851,368
- -------------------------------------------------------------------------
Yankee Candle Co., Inc. (The)(a) 168,700 5,597,466
=========================================================================
11,448,834
=========================================================================
INDUSTRIAL GASES-0.93%
Airgas, Inc. 168,300 4,461,633
=========================================================================
INDUSTRIAL MACHINERY-3.11%
Kaydon Corp. 150,500 4,969,510
- -------------------------------------------------------------------------
Kennametal Inc. 108,300 5,390,091
- -------------------------------------------------------------------------
Manitowoc Co., Inc. (The) 122,800 4,623,420
=========================================================================
14,983,021
=========================================================================
INSURANCE BROKERS-1.51%
Hilb Rogal & Hobbs Co. 101,300 3,671,112
- -------------------------------------------------------------------------
U.S.I. Holdings Corp.(a)(b) 310,200 3,589,014
=========================================================================
7,260,126
=========================================================================
INTERNET SOFTWARE & SERVICES-1.20%
Digital River, Inc.(a) 76,800 3,195,648
- -------------------------------------------------------------------------
Digitas Inc.(a) 272,500 2,602,375
=========================================================================
5,798,023
=========================================================================
INVESTMENT BANKING & BROKERAGE-0.93%
CMET Finance Holdings, Inc. (Acquired
12/08/03; Cost $4,480,000)(a)(c)(d) 44,800 4,480,000
=========================================================================
INVESTMENT COMPANIES-EXCHANGE TRADED
FUNDS-1.10%
iShares Nasdaq Biotechnology Index Fund(a)(b) 70,400 5,308,160
=========================================================================
IT CONSULTING & OTHER SERVICES-0.63%
CACI International Inc.-Class A(a) 44,600 3,038,598
=========================================================================
MANAGED HEALTH CARE-1.34%
AMERIGROUP Corp.(a) 44,100 3,336,606
- -------------------------------------------------------------------------
Sierra Health Services, Inc.(a) 57,000 3,141,270
=========================================================================
6,477,876
=========================================================================
</Table>
<Table>
MARKET
SHARES VALUE
- -------------------------------------------------------------------------
<Caption>
METAL & GLASS CONTAINERS-1.10%
AptarGroup, Inc. 100,200 $ 5,288,556
=========================================================================
MULTI-UTILITIES & UNREGULATED POWER-1.27%
Avista Corp. 124,900 2,206,983
- -------------------------------------------------------------------------
Energen Corp. 66,400 3,914,280
=========================================================================
6,121,263
=========================================================================
OFFICE SERVICES & SUPPLIES-0.62%
Brady Corp.-Class A 48,000 3,003,360
=========================================================================
OIL & GAS EQUIPMENT & SERVICES-0.80%
FMC Technologies, Inc.(a) 119,300 3,841,460
=========================================================================
OIL & GAS EXPLORATION & PRODUCTION-3.53%
Comstock Resources, Inc.(a) 140,000 3,087,000
- -------------------------------------------------------------------------
Penn Virginia Corp. 127,900 5,188,903
- -------------------------------------------------------------------------
Plains Exploration & Production Co.(a) 173,100 4,500,600
- -------------------------------------------------------------------------
Warren Resources Inc.(a) 466,600 4,246,060
=========================================================================
17,022,563
=========================================================================
OIL & GAS REFINING, MARKETING &
TRANSPORTATION-0.58%
Golar LNG Ltd. (Bermuda)(a)(e) 191,600 2,782,457
=========================================================================
PACKAGED FOODS & MEATS-1.15%
Flowers Foods, Inc. 174,900 5,523,342
=========================================================================
PAPER PRODUCTS-1.07%
Wausau-Mosinee Paper Corp. 287,600 5,136,536
=========================================================================
PHARMACEUTICALS-0.72%
Medicines Co. (The)(a) 120,400 3,467,520
=========================================================================
PROPERTY & CASUALTY INSURANCE-1.15%
Philadelphia Consolidated Holding Corp.(a) 83,500 5,522,690
=========================================================================
REAL ESTATE-2.14%
Alexandria Real Estate Equities, Inc. 35,300 2,627,026
- -------------------------------------------------------------------------
Amli Residential Properties Trust 72,000 2,304,000
- -------------------------------------------------------------------------
Fieldstone Investment Corp. (Acquired
11/10/03-11/11/03; Cost $4,704,275)(c) 311,300 5,369,925
=========================================================================
10,300,951
=========================================================================
REAL ESTATE MANAGEMENT & DEVELOPMENT-1.22%
Jones Lang LaSalle Inc.(a) 157,250 5,882,723
=========================================================================
REGIONAL BANKS-5.39%
Alabama National BanCorp. 74,700 4,818,150
- -------------------------------------------------------------------------
Bank of the Ozarks, Inc. 51,200 1,742,336
- -------------------------------------------------------------------------
Boston Private Financial Holdings, Inc. 87,700 2,470,509
- -------------------------------------------------------------------------
Cathay General Bancorp 127,300 4,773,750
- -------------------------------------------------------------------------
CVB Financial Corp. 103,000 2,735,680
- -------------------------------------------------------------------------
Hancock Holding Co. 70,100 2,345,546
- -------------------------------------------------------------------------
Hudson United Bancorp 61,000 2,402,180
- -------------------------------------------------------------------------
</Table>
F-2
<Table>
<Caption>
MARKET
SHARES VALUE
- -------------------------------------------------------------------------
REGIONAL BANKS-(CONTINUED)
MB Financial, Inc. 58,300 $ 2,457,345
- -------------------------------------------------------------------------
Wintrust Financial Corp. 39,100 2,227,136
=========================================================================
25,972,632
=========================================================================
RESTAURANTS-2.18%
Lone Star Steakhouse & Saloon, Inc. 94,300 2,640,400
- -------------------------------------------------------------------------
Papa John's International, Inc.(a)(b) 76,200 2,624,328
- -------------------------------------------------------------------------
Steak n Shake Co. (The)(a) 260,800 5,236,864
=========================================================================
10,501,592
=========================================================================
SEMICONDUCTOR EQUIPMENT-2.10%
ATMI, Inc.(a) 174,500 3,931,485
- -------------------------------------------------------------------------
Cymer, Inc.(a) 81,400 2,404,556
- -------------------------------------------------------------------------
Varian Semiconductor Equipment Associates,
Inc.(a) 102,200 3,766,070
=========================================================================
10,102,111
=========================================================================
SEMICONDUCTORS-1.98%
DSP Group, Inc.(a) 202,500 4,521,825
- -------------------------------------------------------------------------
Semtech Corp.(a) 123,400 2,698,758
- -------------------------------------------------------------------------
Silicon Laboratories Inc.(a) 65,300 2,305,743
=========================================================================
9,526,326
=========================================================================
SPECIALTY CHEMICALS-2.07%
Albemarle Corp. 135,000 5,225,850
- -------------------------------------------------------------------------
Minerals Technologies Inc. 71,250 4,752,375
=========================================================================
9,978,225
=========================================================================
STEEL-1.36%
Commercial Metals Co. 129,800 6,562,688
=========================================================================
TECHNOLOGY DISTRIBUTORS-3.20%
Anixter International Inc. 127,700 4,595,923
- -------------------------------------------------------------------------
Global Imaging Systems, Inc.(a)(b) 147,300 5,818,350
- -------------------------------------------------------------------------
ScanSource, Inc.(a) 80,700 5,016,312
=========================================================================
15,430,585
=========================================================================
THRIFTS & MORTGAGE FINANCE-1.57%
Corus Bankshares, Inc. 51,600 2,477,316
- -------------------------------------------------------------------------
</Table>
<Table>
MARKET
SHARES VALUE
- -------------------------------------------------------------------------
<Caption>
THRIFTS & MORTGAGE FINANCE-(CONTINUED)
Harbor Florida Bancshares, Inc. 71,700 $ 2,481,537
- -------------------------------------------------------------------------
Sterling Financial Corp.(a) 65,900 2,587,234
=========================================================================
7,546,087
=========================================================================
TIRES & RUBBER-0.50%
Bandag, Inc. 48,800 2,430,728
=========================================================================
TRADING COMPANIES & DISTRIBUTORS-1.10%
Watsco, Inc. 150,600 5,304,132
=========================================================================
TRUCKING-2.91%
Landstar System, Inc.(a)(b) 97,000 7,143,080
- -------------------------------------------------------------------------
Overnite Corp. 183,900 6,848,436
=========================================================================
13,991,516
=========================================================================
Total Common Stocks & Other Equity
Interests (Cost $372,591,691) 477,859,188
=========================================================================
MONEY MARKET FUNDS-0.95%
Liquid Assets Portfolio-Institutional
Class(f) 2,284,239 2,284,239
- -------------------------------------------------------------------------
STIC Prime Portfolio-Institutional Class(f) 2,284,239 2,284,239
=========================================================================
Total Money Market Funds (Cost
$4,568,478) 4,568,478
=========================================================================
TOTAL INVESTMENTS-100.16% (excluding
investments purchased with cash collateral
from securities loaned) (Cost $377,160,169) 482,427,666
=========================================================================
INVESTMENTS PURCHASED WITH CASH COLLATERAL
FROM SECURITIES LOANED
MONEY MARKET FUNDS-4.94%
Liquid Assets Portfolio-Institutional
Class(f)(g) 11,898,095 11,898,095
- -------------------------------------------------------------------------
STIC Prime Portfolio-Institutional
Class(f)(g) 11,898,095 11,898,095
=========================================================================
Total Money Market Funds (purchased with
cash collateral from securities loaned)
(Cost $23,796,190) 23,796,190
=========================================================================
TOTAL INVESTMENTS-105.10% (Cost $400,956,359) 506,223,856
=========================================================================
OTHER ASSETS LESS LIABILITIES-(5.10%) (24,584,240)
=========================================================================
NET ASSETS-100.00% $481,639,616
_________________________________________________________________________
=========================================================================
</Table>
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) All or a portion of this securities has been pledged as collateral for
securities lending transactions at December 31, 2004.
(c) Security not registered under the Securities Act of 1933, as amended (e.g.,
the security was purchased in a Rule 144A transaction or a Regulation D
transaction). The security may be resold only pursuant to an exemption from
registration under the 1933 Act, typically to qualified institutional
buyers. The Fund has no rights to demand registration of these securities.
The aggregate market value of these securities at December 31, 2004 was
$9,849,925, which represented 2.05% of the Fund's Net Assets. These
securities are considered to be illiquid.
(d) Security fair valued in good faith in accordance with the procedures
established by the Board of Trustees. The market value of this security at
December 31, 2004 represented 0.88% of the Fund's Total Investments. See
Note 1A.
(e) In accordance with the procedures established by the Board of Trustees, the
foreign security is fair valued using adjusted closing market prices. The
market value of this security at December 31, 2004 represented 0.55% of the
Fund's Total Investments. See Note 1A.
(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-3
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2004
<Table>
ASSETS:
Investments, at market value (cost
$372,591,691)* $477,859,188
- -----------------------------------------------------------
Investments in affiliated money market funds
(cost $28,364,668) 28,364,668
===========================================================
Total investments (cost $400,956,359) 506,223,856
===========================================================
Receivables for:
Fund shares sold 519,097
- -----------------------------------------------------------
Dividends 333,164
- -----------------------------------------------------------
Investment for trustee deferred compensation
and retirement plans 29,517
- -----------------------------------------------------------
Other assets 25,761
===========================================================
Total assets 507,131,395
___________________________________________________________
===========================================================
LIABILITIES:
Payables for:
Investments purchased 6,147
- -----------------------------------------------------------
Fund shares reacquired 1,202,587
- -----------------------------------------------------------
Trustee deferred compensation and
retirement plans 41,547
- -----------------------------------------------------------
Collateral upon return of securities loaned 23,796,190
- -----------------------------------------------------------
Accrued distribution fees 258,400
- -----------------------------------------------------------
Accrued transfer agent fees 111,647
- -----------------------------------------------------------
Accrued operating expenses 75,261
===========================================================
Total liabilities 25,491,779
===========================================================
Net assets applicable to shares outstanding $481,639,616
___________________________________________________________
===========================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $369,758,220
- -----------------------------------------------------------
Undistributed net investment income (loss) (33,759)
- -----------------------------------------------------------
Undistributed net realized gain from
investment securities and futures contracts 6,647,658
- -----------------------------------------------------------
Unrealized appreciation of investment
securities 105,267,497
===========================================================
$481,639,616
___________________________________________________________
===========================================================
NET ASSETS:
Class A $247,580,522
___________________________________________________________
===========================================================
Class B $156,450,163
___________________________________________________________
===========================================================
Class C $ 65,792,297
___________________________________________________________
===========================================================
Class R $ 11,816,634
___________________________________________________________
===========================================================
SHARES OUTSTANDING, $0.01 PAR VALUE PER
SHARE, UNLIMITED NUMBER OF SHARES
AUTHORIZED:
Class A 19,347,654
___________________________________________________________
===========================================================
Class B 12,593,607
___________________________________________________________
===========================================================
Class C 5,298,435
___________________________________________________________
===========================================================
Class R 929,531
___________________________________________________________
===========================================================
Class A:
Net asset value per share $ 12.80
- -----------------------------------------------------------
Offering price per share:
(Net asset value of $12.80 divided
by 94.50%) $ 13.54
___________________________________________________________
===========================================================
Class B:
Net asset value and offering price per
share $ 12.42
___________________________________________________________
===========================================================
Class C:
Net asset value and offering price per
share $ 12.42
___________________________________________________________
===========================================================
Class R:
Net asset value and offering price per
share $ 12.71
___________________________________________________________
===========================================================
</Table>
* At December 31, 2004, securities with an aggregate market value of $23,145,704
were on loan to brokers.
See accompanying notes which are an integral part of the financial statements.
F-4
STATEMENT OF OPERATIONS
For the year ended December 31, 2004
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $5,461) $ 3,404,786
- --------------------------------------------------------------------------
Dividends from affiliated money market funds (including
securities lending income of $106,952*) 247,892
- --------------------------------------------------------------------------
Interest 108,936
==========================================================================
Total investment income 3,761,614
==========================================================================
EXPENSES:
Advisory fees 4,233,084
- --------------------------------------------------------------------------
Administrative services fees 144,542
- --------------------------------------------------------------------------
Custodian fees 61,210
- --------------------------------------------------------------------------
Distribution fees:
Class A 899,368
- --------------------------------------------------------------------------
Class B 1,645,132
- --------------------------------------------------------------------------
Class C 694,862
- --------------------------------------------------------------------------
Class R 35,241
- --------------------------------------------------------------------------
Transfer agent fees 1,581,544
- --------------------------------------------------------------------------
Trustees' fees and retirement benefits 26,310
- --------------------------------------------------------------------------
Other 377,433
==========================================================================
Total expenses 9,698,726
==========================================================================
Less: Fees waived, expenses reimbursed and expense offset
arrangement (331,308)
==========================================================================
Net expenses 9,367,418
==========================================================================
Net investment income (loss) (5,605,804)
==========================================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES AND FUTURES CONTRACTS:
Net realized gain from:
Investment securities 63,023,411
- --------------------------------------------------------------------------
Futures contracts 190,607
==========================================================================
63,214,018
==========================================================================
Change in net unrealized appreciation (depreciation) of
Investment securities (17,288,151)
==========================================================================
Net gain from investment securities and futures contracts 45,925,867
==========================================================================
Net increase in net assets resulting from operations $ 40,320,063
__________________________________________________________________________
==========================================================================
</Table>
* Dividends from affiliated money market funds are net of income rebate paid to
securities lending counterparties.
See accompanying notes which are an integral part of the financial statements.
F-5
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 2004 and 2003
<Table>
<Caption>
2004 2003
- ------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (5,605,804) $ (4,347,265)
- ------------------------------------------------------------------------------------------
Net realized gain from investment securities, foreign
currencies and futures contracts 63,214,018 23,914,515
- ------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities (17,288,151) 123,707,904
==========================================================================================
Net increase in net assets resulting from operations 40,320,063 143,275,154
==========================================================================================
Distributions to shareholders from net realized gains:
Class A (6,812,723) --
- ------------------------------------------------------------------------------------------
Class B (4,459,412) --
- ------------------------------------------------------------------------------------------
Class C (1,866,092) --
- ------------------------------------------------------------------------------------------
Class R (312,412) --
==========================================================================================
Decrease in net assets resulting from distributions (13,450,639) --
==========================================================================================
Share transactions-net:
Class A (33,241,596) 52,426,841
- ------------------------------------------------------------------------------------------
Class B (29,808,487) 29,417,204
- ------------------------------------------------------------------------------------------
Class C (13,451,247) 13,847,595
- ------------------------------------------------------------------------------------------
Class R 8,911,070 2,003,122
==========================================================================================
Net increase (decrease) in net assets resulting from
share transactions (67,590,260) 97,694,762
==========================================================================================
Net increase (decrease) in net assets (40,720,836) 240,969,916
==========================================================================================
NET ASSETS:
Beginning of year 522,360,452 281,390,536
==========================================================================================
End of year (including undistributed net investment income
(loss) of $(33,759) and $(28,398), respectively) $481,639,616 $522,360,452
__________________________________________________________________________________________
==========================================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
F-6
NOTES TO FINANCIAL STATEMENTS
December 31, 2004
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Small Cap Equity Fund (the "Fund") is a series portfolio of AIM Funds Group
(the "Trust"). The Trust is a Delaware statutory trust registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
series management investment company consisting of nine separate portfolios,
each authorized to issue an unlimited number of shares of beneficial interest.
The Fund currently 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.
Effective December 13, 2004, the Fund is open to new investors.
The Fund's investment objective is to achieve long-term growth of capital.
Each company listed in the Schedule of Investments is organized in the United
States of America unless otherwise noted.
Under the Trust's organizational documents, each Trustee, officer, employee
or other agent of the Trust (including the Trust's investment manager) is
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-7
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. FOREIGN CURRENCY TRANSLATIONS -- Foreign currency is valued at the close of
the NYSE based on quotations posted by banks and major currency dealers.
Portfolio securities and other assets and liabilities denominated in
foreign currencies are translated into U.S. dollar amounts at date of
valuation. Purchases and sales of portfolio securities (net of foreign
taxes withheld on disposition) and income items denominated in foreign
currencies are translated into U.S. dollar amounts on the respective dates
of such transactions. The Fund does not separately account for the portion
of the results of operations resulting from changes in foreign exchange
rates on investments and the fluctuations arising from changes in market
prices of securities held. The combined results of changes in foreign
exchange rates and the fluctuation of market prices on investments (net of
estimated foreign tax withholding) are included with the net realized and
unrealized gain or loss from investments in the Statement of Operations.
Reported net realized foreign currency gains or losses arise from, (i)
sales of foreign currencies, (ii) currency gains or losses realized between
the trade and settlement dates on securities transactions, and (iii) the
difference between the amounts of dividends, interest, and foreign
withholding taxes recorded on the Fund's books and the U.S. dollar
equivalent of the amounts actually received or paid. Net unrealized foreign
currency gains and losses arise from changes in the fair values of assets
and liabilities, other than investments in securities at fiscal period end,
resulting from changes in exchange rates.
G. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to attempt
to minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency
contract for the purchase or sale of a security denominated in a foreign
currency in order to "lock in" the U.S. dollar price of that security. The
Fund could be exposed to risk if counterparties to the contracts are unable
to meet the terms of their contracts or if the value of the foreign
currency changes unfavorably.
H. FUTURES CONTRACTS -- The Fund may purchase or sell futures contracts as a
hedge against changes in market conditions. Initial margin deposits
required upon entering into futures contracts are satisfied by the
segregation of specific securities as collateral for the account of the
broker (the Fund's agent in acquiring the futures position). During the
period the futures contracts are open, changes in the value of the
contracts are recognized as unrealized gains or losses by "marking to
market" on a daily basis to reflect the market value of the contracts at
the end of each day's trading. Variation margin payments are made or
received depending upon whether unrealized gains or losses are incurred.
When the contracts are closed, the Fund recognizes a realized gain or loss
equal to the difference between the proceeds from, or cost of, the closing
transaction and the Fund's basis in the contract. If the Fund were unable
to liquidate a futures contract and/or enter into an offsetting closing
transaction, the Fund would continue to be subject to market risk with
respect to the value of the contracts and continue to be required to
maintain the margin deposits on the futures contracts.
I. PUT OPTIONS -- The Fund may purchase put options. By purchasing a put
option, the Fund obtains the right (but not the obligation) to sell the
option's underlying instrument at a fixed strike price. In return for this
right, the Fund pays an option premium. The option's underlying instrument
may be a security or a futures contract. Put options may be used by the
Fund to hedge securities it owns by locking in a minimum price at which the
Fund can sell. If security prices fall, the put option could be exercised
to offset all or a portion of the Fund's resulting losses. At the same
time, because the maximum the Fund has at risk is the cost of the option,
purchasing put options does not eliminate the potential for the Fund to
profit from an increase in the value of the securities hedged. A risk in
buying an option is that the Fund pays a premium whether or not the option
is exercised. In addition, there can be no assurance that a liquid
secondary market will exist for any option purchased or sold.
F-8
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement,
the Fund pays an advisory fee to AIM at the annual rate of 0.85% of the Fund's
average daily net assets. Effective January 1, 2005 through December 31, 2009,
AIM has contractually agreed to waive advisory fees to the extent that the
advisory fees payable by the Fund (based on the Fund's average daily net assets)
do not exceed the annual rate of 0.745% of the first $250 million, plus 0.73% of
the next $250 million, plus 0.715% of the next $500 million, plus 0.70% of the
next $1.5 billion, plus 0.685% of the next $2.5 billion, plus 0.67% of the next
$2.5 billion, plus 0.655% of the next $2.5 billion, plus 0.64% of the Fund's
average daily net assets in excess of $10 billion. AIM has voluntarily agreed to
waive advisory fees of the Fund in the amount of 25% of the advisory fee AIM
receives from the affiliated money market 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 December 31, 2004, AIM waived fees of $3,093.
For the year ended December 31, 2004, at the request of the Trustees of the
Trust, AMVESCAP PLC ("AMVESCAP") agreed to reimburse $77,059 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. Pursuant to such agreement for the year ended
December 31, 2004, AIM was paid $144,542.
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
December 31, 2004, the Fund paid AISI $1,581,544. AISI may make payments to
intermediaries that 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 and Class R shares of the Fund. The Trust has adopted
plans pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund's Class
A, Class B, Class C and Class R shares (collectively the "Plans"). The Fund,
pursuant to the Plans, pays AIM Distributors compensation at the annual rate of
0.35% of the Fund's average daily net assets of Class A shares, 1.00% of the
average daily net assets of Class B and Class C shares and 0.50% of the average
daily net assets of Class R shares. Of these amounts, up to 0.25% of the average
daily net assets of the Class A, Class B, Class C or Class R shares may be paid
to furnish continuing personal shareholder services to customers who purchase
and own shares of such classes. Any amounts not paid as a service fee under the
Plans would constitute an asset-based sales charge. NASD Rules also impose a cap
on the total sales charges, including asset-based sales charges that may be paid
by any class of shares of the Fund. Prior to December 13, 2004, during the
Fund's closing to new investors, AIM Distributors agreed to waive 0.10% of the
Fund's average daily net assets of Class A distribution plan fees. Pursuant to
the Plans, for the year ended December 31, 2004, the Class A, Class B, Class C
and Class R shares paid $655,183, $1,645,132, $694,862 and $35,241,
respectively, after AIM Distributors waived Class A Plan fees of $244,185.
Front-end sales commissions and contingent deferred sales charges ("CDSC")
(collectively the "sales charges") are not recorded as expenses of the Fund.
Front-end sales commissions are deducted from proceeds from the sales of Fund
shares prior to investment in Class A shares of the Fund. CDSC are deducted from
redemption proceeds prior to remittance to the shareholder. During the year
ended December 31, 2004, AIM Distributors advised the Fund that it retained
$69,295 in front-end sales commissions from the sale of Class A shares and
$15,228, $21,617, $7,791 and $0 from Class A, Class B, Class C and Class R
shares, respectively, for CDSC imposed upon redemptions by shareholders.
Certain officers and trustees of the Trust are officers and directors of
AIM, AISI and/or AIM Distributors.
NOTE 3--INVESTMENTS IN AFFILIATES
The Fund is permitted, pursuant to an exemptive order from the Securities and
Exchange Commission ("SEC"), to invest daily available cash balances and cash
collateral from securities lending transactions in affiliated money market
funds. The Fund and the money market funds below have the same investment
advisor and therefore, are considered to be affiliated. The tables below show
the transactions in and earnings from investments in affiliated money market
funds for the year ended December 31, 2004.
F-9
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 12/31/03 AT COST FROM SALES (DEPRECIATION) 12/31/04 INCOME GAIN (LOSS)
- ----------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $10,035,910 $125,196,617 $(132,948,288) $ -- $ 2,284,239 $ 71,349 $ --
- ----------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-
Institutional
Class 10,035,910 125,196,617 (132,948,288) -- 2,284,239 69,591 --
==================================================================================================================================
Subtotal $20,071,820 $250,393,234 $(265,896,576) $ -- $ 4,568,478 $140,940 $ --
==================================================================================================================================
</Table>
INVESTMENTS OF CASH COLLATERAL FROM SECURITIES LENDING TRANSACTIONS:
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 12/31/03 AT COST FROM SALES (DEPRECIATION) 12/31/04 INCOME* GAIN (LOSS)
- ----------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $34,938,267 $ 61,029,785 $ (84,069,957) $ -- $11,898,095 $ 54,140 $ --
- ----------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-
Institutional
Class 34,938,266 60,968,494 (84,008,665) -- 11,898,095 52,812 --
==================================================================================================================================
Subtotal $69,876,533 $121,998,279 $(168,078,622) $ -- $23,796,190 $106,952 $ --
==================================================================================================================================
Total $89,948,353 $372,391,513 $(433,975,198) $ -- $28,364,668 $247,892 $ --
__________________________________________________________________________________________________________________________________
==================================================================================================================================
</Table>
* Dividend income is net of income rebate paid to securities 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 December 31, 2004, the Fund
engaged in purchases and sales of securities of $300,030 and $37,347,871,
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 December 31, 2004, the
Fund received credits in transfer agency fees of $6,971 under an expense offset
arrangement, which resulted in a reduction of the Fund's total expenses of
$6,971.
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 December 31, 2004, the Fund paid legal fees of $3,807
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
F-10
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 December 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 December 31, 2004, securities with an aggregate value of $23,145,704 were
on loan to brokers. The loans were secured by cash collateral of $23,796,190
received by the Fund and subsequently invested in affiliated money market funds.
For the year ended December 31, 2004, the Fund received dividends on cash
collateral net of income rebate paid to counterparties $106,952 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 December 31, 2004
and 2003 was as follows:
<Table>
<Caption>
2004 2003
- ----------------------------------------------------------------------------------
Distributions paid from long-term capital gain $13,450,639 $ --
__________________________________________________________________________________
==================================================================================
</Table>
TAX COMPONENTS OF NET ASSETS:
As of December 31, 2004, the components of net assets on a tax basis were as
follows:
<Table>
<Caption>
2004
- ----------------------------------------------------------------------------
Undistributed ordinary income $ 2,049,173
- ----------------------------------------------------------------------------
Undistributed long-term gain 5,190,927
- ----------------------------------------------------------------------------
Unrealized appreciation -- investments 104,675,055
- ----------------------------------------------------------------------------
Temporary book/tax differences (33,759)
- ----------------------------------------------------------------------------
Shares of beneficial interest 369,758,220
============================================================================
Total net assets $481,639,616
____________________________________________________________________________
============================================================================
</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 straddles.
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 utilized $36,493,693 of capital loss carryforward in the current
period to offset net realized capital gain for federal income tax purposes. The
Fund has no capital loss carryforward as of December 31, 2004.
F-11
NOTE 10--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities
and money market funds) purchased and sold by the Fund during the year ended
December 31, 2004 was $601,606,710 and $673,181,079, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- ------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $107,403,441
- ------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (2,728,386)
==============================================================================
Net unrealized appreciation of investment securities $104,675,055
______________________________________________________________________________
==============================================================================
Cost of investments for tax purposes is $401,548,801.
</Table>
NOTE 11--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of net operating losses,
on December 31, 2004, undistributed net investment income (loss) was increased
by $5,600,443 and undistributed net realized gain was decreased by $5,600,443.
This reclassification had no effect on the net assets of the Fund.
NOTE 12--SHARE INFORMATION
The Fund currently offers four different classes of shares: Class A shares,
Class B shares, Class C shares and Class R shares. Class A shares are sold with
a front-end sales charge. Class B shares and Class C shares are sold with CDSC.
Class R shares are sold at net asset value. Under 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)
- ----------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
2004 2003
-------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------------------------------------------------------------
Sold:
Class A 4,288,228 $ 52,758,227 11,095,421 $109,381,334
- ----------------------------------------------------------------------------------------------------------------------
Class B 1,064,168 12,839,431 5,802,424 56,480,592
- ----------------------------------------------------------------------------------------------------------------------
Class C 867,391 10,449,258 2,724,692 26,562,929
- ----------------------------------------------------------------------------------------------------------------------
Class R 823,003 10,162,089 231,356 2,309,531
======================================================================================================================
Issued as reinvestment of dividends:
Class A 481,426 6,080,413 -- --
- ----------------------------------------------------------------------------------------------------------------------
Class B 327,877 4,019,765 -- --
- ----------------------------------------------------------------------------------------------------------------------
Class C 119,514 1,465,238 -- --
- ----------------------------------------------------------------------------------------------------------------------
Class R 24,270 304,591 -- --
======================================================================================================================
Automatic conversion of Class B shares to Class A shares:
Class A 622,034 7,675,039 474,336 4,772,838
- ----------------------------------------------------------------------------------------------------------------------
Class B (637,822) (7,675,039) (483,310) (4,772,838)
======================================================================================================================
Reacquired:
Class A (8,184,332) (99,755,275) (6,516,746) (61,727,331)
- ----------------------------------------------------------------------------------------------------------------------
Class B (3,263,817) (38,992,644) (2,491,251) (22,290,550)
- ----------------------------------------------------------------------------------------------------------------------
Class C (2,126,834) (25,365,743) (1,358,495) (12,715,334)
- ----------------------------------------------------------------------------------------------------------------------
Class R (126,430) (1,555,610) (29,381) (306,409)
======================================================================================================================
(5,721,324) $(67,590,260) 9,449,046 $ 97,694,762
______________________________________________________________________________________________________________________
======================================================================================================================
</Table>
(a) There is one entity that is a record owner of more than 5% of the
outstanding shares of the Fund and it owns 8% 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 is also
owned beneficially.
F-12
NOTE 13--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
CLASS A
----------------------------------------------------------------------------
AUGUST 31,
2000
(DATE OPERATIONS
YEAR ENDED DECEMBER 31, COMMENCED) TO
----------------------------------------------------- DECEMBER 31,
2004 2003 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 12.03 $ 8.23 $ 10.19 $ 9.36 $ 10.00
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.09)(a) (0.09)(a) (0.05)(a) (0.05)(a) (0.00)(a)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized
and unrealized) 1.22 3.89 (1.91) 0.88 (0.64)
=================================================================================================================================
Total from investment operations 1.13 3.80 (1.96) 0.83 (0.64)
=================================================================================================================================
Less distributions from net realized gains (0.36) -- -- (0.00) --
=================================================================================================================================
Net asset value, end of period $ 12.80 $ 12.03 $ 8.23 $ 10.19 $ 9.36
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) 9.45% 46.17% (19.23)% 8.92% (6.40)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $247,581 $266,284 $140,652 $105,146 $32,805
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expenses reimbursements 1.53%(c) 1.77% 1.67% 1.78% 1.78%(d)
- ---------------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expenses
reimbursements 1.64%(c) 1.77% 1.67% 1.78% 2.72%(d)
=================================================================================================================================
Ratio of net investment income (loss) to average
net assets (0.77)%(c) (0.89)% (0.54)% (0.57)% (0.12)%(d)
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(e) 124% 112% 117% 123% 49%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Does not include sales charges and is not
annualized for periods less than one year.
(c) Ratios are based on average daily net assets of $256,962,380.
(d) Annualized.
(e) Not annualized for periods less than one year.
F-13
NOTE 13--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS B
------------------------------------------------------------------------------
AUGUST 31,
2000
(DATE OPERATIONS
YEAR ENDED DECEMBER 31, COMMENCED) TO
------------------------------------------------------ DECEMBER 31,
2004 2003 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 11.77 $ 8.11 $ 10.11 $ 9.33 $ 10.00
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.18)(a) (0.15)(a) (0.11)(a) (0.11)(a) (0.03)(a)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized
and unrealized) 1.19 3.81 (1.89) 0.89 (0.64)
=================================================================================================================================
Total from investment operations 1.01 3.66 (2.00) 0.78 (0.67)
=================================================================================================================================
Less distributions from net realized gains (0.36) -- -- -- --
=================================================================================================================================
Net asset value, end of period $ 12.42 $ 11.77 $ 8.11 $ 10.11 $ 9.33
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) 8.64% 45.13% (19.78)% 8.36% (6.70)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $156,450 $177,811 $99,551 $64,012 $16,385
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expenses reimbursements 2.27%(c) 2.42% 2.32% 2.44% 2.49%(d)
- ---------------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expenses
reimbursements 2.29%(c) 2.42% 2.32% 2.44% 3.43%(d)
=================================================================================================================================
Ratio of net investment income (loss) to average
net assets (1.51)%(c) (1.54)% (1.19)% (1.23)% (0.83)%(d)
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(e) 124% 112% 117% 123% 49%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Does not include sales charges and is not
annualized for periods less than one year.
(c) Ratios are based on average daily net assets of $164,513,168.
(d) Annualized.
(e) Not annualized for periods less than one year.
F-14
NOTE 13--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS C
----------------------------------------------------------------------------
AUGUST 31,
2000
(DATE OPERATIONS
YEAR ENDED DECEMBER 31, COMMENCED) TO
---------------------------------------------------- DECEMBER 31,
2004 2003 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 11.77 $ 8.11 $ 10.10 $ 9.34 $10.00
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.18)(a) (0.15)(a) (0.11)(a) (0.11)(a) (0.03)(a)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized
and unrealized) 1.19 3.81 (1.88) 0.87 (0.63)
=================================================================================================================================
Total from investment operations 1.01 3.66 (1.99) 0.76 (0.66)
=================================================================================================================================
Less distributions from net realized gains (0.36) -- -- -- --
=================================================================================================================================
Net asset value, end of period $ 12.42 $ 11.77 $ 8.11 $ 10.10 $ 9.34
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) 8.64% 45.13% (19.70)% 8.14% (6.60)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $65,792 $75,763 $41,132 $29,548 $9,028
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expenses reimbursements 2.27%(c) 2.42% 2.32% 2.44% 2.49%(d)
- ---------------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expenses
reimbursements 2.29%(c) 2.42% 2.32% 2.44% 3.43%(d)
=================================================================================================================================
Ratio of net investment income (loss) to average
net assets (1.51)%(c) (1.54)% (1.19)% (1.23)% (0.83)%(d)
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(e) 124% 112% 117% 123% 49%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Does not include sales charges and is not
annualized for periods less than one year.
(c) Ratios are based on average daily net assets of $69,486,188.
(d) Annualized.
(e) Not annualized for periods less than one year.
F-15
NOTE 13--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS R
------------------------------------------
JUNE 3, 2002
YEAR ENDED (DATE SALES
DECEMBER 31, COMMENCED) TO
--------------------- DECEMBER 31,
2004 2003 2002
- --------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 11.99 $ 8.22 $ 10.58
- --------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.12)(a) (0.11)(a) (0.04)(a)
- --------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 1.20 3.88 (2.32)
========================================================================================================
Total from investment operations 1.08 3.77 (2.36)
========================================================================================================
Less distributions from net realized gains (0.36) -- --
========================================================================================================
Net asset value, end of period $ 12.71 $11.99 $ 8.22
________________________________________________________________________________________________________
========================================================================================================
Total return(b) 9.06% 45.86% (22.31)%
________________________________________________________________________________________________________
========================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $11,817 $2,502 $ 55
________________________________________________________________________________________________________
========================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expenses reimbursements 1.77%(c) 1.92% 1.92%(d)
- --------------------------------------------------------------------------------------------------------
Without fee waivers and/or expenses reimbursements 1.79%(c) 1.92% 1.92%(d)
========================================================================================================
Ratio of net investment income (loss) to average net assets (1.01)%(c) (1.04)% (0.78)%(d)
________________________________________________________________________________________________________
========================================================================================================
Portfolio turnover rate(e) 124% 112% 117%
________________________________________________________________________________________________________
========================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Not annualized for periods less than one year.
(c) Ratios are based on average daily net assets of $7,048,177.
(d) Annualized.
(e) Not annualized for periods less than one year.
NOTE 14--LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
SETTLED ENFORCEMENT ACTIONS AND INVESTIGATIONS RELATED TO MARKET TIMING
On October 8, 2004, INVESCO Funds Group, Inc. ("IFG") (the former investment
advisor to certain AIM Funds) and A I M Advisors, Inc. ("AIM") (the Fund's
investment advisor) reached final settlements with certain regulators, including
without limitation the Securities and Exchange Commission ("SEC"), the New York
Attorney General ("NYAG") and the Colorado Attorney General ("COAG"), 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.
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 they 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 and
AIM breached various Federal and state securities, business and consumer
protection laws. On the same date, A I M Distributors, Inc. ("ADI") (the
distributor of the retail AIM Funds) reached a final settlement with the SEC to
resolve an investigation relating to market timing activity and related issues
in the AIM Funds. The SEC also alleged that ADI violated various Federal
securities laws. The SEC also has settled related market timing enforcement
actions brought against certain former officers and employees of IFG.
Under the terms of the settlements, IFG agreed to pay a total of $325 million,
of which $110 million is civil penalties. Of this $325 million total payment,
half has been paid 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, all of which has been paid. The entire $325 million IFG
settlement payment will be made 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
made 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. 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 certain
equity and balanced 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.
F-16
NOTE 14--LEGAL PROCEEDINGS (CONTINUED)
Under the terms of the settlements, AIM will make certain governance and
compliance reforms, including maintaining an internal controls committee and
retaining an independent compliance consultant and a corporate ombudsman. 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.
At the request of the trustees of the AIM Funds, AMVESCAP PLC ("AMVESCAP"),
the parent company of IFG and AIM, has agreed to pay expenses incurred by such
Funds related to market timing matters.
The SEC has also settled market timing enforcement actions 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),
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 these settlements, the SEC ordered these individuals to
pay restitution and civil penalties in various amounts and prohibited them from
associating with, or serving as an officer or director of, an investment
advisor, broker, dealer and/or investment company, as applicable, for certain
periods of time.
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 certain equity and balanced 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 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 payments 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 Regulatory Inquiries and Pending
Litigation described below may have on AIM, ADI or the Fund.
REGULATORY INQUIRIES AND PENDING LITIGATION
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 but not limited to revenue sharing and directed-brokerage
arrangements, investments in securities of other registered investment
companies, contractual plans, issues related to Section 529 college savings
plans, procedures for locating lost security holders and participation in class
action settlements.
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.
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 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, the U.S. Postal
F-17
NOTE 14--LEGAL PROCEEDINGS (CONTINUED)
Inspection Service and the Commodity Futures Trading Commission, 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, 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 ("ERISA")
purportedly brought on behalf of participants in AMVESCAP's 401(k) plan. The
plaintiffs in one of the underlying lawsuits continue to seek remand of their
lawsuit 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. ("IINA"), ADI
and/or INVESCO Distributors, Inc. ("INVESCO Distributors")) 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. All of these lawsuits have been transferred to
the United States District Court for the Southern District of Texas, Houston
Division by order of the applicable United States District Court in which they
were initially filed. The plaintiff in one of these lawsuits has challenged this
order.
Private Civil Actions Alleging Improper Charging of Distribution Fees on Limited
Offering Funds or Share Classes
Multiple civil lawsuits, including 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. ("AIS")
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-18
NOTE 14--LEGAL PROCEEDINGS (CONTINUED)
Private Civil Action Alleging Failure to Ensure Participation in Class Action
Settlements
A civil lawsuit, purporting to be a class action lawsuit, has been filed
against AIM, IINA, A I M Capital Management, Inc. and the trustees of the AIM
Funds alleging that the defendants breached their fiduciary duties by failing to
ensure that the AIM Funds participated in class action settlements in which the
AIM Funds were eligible to participate. This lawsuit alleges as theories of
recovery: (i) violation of various provisions of the Federal securities laws;
(ii) common law breach of fiduciary duty; and (iii) common law negligence. This
lawsuit has been filed in Federal court and seeks such remedies as compensatory
and punitive damages; forfeiture of all commissions and fees paid by the class
of plaintiffs; and costs and attorneys' fees.
* * *
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
As a result of the matters discussed above, 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-19
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees and Shareholders of
AIM Small Cap Equity Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the AIM Small Cap Equity Fund (one
of the funds constituting AIM Funds Group hereafter referred to as the "Fund")
at December 31, 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 periods indicated, in conformity with
accounting principles generally accepted in the United States of America. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with 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 December 31, 2004 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
/s/ PRICEWATERHOUSECOOPERS LLP
February 18, 2005
Houston, Texas
F-20
OTHER INFORMATION
TRUSTEES AND OFFICERS
As of December 31, 2004
The address of each trustee and officer of AIM Funds Group (the "Trust"), is 11
Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee oversees 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 1992 Director and Chairman, A I M Management None
Trustee, Vice Chair and Group Inc. (financial services holding
President 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 1987 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 2001 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 2000 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 1998 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 1997 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 December 31, 2004
The address of each trustee and officer of AIM Funds Group (the "Trust"), is 11
Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee oversees 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 1993 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 1998 Formerly: Chief Executive Officer, YWCA None
Trustee of the USA
- ---------------------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 1992 Partner, law firm of Pennock & Cooper None
Trustee
- ---------------------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2001 Retired None
Trustee
- ---------------------------------------------------------------------------------------------------------------------------------
Louis S. Sklar(4) -- 1939 1993 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(5) -- 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.; and Senior Vice
President and General Counsel, Liberty
Funds Group, LLC and Vice President,
A I M Distributors, Inc.
- ---------------------------------------------------------------------------------------------------------------------------------
Robert G. Alley -- 1948 1992 Managing Director, Chief Fixed Income N/A
Vice President Officer and Senior Investment Officer,
A I M Capital Management, Inc. and Vice
President, A I M Advisors, Inc.
- ---------------------------------------------------------------------------------------------------------------------------------
Stuart W. Coco -- 1955 1992 Managing Director and 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 1992 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(4) -- 1940 1999 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. (See footnote (4)
below.)
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) Mr. Sklar and Mr. Larsen retired effective December 31, 2004.
(5) 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 Street
Houston, TX 77046-1173 Suite 100 Suite 2900
Houston, TX 77046-1173 Houston, Texas
77002-5678
COUNSEL TO THE FUND COUNSEL TO THE TRANSFER AGENT CUSTODIAN
INDEPENDENT TRUSTEES
Ballard Spahr AIM Investment State Street Bank and
Andrews & Ingersoll, LLP Kramer, Levin, Naftalis Services, Inc. Trust Company
1735 Market Street & Frankel LLP P.O. Box 4739 225 Franklin Street
Philadelphia, PA 19103-7599 919 Third Avenue Houston, TX 77210-4739 Boston, MA 02110-2801
New York, NY 10022-3852
</Table>
REQUIRED FEDERAL INCOME TAX INFORMATION (UNAUDITED)
The Fund distributed long-term capital gains of $13,450,639 for the Fund's tax
year December 31, 2004, of which, 100% is 15% rate gain.
<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 Growth Fund AIM Total Return Bond Fund
AIM Diversified Dividend Fund AIM International Small Company Fund(7) 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 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) Effective December 30, 2004, AIM
International Emerging Growth Fund was renamed AIM International Small Company
Fund. The fund will close to new investors when net assets reach $500 million.
If used after April 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 $138 billion in assets. AIM is a subsidiary of
AMVESCAP PLC, one of the world's largest independent financial services
companies with $382 billion in assets under management. Data as of December 31,
2004.
AIMinvestments.com SCE-AR-1 A I M Distributors, Inc.
<Table>
YOUR GOALS. OUR SOLUTIONS.--Registered Trademark--
- ------------------------------------------------------------------------
Mutual Retirement Annuities College Separately Offshore Cash [AIM INVESTMENTS LOGO APPEARS HERE]
Funds Products Savings Managed Products 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:
Percentage of Fees
Billed Applicable Percentage of Fees
to Non-Audit Billed Applicable to
Services Provided Non-Audit Services
Fees Billed for for fiscal year end Provided for fiscal
Services Rendered 2004 Pursuant to Fees Billed for year end 2003
to the Registrant Waiver of Services Rendered to Pursuant to Waiver
for fiscal year end Pre-Approval the Registrant for of Pre-Approval
2004 Requirement(1) fiscal year end 2003 Requirement(1)(2)
------------------- ------------------- -------------------- --------------------
Audit Fees $ 338,330 N/A $ 276,979 N/A
Audit-Related Fees $ 0 0% $ 0 0%
Tax Fees(3) $ 67,118 0% $ 63,847 0%
All Other Fees $ 0 0% $ 0 0%
--------- ---------
Total Fees $ 405,448 0% $ 340,826 0%
PWC billed the Registrant aggregate non-audit fees of $67,118 for the fiscal
year ended 2004, and $63,847 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 December 31, 2004 includes fees billed
for reviewing tax returns and consultation services. Tax fees for fiscal
year end December 31, 2003 includes fees billed for reviewing tax returns.
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:
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%
- ----------
(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 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)
- Bookkeeping or other services related to the accounting records or
financial statements of the audit client
- Financial information systems design and implementation Appraisal or
valuation services, fairness opinions, or contribution-in-kind
reports
- Actuarial services
- Internal audit outsourcing services
CATEGORICALLY PROHIBITED NON-AUDIT SERVICES
- Management functions
- Human resources
- Broker-dealer, investment adviser, or investment banking services
- Legal services
- Expert services unrelated to the audit
- 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
the report that have materially affected, or are reasonably likely
to materially affect, 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 Funds Group
By: /s/ ROBERT H. GRAHAM
---------------------------
Robert H. Graham
Principal Executive Officer
Date: March 9, 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: March 9, 2005
By: /s/ SIDNEY M. DILGREN
----------------------------
Sidney M. Dilgren
Principal Financial Officer
Date: March 9, 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.