As filed with the Securities and Exchange Commission on November 16, 2005
Securities Act Registration No.
------------
U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-effective Amendment No. Post-effective Amendment No.
-------- --------
(Check appropriate box or boxes)
AIM Stock Funds
--------------------------------------------------
(Exact Name of Registrant as Specified in Charter)
11 Greenway Plaza, Suite 100, Houston, Texas 77046
--------------------------------------------------
(Address of Principal Executive Offices)
Registrant's Telephone Number: (713) 626-1919
Name and Address of Agent for Service: Copy to:
PETER A. DAVIDSON, ESQUIRE MARTHA J. HAYS, ESQUIRE
A I M Advisors, Inc. Ballard Spahr Andrews & Ingersoll, LLP
11 Greenway Plaza 1735 Market Street
Suite 100 51st Floor
Houston, TX 77046 Philadelphia, PA 19103
Approximate Date of Proposed Public Offering: As soon as practicable after
the Registration Statement becomes effective under the Securities Act of 1933.
It is proposed that this Registration Statement will become effective on
December 16, 2005, pursuant to Rule 488.
The titles of the securities being registered are Class A, Class B, Class
C, Class R, Investor Class and Institutional Class shares of AIM Dynamics Fund.
No filing fee is due in reliance on Section 24(f) of the Investment Company Act
of 1940.
(A I M LOGO)
AIM MID CAP GROWTH FUND,
A PORTFOLIO OF AIM EQUITY FUNDS
11 GREENWAY PLAZA, SUITE 100
HOUSTON, TEXAS 77046-1173
January __, 2006
Dear Shareholder:
We are seeking your approval of an Agreement and Plan of Reorganization
(the "Agreement") that provides for the sale of the assets of AIM Mid Cap Growth
Fund (the "Fund") to AIM Dynamics Fund ("Buying Fund"). This transaction will
result in the combination of the two funds. You will receive shares of Buying
Fund in connection with the transaction if shareholders approve it.
A I M Advisors, Inc. ("AIM"), the investment advisor to the AIM Funds,
conducted a review of the funds and concluded that it would be appropriate to
consolidate certain funds having similar investment objectives and strategies.
Your Fund is one of the funds that AIM recommended, and your Board of Trustees
approved, for consolidation. The attached Proxy Statement and Prospectus seeks
your approval of the consolidation of your Fund with Buying Fund.
The enclosed Proxy Statement and Prospectus describes the proposed
combination and compares, among other things, the investment objectives and
strategies, operating expenses and performance history of your Fund and Buying
Fund. You should review the enclosed materials carefully.
After careful consideration, the Board of Trustees of AIM Equity Funds
has approved the Agreement and proposed combination. They recommend that you
vote FOR the proposal.
Your vote is important. Please take a moment after reviewing the
enclosed materials to sign and return your proxy card in the enclosed postage
paid return envelope. If you attend the meeting, you may vote in person. If
you expect to attend the meeting in person, or have questions, please notify
us by calling (800) 952-3502. You may also vote by telephone or through a
website established for that purpose by following the instructions that appear
on the enclosed proxy card. If we do not hear from you after a reasonable
amount of time, you may receive a telephone call from our proxy solicitor,
[ ], reminding you to vote.
Sincerely,
/s/ Robert H. Graham
Robert H. Graham
President
AIM MID CAP GROWTH FUND,
A PORTFOLIO OF AIM EQUITY FUNDS
11 GREENWAY PLAZA, SUITE 100
HOUSTON, TEXAS 77046-1173
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON FEBRUARY 28, 2006
We cordially invite you to attend our Special Meeting of Shareholders
to:
1. Approve an Agreement and Plan of Reorganization (the "Agreement")
under which all of the assets of AIM Mid Cap Growth Fund (the "Fund"), an
investment portfolio of AIM Equity Funds ("Trust"), will be transferred to AIM
Dynamics Fund ("Buying Fund"), an investment portfolio of AIM Stock Funds
("Buyer"). Buying Fund will assume the liabilities of the Fund and Buyer will
issue shares of each class of Buying Fund to shareholders of the corresponding
class of shares of the Fund.
2. Transact any other business, not currently contemplated, that may
properly come before the Special Meeting, in the discretion of the proxies or
their substitutes.
We are holding the Special Meeting at 11 Greenway Plaza, Suite 100,
Houston, Texas 77046-1173 on February 28, 2006 at 3:00 p.m., Central Time.
Shareholders of record as of the close of business on December 2, 2005
are entitled to notice of, and to vote at, the Special Meeting or any
adjournment of the Special Meeting
WE REQUEST THAT YOU EXECUTE AND RETURN PROMPTLY IN THE ENCLOSED
ENVELOPE THE ACCOMPANYING PROXY CARD, WHICH IS BEING SOLICITED BY THE BOARD OF
TRUSTEES OF TRUST. YOU MAY ALSO VOTE BY TELEPHONE OR THROUGH A WEBSITE
ESTABLISHED FOR THAT PURPOSE BY FOLLOWING THE INSTRUCTIONS ON THE ENCLOSED PROXY
MATERIALS. YOUR VOTE IS IMPORTANT FOR THE PURPOSE OF ENSURING A QUORUM AT THE
SPECIAL MEETING. YOU MAY REVOKE YOUR PROXY AT ANY TIME BEFORE IT IS EXERCISED BY
EXECUTING AND SUBMITTING A REVISED PROXY CARD, BY GIVING WRITTEN NOTICE OF
REVOCATION TO THE SECRETARY OF TRUST OR BY VOTING IN PERSON AT THE SPECIAL
MEETING.
/s/ Kevin M. Carome
Kevin M. Carome
Secretary
January , 2006
AIM MID CAP GROWTH FUND, AIM DYNAMICS FUND,
A PORTFOLIO OF A PORTFOLIO OF
AIM EQUITY FUNDS AIM STOCK FUNDS
11 GREENWAY PLAZA, SUITE 100 11 GREENWAY PLAZA, SUITE 100
HOUSTON, TEXAS 77046-1173 HOUSTON, TEXAS 77046-1173
(800) 347-4246 (800) 347-4246
COMBINED PROXY STATEMENT AND PROSPECTUS
JANUARY ___, 2006
This document is a combined Proxy Statement and Prospectus ("Proxy
Statement/Prospectus"). We are sending you this Proxy Statement/Prospectus in
connection with the Special Meeting of Shareholders (the "Special Meeting") of
AIM Mid Cap Growth Fund. The Special Meeting will be held on February 28, 2006
at 3:00 p.m., Central Time. We intend to mail this Proxy Statement/Prospectus,
the enclosed Notice of Special Meeting of Shareholders and the enclosed proxy
card on or about January __, 2006 to all shareholders entitled to vote at the
Special Meeting.
At the Special Meeting, we are asking shareholders of AIM Mid Cap
Growth Fund (your "Fund") to consider and approve an Agreement and Plan of
Reorganization (the "Agreement") that provides for the reorganization of your
Fund, an investment portfolio of AIM Equity Funds ("Trust"), with AIM Dynamics
Fund ("Buying Fund"), an investment portfolio of AIM Stock Funds ("Buyer") (the
"Reorganization").
Under the Agreement, all of the assets of your Fund will be transferred
to Buying Fund, Buying Fund will assume the liabilities of your Fund and Buyer
will issue shares of each class of Buying Fund to shareholders of the
corresponding class of shares of your Fund, as set forth on Exhibit A.
The value of your account with Buying Fund immediately after the
Reorganization will be the same as the value of your account with your Fund
immediately prior to the Reorganization. The Reorganization has been structured
as a tax-free transaction. No sales charges will be imposed in connection with
the Reorganization.
The Board of Trustees of Trust (the "Board") has approved the Agreement
and the Reorganization as being advisable and in the best interests of your
Fund.
Trust and Buyer are both registered open-end management investment
companies that issue their shares in separate series. Your Fund is a series of
Trust and Buying Fund is a series of Buyer. A I M Advisors, Inc. ("AIM") serves
as the investment advisor to both your Fund and Buying Fund. AIM is a wholly
owned subsidiary of AMVESCAP PLC ("AMVESCAP"), an independent global investment
management company.
Your Fund and Buying Fund have identical investment objectives. Both
your Fund and Buying Fund seek long-term growth of capital. See "Comparison of
Investment Objectives and Principal Strategies."
This Proxy Statement/Prospectus sets forth the information that you
should know before voting on the Agreement. It is both the Proxy Statement of
your Fund and the Prospectus of Buying Fund. You should read and retain this
Proxy Statement/Prospectus for future reference.
The Prospectus of your Fund dated February 28, 2005 (the "Selling Fund
Prospectus"), together with the related Statement of Additional Information
dated October 25, 2005, are on file with the Securities and Exchange Commission
(the "SEC"). The Selling Fund Prospectus is incorporated by reference into this
Proxy Statement/Prospectus. The Prospectus of Buying Fund dated October 25,
2005, (the "Buying Fund Prospectus"), the related Statement of Additional
Information dated October 25, 2005, and the Statement of Additional Information
relating to the Reorganization dated January ___, 2006, are on file with the
SEC. The Buying Fund Prospectus is incorporated by reference into this Proxy
Statement/Prospectus and a copy of the Buying Fund Prospectus is attached as
Appendix II to this Proxy Statement/Prospectus. The Statement of Additional
Information relating to the Reorganization dated January ___, 2006, also is
incorporated by reference into this Proxy Statement/Prospectus. The SEC
maintains a website at www.sec.gov that contains the Prospectuses and Statements
of Additional Information described above, material incorporated by reference,
and other information about Trust and Buyer.
i
Copies of the Prospectuses of Buying Fund and your Fund and the related
Statements of Additional Information are available without charge by writing to
A I M Distributors, Inc., 11 Greenway Plaza, Suite 100, Houston, Texas
77046-1173, or by calling (800) 959-4246. Additional information about your Fund
and Buying Fund may be obtained on the internet at www.aiminvestments.com.
Trust has previously sent to shareholders the most recent annual report
for your Fund, including financial statements, and the most recent semi-annual
report succeeding the annual report, if any. If you have not received such
reports or would like to receive an additional copy, please contact A I M
Distributors, Inc., 11 Greenway Plaza, Suite 100, Houston, Texas 77046-1173, or
by calling (800) 959-4246. Such reports will be furnished free of charge.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT/PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
ii
TABLE OF CONTENTS
PAGE
----
INTRODUCTION .................................................................................. 1
SUMMARY ....................................................................................... 1
The Reorganization ................................................................... 1
Comparison of Investment Objectives and Principal Strategies ......................... 2
Comparison of Performance ............................................................ 4
Comparison of Fees and Expenses ...................................................... 4
Comparison of Multiple Class Structures .............................................. 4
Comparison of Sales Charges .......................................................... 4
Comparison of Distribution and Purchase and Redemption Procedures .................... 5
The Board's Recommendation ........................................................... 6
RISK FACTORS .................................................................................. 6
Risks Associated with Buying Fund .................................................... 6
Comparison of Risks of Buying Fund and Your Fund ..................................... 7
INFORMATION ABOUT BUYING FUND ................................................................. 7
Description of Buying Fund Shares .................................................... 7
Management's Discussion of Fund Performance .......................................... 7
Financial Highlights ................................................................. 7
ADDITIONAL INFORMATION ABOUT THE AGREEMENT .................................................... 7
Terms of the Reorganization .......................................................... 7
The Reorganization ................................................................... 7
Board Considerations ................................................................. 8
Other Terms .......................................................................... 10
Federal Income Tax Consequences ...................................................... 11
Accounting Treatment ................................................................. 12
RIGHTS OF SHAREHOLDERS ........................................................................ 12
CAPITALIZATION ................................................................................ 12
LEGAL MATTERS ................................................................................. 13
ADDITIONAL INFORMATION ABOUT BUYING FUND AND YOUR FUND ........................................ 13
INFORMATION FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ................................. 13
INFORMATION ABOUT THE SPECIAL MEETING AND VOTING .............................................. 14
Proxy Statement/Prospectus ........................................................... 14
Time and Place of Special Meeting .................................................... 14
Voting in Person ..................................................................... 14
Voting by Proxy ...................................................................... 14
Voting by Telephone or the Internet .................................................. 15
Quorum Requirement and Adjournment ................................................... 15
Vote Necessary to Approve the Agreement .............................................. 15
Proxy Solicitation ................................................................... 15
Other Matters ........................................................................ 15
Ownership of Shares .................................................................. 15
EXHIBIT A .........Classes of Shares of Your Fund and Corresponding Classes of Shares of Buying Fund
EXHIBIT B ....................................Comparison of Performance of Your Fund and Buying Fund
EXHIBIT C .................................................Comparison Fee Table and Expense Examples
EXHIBIT D ..............................Shares Outstanding of Each Class of Your Fund on Record Date
EXHIBIT E ..........................................................Ownership of Shares of Your Fund
EXHIBIT F ........................................................Ownership of Shares of Buying Fund
APPENDIX I .....................................................Agreement and Plan of Reorganization
APPENDIX II ...............................................................Prospectus of Buying Fund
APPENDIX III ...............................................Discussion of Performance of Buying Fund
iii
THE AIM FAMILY OF FUNDS, AIM AND DESIGN, AIM, AIM FUNDS, AIM FUNDS AND
DESIGN, AIM INVESTMENTS, AIM INVESTOR, AIM LIFETIME AMERICA, AIM LINK, AIM
INSTITUTIONAL FUNDS, AIMFUNDS.COM, LA FAMILIA AIM DE FONDOS, LA FAMILIA AIM DE
FONDOS AND DESIGN, INVIERTA CON DISCIPLINA AND INVEST WITH DISCIPLINE, THE AIM
COLLEGE SAVINGS PLAN, AIM SOLO 401(k), AIM INVESTMENTS AND DESIGN AND YOUR
GOALS. OUR SOLUTIONS. ARE REGISTERED SERVICE MARKS AND AIM BANK CONNECTION, AIM
INTERNET CONNECT, AIM PRIVATE ASSET MANAGEMENT, AIM PRIVATE ASSET MANAGEMENT AND
DESIGN, AIM STYLIZED AND/OR DESIGN, AIM ALTERNATIVE ASSETS AND DESIGN, AND
MYAIM.COM ARE SERVICE MARKS OF A I M MANAGEMENT GROUP INC. AIM TRIMARK IS A
SERVICE MARK OF A I M MANAGEMENT GROUP INC. AND AIM FUNDS MANAGEMENT INC.
No dealer, salesperson or any other person has been authorized to give
any information or to make any representation other than those contained in this
Proxy Statement/Prospectus, and you should not rely on such other information or
representations.
iv
INTRODUCTION
During 2003 and 2004, AMVESCAP, the parent company of AIM, undertook an
integration initiative with respect to its United States mutual fund operations.
Among other things, AMVESCAP's integration initiative included the establishment
of a single distributor for all AMVESCAP U.S. mutual funds, the integration of
back office support for AMVESCAP's U.S. mutual funds, the allocation of primary
responsibility for investment advisory, administrative, accounting, and legal
and compliance services for all of AMVESCAP's U.S. mutual funds to AIM and
streamlining the various mutual funds offered by AMVESCAP's subsidiaries in the
U.S.
Since completion of the AMVESCAP integration initiative, AIM has
undertaken an extensive review of its U.S. mutual fund offerings and has
concluded that it would be appropriate to consolidate certain funds having
similar investment objectives and strategies. The Reorganization is one of a
number of fund reorganizations AIM is proposing as a result of this review
process. AIM believes that the shareholders of your Fund will benefit from the
proposed Reorganization because the combination of the funds will allow Buying
Fund the best available opportunities for investment management, growth
prospects and potential economies of scale.
SUMMARY
The Board, including the independent trustees, has determined that the
Reorganization is advisable and in the best interests of your Fund and that the
interests of the shareholders of your Fund will not be diluted as a result of
the Reorganization. Your Fund and Buying Fund have identical investment
objectives, utilize similar investment strategies and invest in similar
securities. The Board believes that a larger combined fund should have greater
market presence and may achieve greater operating efficiencies because certain
fixed costs, such as legal, accounting, shareholder services and trustee
expenses, will be spread over the greater assets of the combined fund. In
addition, the total annual operating expenses of the combined fund are expected
to be lower than your Fund's current total annual operating expenses. For
additional information concerning the factors the Board of Trustees considered
in approving the Agreement, see "Additional Information About the Agreement --
Board Considerations."
The following summary discusses some of the key features of the
Reorganization and highlights certain differences between your Fund and Buying
Fund. This summary is not complete and does not contain all of the information
that you should consider before voting on whether to approve the Agreement. For
more complete information, please read this entire Proxy Statement/Prospectus.
THE REORGANIZATION
The Reorganization will result in the combination of your Fund with
Buying Fund. Your Fund is a series of Trust, a Delaware statutory trust. Buying
Fund is a series of Buyer, also a Delaware statutory trust.
If shareholders of your Fund approve the Agreement and other closing
conditions are satisfied, all of the assets of your Fund will be transferred to
Buying Fund, Buying Fund will assume the liabilities of your Fund, and Buyer
will issue shares of each class of Buying Fund to shareholders of the
corresponding class of shares of your Fund, as set forth on Exhibit A. For a
description of certain of the closing conditions that must be satisfied, see
"Additional Information About the Agreement -- Other Terms."
The shares of Buying Fund issued in the Reorganization will have an
aggregate net asset value equal to the net value of the assets of your Fund
transferred to Buying Fund. The value of your account with Buying Fund
immediately after the Reorganization will be the same as the value of your
account with your Fund immediately prior to the Reorganization. A copy of the
Agreement is attached as Appendix I to this Proxy Statement/Prospectus. See
"Additional Information About the Agreement."
Trust and Buyer will receive an opinion of Ballard Spahr Andrews &
Ingersoll, LLP to the effect that the Reorganization will constitute a tax-free
reorganization for Federal income tax purposes. Thus, shareholders will not have
to pay additional Federal income tax as a result of the Reorganization. See
"Additional Information About the Agreement -- Federal Income Tax Consequences."
No sales charges will be imposed in connection with the Reorganization.
1
COMPARISON OF INVESTMENT OBJECTIVES AND PRINCIPAL STRATEGIES
Your Fund and Buying Fund have identical investment objectives. Both
your Fund and Buying Fund seek long-term growth of capital as their investment
objective. In addition, your Fund and Buying Fund have similar investment
strategies. Your Fund invests primarily in securities of mid-capitalization
companies that are likely to benefit from new or innovative products, services
or processes, as well as those that have experienced long-term growth, while
Buying Fund focuses on mid-cap companies with high growth potential.
The chart below provides a summary for comparison purposes of the
investment objectives and principal investment strategies of your Fund and
Buying Fund. You can find more detailed information about the investment
objectives, strategies and other investment policies of your Fund and Buying
Fund in the Selling Fund Prospectus and the Buying Fund Prospectus,
respectively.
<Table>
AIM SMALL COMPANY GROWTH FUND AIM SMALL CAP GROWTH FUND
(YOUR FUND) (BUYING FUND)
INVESTMENT OBJECTIVES
o Long-term growth of capital o Long-term growth of capital
INVESTMENT STRATEGIES
2
<Table>
o Invests at least 80% of its net assets, in o Normally invests at least 65% of its net assets in
securities of mid-capitalization companies. common stocks of mid-size companies.
o The advisor actively manages the fund, focusing
on mid-cap companies with high growth
potential that also are favorably priced relative
to the growth expectations for that company.
o The advisor bases its selection of stocks for the
fund on an analysis of individual companies.
The investment process involves:
o identifying medium
sized companies with
sustainable revenue
and earnings growth
that have attractive
stock price
valuations relative
to their projected
growth rates;
o applying fundamental
research including
financial statement
analysis and
management visits to
identify stocks of
companies with large
potential markets,
cash generating
business models,
improving balance
sheets and solid
management teams;
and
o using a variety of
valuation techniques
to determine target
buy and sell prices
and a stock's
valuation upside and
downside potential.
o The resulting fund portfolio contains (1) "core
holdings," which are industry leaders serving
growing, non-cyclical markets whose performance
tends to remain constant regardless of economic
conditions; and (2) "earnings-acceleration"
holdings that are driven by near term catalysts
such as new products, improved processes, and/or
specific economic conditions, which may lead to
rapid sales and earnings growth.
o In complying with the 80% investment
requirement, the fund may invest primarily
in marketable equity securities, including
convertible securities, but its investments
may include other securities, such as
synthetic instruments.
o Under normal conditions, the top 10 holdings o No corresponding strategy
may comprise up to 40% of the fund's total assets.
3
<Table>
o No corresponding strategy o The fund sometimes invests in the securities of
small companies.
- ------------------------------------------------------------- ------------------------------------------------------
- ------------------------------------------------------------- ------------------------------------------------------
o May invest up to 25% of its total assets in o May invest up to 25% of its assets in non-U.S.
foreign securities. issuers.
</Table>
COMPARISON OF PERFORMANCE
A bar chart showing the annual total returns for calendar years ended
December 31, for Class A shares of your Fund and for Investor Class shares of
Buying Fund can be found at Exhibit B. Also included as part of Exhibit B is a
table showing the average annual total returns for the periods indicated for
your Fund and Buying Fund. For more information regarding the total return of
your Fund, see the "Financial Highlights" section of the Selling Fund
Prospectus, which has been made a part of this Proxy Statement/Prospectus by
reference. For more information regarding the total return of Buying Fund, see
"Information About Buying Fund -- Financial Highlights." Past performance cannot
guarantee comparable future results.
COMPARISON OF FEES AND EXPENSES
A comparison of shareholder fees and annual operating expenses of each
class of shares of your Fund, as of October 31, 2004, and Buying Fund, as of
July 31, 2005, expressed as a percentage of net assets ("Expense Ratio"), can be
found at Exhibit C. Pro forma estimated Expense Ratios, based on historical data
at a specified date and related projected data for each class of shares of
Buying Fund after giving effect to the Reorganization are also provided as of
July 31, 2005 as part of Exhibit C.
As a percentage of net assets, the overall expenses of Buying Fund and
the pro forma expenses of the combined fund are lower than your Fund. AIM has
contractually agreed to waive a portion of its advisory fees through December
31, 2009 for your Fund in connection with a settlement agreement reached with
the New York Attorney General. Buying Fund's contractual advisory fee schedule
is lower than that contractual advisory fee waiver schedule and, therefore, the
waiver arrangement with respect to the New York Attorney General settlement will
not be applied to the combined fund. As a result, the investment advisory fee
schedule applicable to the combined fund after the Reorganization is lower than
the investment advisory fee currently applicable to your Fund.
Effective on the closing of the Reorganization, the current investment
advisory fee schedule applicable to Buying Fund will remain in effect for the
combined fund, as follows:
<Table>
<Caption>
Annual Rate Net Assets
----------- ----------
0.60% First $350 million
0.55% Next $350 million
0.50% Next $1.3 billion
0.45% Next $2 billion
0.40% Next $2 billion
0.375% Next $2 billion
0.35% Excess over $8 billion
</Table>
COMPARISON OF MULTIPLE CLASS STRUCTURES
A comparison of the share classes of your Fund that are currently
available to investors and the corresponding share class of Buying Fund that
shareholders of your Fund will receive in the Reorganization can be found at
Exhibit A. For information regarding the features of each of the share classes
of your Fund and Buying Fund, see the Selling Fund Prospectus and the Buying
Fund Prospectus, respectively.
COMPARISON OF SALES CHARGES
No sales charges are applicable to shares of Buying Fund received by
holders of your Fund's shares in connection with the Reorganization. No
redemption of your Fund's shares that could cause the imposition of a contingent
deferred sales charge ("CDSC") will result in connection with the
Reorganization. The holding period
4
for purposes of determining whether to charge a CDSC upon redemption of shares
of Buying Fund received in connection with the Reorganization will be the same
as the holding period of your shares immediately prior to the Reorganization.
The chart below provides a summary for comparison purposes of the
initial sales charges and CDSCs applicable to each class of shares of your Fund
and Buying Fund. The fee tables at Exhibit C include comparative information
about maximum initial sales charges on purchases of Class A shares of your Fund
and Buying Fund and the maximum CDSC on redemptions of certain classes of shares
of your Fund and Buying Fund. For more detailed information on initial sales
charges, including volume purchase breakpoints and waivers, and reductions of
CDSCs over time, see the Selling Fund Prospectus and the Buying Fund Prospectus
and the related Statements of Additional Information.
<Table>
<Caption>
CLASS A CLASS B CLASS C
o subject to an initial sales o not subject to an initial sales o not subject to an initial
charge* charge sales charge
o may be subject to a CDSC o subject to a CDSC on certain o subject to a CDSC on
on redemptions made redemptions certain redemptions
within 12 or 18 months
from the date of certain
purchases
</Table>
<Table>
<Caption>
CLASS R INSTITUTIONAL CLASS
o not subject to an initial sales o not subject to an initial
charge sales charge
o may be subject to a CDSC o not subject to a CDSC
on redemptions made within
12 months from the date of
certain purchases
</Table>
- ----------
* Your Fund and Buying Fund waive initial sales charges on Class A shares
for certain categories of investors, including certain of their
affiliated entities and certain of their employees, officers and
trustees and those of their investment advisor.
The CDSC on redemptions of shares of Buying Fund is computed based on
the lower of their original purchase price or current market value, net of
reinvested dividends and capital gains distributions.
COMPARISON OF DISTRIBUTION AND PURCHASE AND REDEMPTION PROCEDURES
Shares of your Fund and Buying Fund are distributed by A I M
Distributors, Inc. ("AIM Distributors"), a registered broker-dealer and wholly
owned subsidiary of AIM.
Your Fund and Buying Fund have adopted a distribution plan that allows
the payment of distribution and service fees for the sale and distribution of
the shares of each of their respective classes. Distribution fees are payable to
AIM Distributors for distribution services. The fee tables at Exhibit C include
comparative information about the distribution and service fees payable by each
class of shares of your Fund and Buying Fund. Each class of shares of Buying
Fund will have the same or lower aggregate distribution and service fees as the
corresponding class of shares of your Fund.
The purchase and redemption procedures of your Fund and Buying Fund are
substantially the same. For information regarding the purchase and redemption
procedures of your Fund and Buying Fund, see the Selling Fund Prospectus and the
Buying Fund Prospectus, respectively.
5
THE BOARD'S RECOMMENDATION
The Board, including the independent trustees of your Fund, unanimously
recommends that you vote "FOR" this Proposal.
RISK FACTORS
RISKS ASSOCIATED WITH BUYING FUND
The following is a discussion of the principal risks associated with
Buying Fund.
As an individual investor, you have a risk that you could lose all or a
portion of your investment in Buying Fund. Your individual risk is directly
related to the risk to which Buying Fund is exposed as a result of its investing
activities. The value of your investment in Buying Fund will go up and down with
the prices of the securities in which Buying Fund invests.
The prices of securities in which Buying Fund invests change in
response to many factors including the historical and prospective earnings of
the issuer, the value of its assets, general economic conditions, interest
rates, investor perceptions and market liquidity. The primary risks that could
affect Buying Fund's performance are described in this section.
Because Buying Fund is a growth style fund, it is also subject to risks
associated with investment styles. Growth investing may be more volatile than
other investment styles because growth stocks are more sensitive to investor
perceptions of an issuing company's growth potential. Growth-oriented funds
typically will underperform value-oriented funds when investment sentiment
favors the value investing style.
At any given time, Buying Fund may be subject to sector risk. Sector
risk is the possibility that a certain sector may underperform other sectors or
the market as a whole. Buying Fund is not limited with respect to sectors in
which it can invest. If the advisor allocates more of Buying Fund's portfolio
holdings to a particular economic sector, Buying Fund's overall performance will
be more susceptible to the economic, business, or other developments which
generally affect that sector. Investments in mid-sized companies carry greater
risk than investments in larger, more established companies. Developing
companies generally face intense competition and have a higher rate of failure
than large companies. In general, the securities of mid-size companies are more
volatile than those of large companies.
Equity stock prices vary and may fall, thus reducing the value of the
fund's investments. Certain stocks selected for Buying Fund's portfolio may
decline in value more than the overall stock market.
Buying Fund's portfolio is liquid if Buying Fund is able to sell the
securities it owns at a fair price within a reasonable time. Liquidity is
generally related to the market trading volume for a particular security.
Investments in smaller companies or in foreign companies or companies in
emerging markets are subject to a variety of risks, including potential lack of
liquidity.
A derivative is a financial instrument whose value is "derived," in
some manner, from the price of another security, index, asset, or rate.
Derivatives include options contracts, among a wide range of other instruments.
The principal risk of investments in derivatives is that the fluctuations in
their values may not correlate perfectly with the overall securities markets.
Some derivatives are more sensitive to interest rate changes and market prices
fluctuations than others. Also, derivatives are subject to counterparty risk.
Counterparty risk is a risk associated primarily with repurchase
agreements and some datives transactions. It is the risk that the other party in
the transaction will not fulfill its contractual obligation to complete the
transaction with Buying Fund.
Investments in foreign and emerging markets carry special risks,
including currency, political, regulatory and diplomatic risks. A change in the
exchange rate between U.S. dollars and a foreign currency may reduce the value
of Buying Fund's investment in a security valued in the foreign currency, or
based on that currency value. Political actions, events, and instability may
affect the value of a security. Government regulations may also affect the value
of a security. In foreign countries, securities markets that are less regulated
than those in the U.S. may
6
permit trading practices that are not allowed in the U.S. A change in diplomatic
relations between the U.S. and a foreign country could affect the value or
liquidity of investments. Further, timely information about a security or its
issuers may be unavailable, incomplete, or inaccurate. This risk is more common
to securities issued by foreign companies and companies in emerging markets than
it is to the securities of U.S.-based companies.
You should also be aware that to the extent Buying Fund holds cash or
cash equivalents rather than equity securities for risk management purposes,
Buying Fund may not achieve its investment objective.
An investment in Buying Fund is not a deposit in a bank and is not
insured or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.
COMPARISON OF RISKS OF BUYING FUND AND YOUR FUND
The risks associated with an investment in your Fund are similar to
those described above for Buying Fund because the funds have identical
investment objectives and similar strategies. However, unlike Buying Fund, the
top 10 holdings of your Fund may comprise up to 40% of your Fund's total assets
under normal conditions. Since a large percentage of your Fund's assets may be
invested in a limited number of securities, any change in value of those
securities could significantly affect the value of an investment in your Fund.
After the Reorganization, you will no longer encounter this risk because Buying
Fund does not similarly invest in a limited number of securities.
INFORMATION ABOUT BUYING FUND
DESCRIPTION OF BUYING FUND SHARES
Shares of Buying Fund are redeemable at their net asset value (subject,
in certain circumstances, to a contingent deferred sales charge) at the option
of the shareholder or at the option of Buyer in certain circumstances. Each
share of Buying Fund represents an equal proportionate interest in Buying Fund
with each other share and is entitled to such dividends and distributions out of
the income belonging to Buying Fund as are declared by the Board of Trustees of
Buyer. Each share of Buying Fund generally has the same voting, dividend,
liquidation and other rights; however, each class of shares of Buying Fund is
subject to different sales loads, conversion features, exchange privileges and
class-specific expenses. When issued, shares of Buying Fund are fully paid and
nonassessable, have no preemptive or subscription rights, and are freely
transferable. Other than the automatic conversion of Class B shares to Class A
shares at the end of the month which is eight years after the date on which
shares were purchased, there are no conversion rights.
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
A discussion of the performance of Buying Fund taken from its annual
report to shareholders for the fiscal year ended July 31, 2005 is set forth in
Appendix III of this Proxy Statement/Prospectus.
FINANCIAL HIGHLIGHTS
For more information about Buying Fund's financial performance, see the
"Financial Highlights" section of the Buying Fund Prospectus that is attached to
this Proxy Statement/Prospectus as Appendix II.
ADDITIONAL INFORMATION ABOUT THE AGREEMENT
TERMS OF THE REORGANIZATION
The terms and conditions under which the Reorganization may be
consummated are set forth in the Agreement. Significant provisions of the
Agreement are summarized below; however, this summary is qualified in its
entirety by reference to the Agreement, a copy of which is attached as Appendix
I to this Proxy Statement/Prospectus.
THE REORGANIZATION
Consummation of the Reorganization (the "Closing") is expected to occur
on March 27, 2006, at 8:00 a.m., Eastern Time (the "Effective Time") on the
basis of values calculated as of the close of regular trading on the New
7
York Stock Exchange on March 24, 2006 (the "Valuation Date"). At the Effective
Time, all of the assets of your Fund will be delivered to Buyer's custodian for
the account of Buying Fund in exchange for the assumption by Buying Fund of the
liabilities of your Fund and delivery by Buyer directly to the holders of record
as of the Effective Time of the issued and outstanding shares of each class of
your Fund of a number of shares of each corresponding class of Buying Fund
(including, if applicable, fractional shares rounded to the nearest thousandth),
having an aggregate net asset value equal to the value of the net assets of your
Fund so transferred, assigned and delivered, all determined and adjusted as
provided in the Agreement. Upon delivery of such assets, Buying Fund will
receive good and marketable title to such assets free and clear of all liens.
In order to ensure continued qualification of your Fund for treatment
as a "regulated investment company" for tax purposes and to eliminate any tax
liability of your Fund arising by reason of undistributed investment company
taxable income or net capital gain, Trust will declare on or prior to the
Valuation Date to the shareholders of your Fund a dividend or dividends that,
together with all previous such dividends, shall have the effect of distributing
(a) all of your Fund's investment company taxable income (determined without
regard to any deductions for dividends paid) for the taxable year ended October
31, 2005 and for the short taxable year beginning on November 1, 2005 and ending
on the Closing and (b) all of your Fund's net capital gain recognized in its
taxable year ended October 31, 2005 and in such short taxable year (after
reduction for any capital loss carryover).
Buying Fund will proceed with the Reorganization if the shareholders of
your Fund approve the Agreement.
Following receipt of the requisite shareholder vote and as soon as
reasonably practicable after the Closing, Trust will redeem the outstanding
shares of your Fund from shareholders in accordance with the applicable
Agreement and Declaration of Trust, Bylaws and the Delaware Statutory Trust Act.
BOARD CONSIDERATIONS
AIM initially proposed that the Board consider the Reorganization at an
in-person meeting of the Boards held on October 27, 2005, at which preliminary
discussions of the Reorganization took place. After careful consideration and
after weighing the pros and cons of the Reorganization, the Board of your Fund
determined that the Reorganization is advisable and in the best interests of
your Fund and will not dilute the interests of your Fund's shareholders, and
approved the Agreement and the Reorganization, at a meeting of the Board held on
November 14, 2005.
Over the course of the Board meetings, the Board received from AIM
written materials that contained information concerning your Fund and Buying
Fund, including comparative total return and fee and expense information, a
comparison of investment objectives and strategies of your Fund and Buying Fund
and pro forma expense ratios for Buying Fund giving effect to the
Reorganization. AIM also provided the Board with written materials concerning
the structure of the proposed Reorganization and the Federal tax consequences of
the Reorganization.
Following the initial Board meeting, the Board requested additional
information from AIM with respect to: the availability of suitable merger
candidates, current litigation, contingent assets and liabilities, the advantage
(if any) of structuring the Reorganization as taxable transactions, the
calculation of pro forma expense ratios and the effect on transfer agency fees.
AIM provided such additional information to the Board prior to and at the
November 14, 2005 meeting. In addition, the Board requested a follow-up report
after the consummation of the Reorganization that shows the actual costs and
expenses of the Reorganization.
In evaluating the Reorganization, the Board considered a number of
factors, including:
o The investment objective and principal investment strategies
of your Fund and Buying Fund.
o The comparative performance of your Fund and Buying Fund.
o The comparative expenses of your Fund and Buying Fund and the
pro forma expenses of Buying Fund after giving effect to the
Reorganization.
o The comparative sizes of your Fund and Buying Fund.
8
o The consequences of the Reorganization for Federal income tax
purposes, including the treatment of any unrealized capital
gains and capital loss carryforwards available to offset
future capital gains of your Fund and Buying Fund.
o Any fees and expenses that will be borne directly or
indirectly by your Fund or Buying Fund in connection with the
Reorganization.
o The projected financial impact to AIM and its affiliates of
the Reorganization.
AIM proposed the Reorganization as part of an effort to consolidate the
AIM Funds' mid cap growth product offerings. In considering the Reorganization,
the Board noted that the funds have identical investment objectives, are managed
using similar investment strategies and invest in similar securities. In
addition, Buying Fund's performance track record relative to its Lipper peer
group is generally better than your Fund's and the expenses of the combined fund
are expected to be lower than those of your Fund.
The Board noted that your Fund and Buying Fund are managed by the same
lead portfolio manager supported by the same portfolio management team. The
funds have identical investment strategies, resulting in significant portfolio
overlap between the two funds. As of July 31, 2005, approximately 85% of your
Fund's total net assets were invested in securities Buying Fund also owns.
The Board considered the relative sizes of the two funds and concluded
that Buying Fund, which has a significantly larger asset base, should be the
surviving fund in the Reorganization. As of July 31, 2005, Buying Fund had net
assets of approximately $2 billion, compared to net assets for your Fund of
approximately $190 million. The Board determined that it was appropriate for
Buying Fund to be the surviving fund in the Reorganization primarily because the
investment process Buying Fund's current portfolio management team utilizes to
manage Buying Fund will be applied to your Fund after the Reorganization.
Consequently, the Board determined that Buying Fund's performance track record
more accurately reflects the results of the investment process that the combined
fund will utilize after the Reorganization.
The Board considered the performance of Buying Fund in relation to the
performance of your Fund and noted that your Fund and Buying Fund have
comparable performance records. As of July 31, 2005, the relative performance of
Class A shares of your Fund and the Investor Class of shares of Buying Fund
(without sales loads) was as follows:
<Table>
<Caption>
AVERAGE ANNUAL TOTAL RETURNS
----------------------------
One Five Ten Since Inception
Year Years Years Inception Date
----- ----- ----- --------- ---------
Your Fund 24.88% -6.38% N/A 1.33% 11/01/99
Buying Fund 24.81% -8.57% 8.60% 9.14% 09/15/67
</Table>
The Board also noted that as of June 30, 2005, Buying Fund's
performance relative to its Lipper peer group was better than your Fund for the
1-year, 3-year, and year-to-date periods, and that such performance more
accurately reflects the investment process that the combined fund will apply.
Additional information concerning the performance of your Fund and Buying Fund
can be found in Exhibit B attached to this Proxy Statement/Prospectus.
The Board also considered the operating expenses the funds incur. As a
percentage of the average daily net assets, the total annual operating expenses
of Buying Fund prior to giving pro forma effect to the Reorganization are lower
than the total annual operating expenses of your Fund.
The Board also noted that, as a percentage of net assets, the pro forma
expenses of the combined fund are lower than your Fund. While AIM previously
agreed to waivers of its management fees of your Fund pursuant to a settlement
agreement with the New York Attorney General, the Board noted that the Buying
Fund's contractual advisory fee schedule is lower than the advisory fee
schedule, including such waivers, of your Fund. AIM reported to the Board that,
based upon historical data at a specified date and related projected data, on a
pro forma basis, the total annual operating expense
9
ratios of Buying Fund, at combined asset levels, are expected to be
approximately 0.58% lower than those of your Fund for Class A, Class B, Class C
and Class R shares, and approximately 0.31% lower for Institutional Class
shares.
The Board also considered, based upon historical data at a specified
date, the effect of the Reorganization on the anticipated tax benefits to
shareholders from the utilization of the capital loss carryforwards of your Fund
and of Buying Fund as offsets to future realized capital gains. Although
approximately 77% of the capital loss carryforwards of your Fund are estimated
to be disallowed as a consequence of the Reorganization, Buying Fund would still
retain capital loss carryforwards after the Reorganization in excess of its
anticipated post-Reorganization net asset value. Moreover, such capital loss
carryforwards are estimated to be more than six times the net unrealized
built-in gain in the assets that Buying Fund is expected to hold immediately
after consummation of the Reorganization. The Board also noted that the
treatment of these tax attributes can be affected by a variety of different
factors occurring after the date of the data presented to the Board (both before
and after the Closing). As a result, the outcome of these matters is difficult
to predict.
The total expenses to be incurred by your Fund in connection with the
Reorganization are expected to be approximately $185,000. AIM proposed that
these costs and expenses be paid by your Fund in light of the reduction in total
operating expenses that will be paid by your Fund's shareholders after the
Reorganization. Buying Fund will bear its costs and expenses incurred in
connection with the Reorganization.
To determine which party would bear the expenses to be incurred in
connection with the Reorganization, AIM estimated the amount of mailing,
printing, solicitation, and legal and accounting fees to be incurred by both
Buying Fund and your Fund. AIM then performed a qualitative analysis that took
into account, among other things, the expected benefits to be enjoyed by your
Fund's shareholders through reduced expenses on a pro forma basis, the amount of
time estimated for your Fund's shareholders to recoup expenses incurred in the
Reorganization in light of such expected benefits, the effect incurring such
expenses would have on the net asset value of your Fund, whether there was a
financial impact to AIM's profit and loss (positive or negative) and the
relative performance of your Fund and Buying Fund.
The Board also noted that no sales charges or other charges would be
imposed on any of the shares of Buying Fund issued to the shareholders of your
Fund in connection with the Reorganization.
Based on the foregoing and the information presented at the Board
meetings discussed above, the Board determined that the Reorganization is
advisable and in the best interests of your Fund and will not dilute the
interests of your Fund's shareholders. Therefore, the Board recommended the
approval of the Agreement by the shareholders of your Fund at the Special
Meeting.
OTHER TERMS
If any amendment is made to the Agreement following the mailing of this
Proxy Statement/Prospectus and prior to the Closing which would have a material
adverse effect on shareholders, such change will be submitted to the affected
shareholders for their approval. However, if an amendment is made which would
not have a material adverse effect on shareholders, the Agreement may be amended
without shareholder approval by mutual agreement of the parties.
Trust and Buyer have made representations and warranties in the
Agreement that are customary in matters such as the Reorganization. The
obligations of Trust and Buyer pursuant to the Agreement are subject to various
conditions, including the following mutual conditions:
o the assets of your Fund to be acquired by Buying Fund shall
constitute at least 90% of the fair market value of the net
assets and at least 70% of the fair market value of the gross
assets held by your Fund immediately prior to the
Reorganization;
o Buyer's Registration Statement on Form N-14 under the
Securities Act of 1933 (the "1933 Act") shall have been filed
with the SEC and such Registration Statement shall have become
effective, and no stop-order suspending the effectiveness of
the Registration Statement shall have been
10
issued, and no proceeding for that purpose shall have been
initiated or threatened by the SEC (and not withdrawn or
terminated);
o the shareholders of your Fund shall have approved the
Agreement; and
o Trust and Buyer shall have received an opinion from Ballard
Spahr Andrews & Ingersoll, LLP that the consummation of the
transactions contemplated by the Agreement will not result in
the recognition of gain or loss for Federal income tax
purposes for your Fund, Buying Fund or their shareholders.
The Board of Trustees of Trust and the Board of Trustees of Buyer may
waive without shareholder approval any default by Trust or Buyer or any failure
by Trust or Buyer to satisfy any of the above conditions as long as such a
waiver is mutual and will not have a material adverse effect on the benefits
intended under the Agreement for the shareholders of your Fund. The Agreement
may be terminated and the Reorganization may be abandoned at any time by mutual
agreement of the parties, or by either party if the shareholders of your Fund do
not approve the Agreement or if the Closing does not occur on or before
September 30, 2006.
FEDERAL INCOME TAX CONSEQUENCES
The following is a general summary of the material Federal income tax
consequences of the Reorganization and is based upon the current provisions of
the Internal Revenue Code of 1986, as amended (the "Code"), the existing U.S.
Treasury regulations thereunder, current administrative rulings of the Internal
Revenue Service ("IRS") and published judicial decisions, all of which are
subject to change. The principal Federal income tax consequences that are
expected to result from the Reorganization, under currently applicable law, are
as follows:
o the Reorganization will qualify as a "reorganization" within
the meaning of Section 368(a) of the Code;
o no gain or loss will be recognized by your Fund upon the
transfer of its assets to Buying Fund solely in exchange for
shares of Buying Fund and Buying Fund's assumption of the
liabilities of your Fund or on the distribution of those
shares to your Fund's shareholders;
o no gain or loss will be recognized by Buying Fund on its
receipt of assets of your Fund in exchange for shares of
Buying Fund issued directly to your Fund's shareholders;
o no gain or loss will be recognized by any shareholder of your
Fund upon the exchange of shares of your Fund for shares of
Buying Fund;
o the tax basis of the shares of Buying Fund to be received by a
shareholder of your Fund will be the same as the shareholder's
tax basis of the shares of your Fund surrendered in exchange
therefor;
o the holding period of the shares of Buying Fund to be received
by a shareholder of your Fund will include the period for
which such shareholder held the shares of your Fund exchanged
therefor, provided that such shares of your Fund are capital
assets in the hands of such shareholder as of the Closing; and
o Buying Fund will thereafter succeed to and take into account
any capital loss carryover and certain other tax attributes of
your Fund, subject to all relevant conditions and limitations
on the use of such tax benefits.
Neither Trust nor Buyer has requested or will request an advance ruling
from the IRS as to the Federal tax consequences of the Reorganization. As a
condition to Closing, Ballard Spahr Andrews & Ingersoll, LLP will render a
favorable opinion to Trust and Buyer as to the foregoing Federal income tax
consequences of the Reorganization, which opinion will be conditioned upon,
among other things, the accuracy, as of the Effective Time, of certain
representations of Trust and Buyer upon which Ballard Spahr Andrews & Ingersoll,
LLP will rely in rendering its opinion. The conclusions reached in that opinion
could be jeopardized if the representations of Trust or
11
Buyer are incorrect in any material respect. A copy of the opinion will be filed
with the Securities and Exchange Commission. and will be available for public
inspection. See "Information Filed with the Securities and Exchange Commission."
THE FOREGOING DESCRIPTION OF THE FEDERAL INCOME TAX CONSEQUENCES OF THE
REORGANIZATION IS MADE WITHOUT REGARD TO THE PARTICULAR FACTS AND CIRCUMSTANCES
OF ANY SHAREHOLDER OF YOUR FUND. YOUR FUND'S SHAREHOLDERS ARE URGED TO CONSULT
THEIR OWN TAX ADVISORS AS TO THE SPECIFIC CONSEQUENCES TO THEM OF THE
REORGANIZATION, INCLUDING THE APPLICABILITY AND EFFECT OF STATE, LOCAL, FOREIGN
AND OTHER TAX LAWS.
ACCOUNTING TREATMENT
The Reorganizations will each be accounted for on a tax-free combined
basis. Accordingly, the book cost basis to Buying Fund of the assets of your
Fund will be the same as the book cost basis of such assets to your Fund.
RIGHTS OF SHAREHOLDERS
Trust and Buyer are each Delaware statutory trusts. Generally, there
are no material differences between the rights of shareholders under the
Agreement and Declaration of Trust and the rights of shareholders under the
Agreement and Declaration of Trust of Buyer.
CAPITALIZATION
The following table sets forth, as of October 31, 2005, (i) the
capitalization of each class of shares of your Fund; (ii) the capitalization of
each class of shares of Buying Fund, and (iii) the pro forma capitalization of
each class of shares of Buying Fund as adjusted to give effect to the
transactions contemplated by the Agreement.
<Table>
<Caption>
PRO FORMA
YOUR FUND BUYING FUND PRO FORMA BUYING FUND
CLASS A SHARES CLASS A SHARES ADJUSTMENTS CLASS A SHARES
-------------- -------------- -------------- --------------
Net Assets ................... $ 85,846,120 $ 29,952,988 $ (91,879) $ 115,707,229
Shares Outstanding ........... 8,276,009 1,750,062 (5,367) 6,757,675
Net Asset Value Per Share .... $ 10.37 $ 17.12 $ 17.12
</Table>
<Table>
<Caption>
PRO FORMA
YOUR FUND BUYING FUND PRO FORMA BUYING FUND
CLASS B SHARES CLASS B SHARES ADJUSTMENTS CLASS B SHARES
-------------- -------------- -------------- --------------
Net Assets ................... $ 63,461,928 $ 3,295,055 $ (67,922) $ 66,689,061
Shares Outstanding ........... 6,378,839 197,844 (4,079) 4,005,743
Net Asset Value Per Share .... $ 9.95 $ 16.65 $ 16.65
</Table>
<Table>
<Caption>
PRO FORMA
YOUR FUND BUYING FUND PRO FORMA BUYING FUND
CLASS C SHARES CLASS C SHARES ADJUSTMENTS CLASS C SHARES
-------------- -------------- -------------- --------------
Net Assets ................... $ 21,925,741 $ 8,048,863 $ (23,467) $ 29,951,137
Shares Outstanding ........... 2,203,500 492,788 (1,437) 1,833,961
Net Asset Value Per Share .... $ 9.95 $ 16.33 $ 16.33
</Table>
<Table>
<Caption>
PRO FORMA
YOUR FUND BUYING FUND PRO FORMA BUYING FUND
CLASS R SHARES CLASS R SHARES ADJUSTMENTS CLASS R SHARES
-------------- -------------- -------------- --------------
Net Assets ................... $ 1,606,708 $ 9,990 $ (1,720) $ 1,614,978
Shares Outstanding ........... 155,986 584 (101) 94,385
Net Asset Value Per Share .... $ 10.30 $ 17.11 $ 17.11
</Table>
12
<Table>
<Caption>
PRO FORMA
YOUR FUND BUYING FUND BUYING FUND
INVESTOR INVESTOR PRO FORMA INVESTOR
CLASS SHARES CLASS SHARES ADJUSTMENTS CLASS SHARES
-------------- -------------- -------------- --------------
Net Assets ................... -- $1,744,995,033 -- $1,744,995,033
Shares Outstanding ........... -- 101,978,732 -- 101,978,732
Net Asset Value Per Share .... -- $ 17.11 -- $ 17.11
</Table>
<Table>
<Caption>
PRO FORMA
YOUR FUND BUYING FUND BUYING FUND
INSTITUTIONAL INSTITUTIONAL PRO FORMA INSTITUTIONAL
CLASS SHARES CLASS SHARES ADJUSTMENTS CLASS SHARES
-------------- -------------- -------------- --------------
Net Assets ................... $ 11,374 $ 43,416,972 $ (12) $ 43,428,344
Shares Outstanding ........... 1,084 2,481,674 (0.685) 2,482,323
Net Asset Value Per Share .... $ 10.49 $ 17.50 -- $ 17.50
</Table>
LEGAL MATTERS
Certain legal matters concerning the tax consequences of the
Reorganization will be passed upon by Ballard Spahr Andrews & Ingersoll, LLP,
1735 Market Street, Philadelphia, PA 19103-7599.
ADDITIONAL INFORMATION ABOUT
BUYING FUND AND YOUR FUND
For more information with respect to Buying Fund concerning the
following topics, please refer to the following sections of the Buying Fund
Prospectus, which has been made a part of this Proxy Statement/ Prospectus by
reference and which is attached to this Proxy Statement/Prospectus as Appendix
II: (i) see "Performance Information" for more information about the performance
of Buying Fund; (ii) see "Fund Management" for more information about the
management of Buying Fund; (iii) see "Other Information" for more information
about Buying Fund's policy with respect to dividends and distributions; and (iv)
see "Other Information" for more information about the pricing, purchase,
redemption and repurchase of shares of Buying Fund, tax consequences to
shareholders of various transactions in shares of Buying Fund, distribution
arrangements and the multiple class structure of Buying Fund.
For more information with respect to your Fund concerning the following
topics, please refer to the following sections of the Selling Fund Prospectus,
which have been made a part of this Proxy Statement/ Prospectus by reference:
(i) see "Fund Performance" for more information about the performance of your
Fund; (ii) see "Fund Management" and "Portfolio Managers" for more information
about the management of your Fund; (iii) see "Shareholder Information" for more
information about the pricing of shares of your Fund; (iv) see "Taxes" for more
information about tax consequences to shareholders of various transactions in
shares of your Fund; and (v) see "Dividends And Capital Gain Distributions" for
more information about your Fund's policy with respect to dividends and
distributions.
INFORMATION FILED WITH THE SECURITIES
AND EXCHANGE COMMISSION
This Proxy Statement/Prospectus and the related Statement of Additional
Information do not contain all the information set forth in the registration
statements and the exhibits relating thereto and annual and semiannual reports
which Trust and Buyer have filed with the SEC pursuant to the requirements of
the 1933 Act and the 1940 Act, to which reference is hereby made. The SEC file
number of Trust's registration statement containing the Selling Fund Prospectus
and related Statement of Additional Information is Registration No. 811-1424.
Such Selling Fund Prospectus is incorporated herein by reference. The SEC file
number for Buyer's registration statement containing the Buying Fund Prospectus
and related Statement of Additional Information is Registration No. 811-1474.
Such Buying Fund Prospectus is incorporated herein by reference.
Trust and Buyer are subject to the informational requirements of the
Securities Exchange Act of 1934 and the 1940 Act and in accordance therewith
file reports and other information with the SEC. Reports, proxy material,
registration statements and other information filed by Trust and Buyer
(including the Registration Statement of Buyer relating to Buying Fund on Form
N-14 of which this Proxy Statement/Prospectus is a part) may be inspected
13
without charge and copied at the public reference facilities maintained by the
SEC at Room 1014, Judiciary Plaza, 450 Fifth Street, NW, Washington, DC 20549,
and at the following regional office of the SEC: 500 West Madison Street, Suite
1400, Chicago, Illinois 60661. Copies of such material may also be obtained from
the Public Reference Section of the SEC at 450 Fifth Street, NW, Washington, DC
20549, at the prescribed rates. The SEC maintains a website at www.sec.gov that
contains information regarding Trust and Buyer and other registrants that file
electronically with the SEC.
INFORMATION ABOUT THE SPECIAL MEETING AND VOTING
PROXY STATEMENT/PROSPECTUS
We are sending you this Proxy Statement/Prospectus and the enclosed
proxy card because the Board is soliciting your proxy to vote at the Special
Meeting and at any adjournments of the Special Meeting. This Proxy
Statement/Prospectus gives you information about the business to be conducted at
the Special Meeting. However, you do not need to attend the Special Meeting to
vote your shares. Instead, you may simply complete, sign and return the enclosed
proxy card or vote by telephone or through a website established for that
purpose.
Trust intends to mail this Proxy Statement/Prospectus, the enclosed
Notice of Special Meeting of Shareholders and the enclosed proxy card on or
about January __, 2006 to all shareholders entitled to vote. Shareholders of
record of your Fund as of the close of business on December 2, 2005 (the "Record
Date") are entitled to vote at the Special Meeting. The number of shares
outstanding of each class of shares of your Fund on the Record Date can be found
at Exhibit D. Each share is entitled to one vote for each full share held, and a
fractional vote for a fractional share held.
TIME AND PLACE OF SPECIAL MEETING
We are holding the Special Meeting at 11 Greenway Plaza, Suite 100,
Houston, Texas 77046-1173 on February 28, 2006, at 3:00 p.m., Central Time.
VOTING IN PERSON
If you do attend the Special Meeting and wish to vote in person, we
will provide you with a ballot prior to the vote. However, if your shares are
held in the name of your broker, bank or other nominee, you must bring a letter
from the nominee indicating that you are the beneficial owner of the shares on
the Record Date and authorizing you to vote. Please call Trust at (800) 952-3502
if you plan to attend the Special Meeting.
VOTING BY PROXY
Whether you plan to attend the Special Meeting or not, we urge you to
complete, sign and date the enclosed proxy card and to return it promptly in the
envelope provided. Returning the proxy card will not affect your right to attend
the Special Meeting and vote.
If you properly fill in and sign your proxy card and send it to us in
time to vote at the Special Meeting, your "proxy" (the individual named on your
proxy card) will vote your shares as you have directed. If you sign your proxy
card but do not make specific choices, your proxy will vote your shares FOR the
proposal to approve the Agreement, as recommended by the Board, and in
accordance with management's recommendation on other matters.
Your proxy will have the authority to vote and act on your behalf at
any adjournment of the Special Meeting.
If you authorize a proxy, you may revoke it at any time before it is
exercised by sending in another proxy card with a later date or by notifying the
Secretary of Trust in writing to the address of Trust set forth on the cover
page of this Proxy Statement/Prospectus before the Special Meeting that you have
revoked your proxy. In addition, although merely attending the Special Meeting
will not revoke your proxy, if you are present at the Special Meeting you may
withdraw your proxy and vote in person. Shareholders may also transact any other
business not currently contemplated that may properly come before the Special
Meeting in the discretion of the proxies or their substitutes.
14
VOTING BY TELEPHONE OR THE INTERNET
You may vote your shares by telephone or through a website established
for that purpose by following the instructions that appear on the proxy card
accompanying this Proxy Statement/Prospectus.
QUORUM REQUIREMENT AND ADJOURNMENT
A quorum of shareholders is necessary to hold a valid meeting. A quorum
will exist if shareholders entitled to vote one-third of the issued and
outstanding shares of your Fund on the Record Date are present at the Special
Meeting in person or by proxy.
Under the rules applicable to broker-dealers, if your broker holds your
shares in its name, the broker will not be entitled to vote your shares if it
has not received instructions from you. A "broker non-vote" occurs when a broker
has not received voting instructions from a shareholder and is barred from
voting the shares without shareholder instructions because the proposal is
non-routine.
Abstentions and broker non-votes will count as shares present at the
Special Meeting for purposes of establishing a quorum.
If a quorum is not present at the Special Meeting or a quorum is
present but sufficient votes to approve the Agreement are not received, the
persons named as proxies may propose one or more adjournments of the Special
Meeting to permit further solicitation of proxies. Any such adjournment will
require the affirmative vote of a majority of the votes cast at the Special
Meeting in person or by proxy. The persons named as proxies will vote those
proxies that they are entitled to vote FOR the Reorganization in favor of such
an adjournment and will vote those proxies required to be voted AGAINST the
Reorganization against such adjournment. A shareholder vote may be taken on the
Reorganization prior to any such adjournment if sufficient votes have been
received and it is otherwise appropriate.
VOTE NECESSARY TO APPROVE THE AGREEMENT
If a quorum is present, approval of the Agreement requires the
affirmative vote of a majority of shares cast by the shareholders of your Fund
at the Special Meeting. Abstentions and broker non-votes are counted as present
but are not considered votes cast at the Special Meeting.
PROXY SOLICITATION
Trust will solicit proxies for the Special Meetings. Trust expects to
solicit proxies principally by mail, but Trust may also solicit proxies by
telephone, facsimile or personal interview. Trust's officers will not receive
any additional or special compensation for any such solicitation. Solicitation
costs are expected to be approximately $8,000 and will be paid by your Fund.
OTHER MATTERS
Management does not know of any matters to be presented at the Special
Meeting other than those discussed in this Proxy Statement/Prospectus. If any
other matters properly come before the Special Meeting, the shares represented
by proxies will be voted with respect thereto in accordance with management's
recommendation.
OWNERSHIP OF SHARES
A list of the name, address and percent ownership of each person who,
as of December 2, 2005, to the knowledge of Trust owned 5% or more of any class
of the outstanding shares of your Fund can be found at Exhibit E.
A list of the name, address and percent ownership of each person who,
as of December 2, 2005, to the knowledge of Buyer owned 5% or more of any class
of the outstanding shares of Buying Fund can be found at Exhibit F.
15
EXHIBIT A
CLASSES OF SHARES OF YOUR FUND AND CORRESPONDING CLASSES OF SHARES OF BUYING
FUND
<Table>
<Caption>
CLASSES OF SHARES OF YOUR FUND CORRESPONDING CLASSES OF SHARES OF BUYING FUND
- ------------------------------ ----------------------------------------------
Class A Class A
Class B Class B
Class C Class C
Class R Class R
Institutional Class Institutional Class
</Table>
A-1
EXHIBIT B
COMPARISON OF PERFORMANCE OF YOUR FUND AND BUYING FUND
(Your Fund)
AIM MID CAP GROWTH FUND
The bar chart and table shown below provide an indication of the risks
of investing in your Fund. Your Fund's past performance (before and after taxes)
is not necessarily an indication of its future performance.
The following bar chart shows changes in the performance of your Fund's
Class A shares from year to year. The bar chart does not reflect sales loads. If
it did, the annual total returns shown would be lower.
<Table>
<Caption>
YEARS %
2000 -10.12%
2001 -21.21%
2002 -31.86%
2003 42.08%
2004 6.48%
</Table>
During the periods shown in the bar chart, the highest quarterly return
was 28.02% (quarter ended March 31, 2000) and the lowest quarterly return was
- -30.93% (quarter ended September 30, 2001). The year-to-date return of AIM Mid
Cap Growth Class A shares as of September 30, 2005 was 7.38%.
The following performance table compares the fund's performance to that
of a broad-based securities market index, a style specific index and a peer
group index. The fund's performance reflects payment of sales loads, if
applicable. The indices may not reflect payment of fees, expenses or taxes. The
fund is not managed to track the performance of any particular index, including
the indices shown below, and consequently, the performance of the fund may
deviate significantly from the indices shown below.
B-1
<Table>
<Caption>
AVERAGE ANNUAL TOTAL RETURNS
- ----------------------------
SINCE INCEPTION
(FOR THE PERIODS ENDED DECEMBER 31, 2004) 1 YEAR 5 YEARS INCEPTION DATE
- ----------------------------------------- ------ ------- --------- ---------
CLASS A 11/01/99
Return Before Taxes 0.60% (7.16)% (1.03)%
Return After Taxes on Distributions 0.60 (7.16) (1.03)
Return Before Taxes on Distributions and Sale of
Fund Shares 0.39 (5.94) (0.87)
CLASS B 11/01/99
Return Before Taxes 0.68 (7.11) (0.84)
CLASS C 11/01/99
Return Before Taxes 4.68 (6.73) (0.65)
CLASS R(1) 11/01/99
Return Before Taxes 6.29 (6.28) (0.13)
S&P 500 Index(2) 10.87 (2.30) (0.75)(5) 10/31/99(5)
Russell Midcap--Trademark-- Growth Index(3) 15.48 (3.36) 1.71(5) 10/31/99(5)
Lipper Mid-Cap Growth Fund Index(4) 14.03 (6.07) (0.11)(5) 10/31/99(5)
</Table>
- ---------
After-tax returns are calculated using the historical highest individual federal
marginal income tax rates and do not reflect the impact of state and local
taxes. Actual after-tax returns depend on an investor's tax situation and may
differ from those shown, and after-tax returns shown are not relevant to
investors who hold their shares of your Fund through tax-deferred arrangements,
such as 40I(k) plans or individual retirement accounts. After tax returns are
shown for Class A only and after-tax returns for Class B, C and R will vary.
(1) The returns shown for the one year period are the historical returns of
your Fund's Class R shares. The returns shown for the 5 years and since
inception periods are the blended returns of the historical performance
of your Fund's Class R shares since their inception and the restated
historical performance of your Fund's Class A shares (for periods prior
to inception of the Class R shares) at net asset value, adjusted to
reflect the higher Rule 12b-l fees applicable to the Class R shares.
The inception date shown in the table is that of your Funds's Class A
shares The inception date of your Fund's Class R shares is June 3,
2002.
(2) The Standard & Poor's 500 Index measures the performance of the 500
most widely held common stocks and is considered one of the best
indicators of U.S. stock market performance. Your Fund has elected to
use the Standard & Poor's 500 Index as its broad-based index. Your Fund
has also included the Russell Midcap--Trademark-- Growth Index, which
your Fund believes more closely reflects the performance of the types
of securities in which it invests. In addition, your Fund has included
the Lipper Mid Cap Growth Fund Index (which may or may not include your
Fund) for comparison to a peer group.
(3) The Russell Midcap--Trademark-- Growth Index measures the performance
of those securities in the Russell Midcap Index with a higher than
average growth forecast. The Russell Midcap--Trademark-- Index measures
the performance of the 800 smallest companies in the Russell
1000--Registered Trademark-- Index. The Russell 1000--Registered
Trademark-- Index measures the performance of the 1,000 largest
companies domiciled in the United States.
(4) The Lipper Mid-Cap Growth Fund Index is an equally weighted
representation of the 30 largest funds in the Lipper Mid-Cap Growth
Category. These funds, by portfolio practice, invest at least 75% of
their equity assets in companies with market capitlizations (on a
three-year weighted basis) less than 300% of the dollar-weighted median
market capitalization of the middle 1,000 securities of the S&P
SuperComposite 1500 Index. Mid-Cap Growth funds typically have an
above-average price-to-earnings ratio, price-to-book ratio, and a three
year sales-per-share growth value, compared to the S&P MidCap 400
Index.
(5) The average annual total return given is since the month end closest to
the inception date of the class with the longest performance history.
B-2
(Buying Fund)
AIM DYNAMICS FUND
The bar chart and table shown below provide an indication of the risks
of investing in Buying Fund. The fund's past performance (before and after
taxes) is not necessarily an indication of its future performance.
The following bar chart shows changes in the performance of Buying
Fund's Investor Class shares from year to year. The bar chart does not reflect
sales loads. If it did, the annual total returns shown would be lower.
<Table>
<Caption>
YEARS %
1995 37.55%
1996 15.65%
1997 24.09%
1998 23.25%
1999 71.80%
2000 -7.76%
2001 -32.89%
2002 -33.08%
2003 38.27%
2004 11.94%
</Table>
During the periods shown in the bar chart, the highest quarterly return
was 38.83% (quarter ended December 31, 1999) and the lowest quarterly return was
- -35.02% (quarter ended September 30, 2001). The year-to-date return of AIM
Dynamics Fund Investor Class shares as of September 30, 2005 was 7.64%.
The following performance table compares the fund's performance to that
of a broad-based securities market index, a style specific index and a peer
group index. The fund's performance reflects payment of sales loads, if
applicable. The indices may not reflect payment of fees, expenses or taxes. The
fund is not managed to track the performance of any particular index, including
the indices shown below, and consequently, the performance of the fund may
deviate significantly from the indices shown below.
B-3
<Table>
<Caption>
AVERAGE ANNUAL TOTAL RETURNS
- ----------------------------
SINCE INCEPTION
(FOR THE PERIODS ENDED DECEMBER 31, 2004) 1 YEAR 5 YEARS 10 YEARS INCEPTION DATE
- ----------------------------------------- ------ ------- -------- --------- ---------
INVESTOR CLASS 9/15/67
Return Before Taxes 11.94% (8.51)% 10.36% --
Return After Taxes on Distributions 11.94% (8.52)% 8.53% --
Return After Taxes on Distributions and
Sale of Fund Shares 7.76% (7.02)% 8.02% --
CLASS A 3/28/02
Return Before Taxes 5.63% -- -- 0.71%
CLASS B 3/28/02
Return Before Taxes 6.07% -- -- 0.94%
CLASS C 2/14/00
Return Before Taxes 10.07% -- -- (11.08)%
CLASS R(1) -- -- -- -- 10/25/05
S&P 500 Index(2), (4)
(reflects no deduction for fees, expenses
or taxes) 10.87% (2.30)% 12.07%
Russell Midcap Growth Index(2), (3)
(reflects no deduction for fees, expenses
or taxes) 15.48% (3.36)% 11.23%
Lipper Mid-Cap Growth Fund Index(2),(4)
(reflects no deduction for fees, expenses
or taxes) 14.03% (6.07)% 9.68%
</Table>
- ---------
(1) After-tax returns are calculated using the historical highest
individual federal marginal income tax rates and do not reflect the
impact of state and local taxes. Actual after-tax returns depend on an
investor's tax situation and may differ from those shown, and after-tax
returns are not relevant to investors who hold their fund shares
through tax-deferred arrangements, such as 401(k) plans or individual
retirement accounts. After-tax returns are shown for Investor Class
only and after-tax returns for Class A, B, C and R will vary.
Performance information is not provided for Class R shares since the
class commenced operations on October 25, 2005.
(2) The Standard & Poor's 500 Index measures the performance of the 500
most widely held common stocks and is considered one of the best
indicators of U.S. stock market performance. The fund has also included
the Russell Midcap Growth Index which the fund believes more closely
reflects the performance of the types of securities in which the fund
invests. In addition, the Lipper Mid-Cap Growth Fund Index (which may
or may not include the fund) is included for comparison to a peer
group.
(3) The Russell Midcap Growth Index is an unmanaged index that measures the
performance of those Russell Midcap Companies with higher price-to-book
ratios and higher forecasted growth values.
(4) The Lipper Mid-Cap Growth Fund Index is an equally weighted
representation of the 30 largest funds in the Lipper Mid-Cap Growth
category. These funds, by portfolio practice, invest at least 75% of
their equity assets in companies with market capitalizations (on a
three-year weighted basis) less than 300% of the dollar-weighted market
capitalization of the middle 1,000 companies of the S&P SuperComposite
1500 Index. The S&P Supercomposite 1500 Index is a market cap weighted
index made up of 1500 liquid securities of companies with market
capitalizations of $300 million and above and represents small-, mid-,
and large-cap markets. Mid-Cap Growth funds typically have an
above-average price-to-earnings ratio, price-to-book ratio, and a three
year sales-per-share growth value, compared to the S&P MidCap 400
Index. The S&P MidCap 400 Index consists of 400 domestic madcap stocks
chosen for market size, liquidity and industry group representation. it
is also a market-value weighted index and was the first benchmark of
madcap stock price movement. Inception was December 31, 1990.
B-4
EXHIBIT C
COMPARISON FEE TABLE AND EXPENSE EXAMPLES
FEE TABLE
This table compares the shareholder fees and annual operating expenses,
expressed as a percentage of net assets ("Expense Ratios"), of Class A, Class B,
Class C, Class R, and Institutional Class shares of AIM Mid Cap Growth Fund
("Your Fund") and Class A, Class B, Class C, Class R, Investor Class, and
Institutional Class shares of AIM Dynamics Fund ("Buying Fund"). Pro Forma
Combined Expense Ratios of Buying Fund giving effect to the Reorganization are
also provided. There is no guarantee that actual expenses will be the same as
those shown in this table.
<Table>
<Caption>
AIM MID CAP GROWTH FUND
YOUR FUND
(AS OF 10/31/04)
CLASS A CLASS B CLASS C CLASS R INSTITUTIONAL
SHARES SHARES SHARES SHARES CLASS SHARES
------- ------- ------- -------- -------------
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge (Load) Imposed on
Purchase
(as a percentage of offering price) 5.50% None None None None
Maximum Deferred Sales Charge
(as a percentage of original
purchase price or redemption
proceeds, as applicable) None(1),(2) 5.00% 1.00% None(3) None
ANNUAL FUND OPERATING EXPENSES(4)
(expenses that are deducted from fund assets)
Management fees 0.80% 0.80% 0.80% 0.80% 0.80%
Distribution and/or Service
(12b-1) Fees(5) 0.25% 1.00% 1.00% 0.50% --
Other Expenses(6) 0.61% 0.61% 0.61% 0.61% 0.40%
Total Annual Fund Operating Expenses(7) 1.66% 2.41% 2.41% 1.91% 1.20%
Fee Waiver(8) 0.05% 0.05% 0.05% 0.05% 0.05%
Net Annual Fund Expenses(9),(10) 1.61% 2.36% 2.36% 1.86% 1.15%
</Table>
AIM DYNAMICS FUND
BUYING FUND
(AS OF 07/31/05)
CLASS A CLASS B CLASS C CLASS R INVESTOR INSTITUTIONAL
SHARES SHARES SHARES SHARES CLASS SHARES CLASS SHARES
------- ------- ------- -------- ------------ -------------
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge (Load) Imposed on
Purchase
(as a percentage of offering price) 5.50% None None None None None
Maximum Deferred Sales Charge
(as a percentage of original
purchase price or redemption
proceeds, as applicable) None(1),(2) 5.00% 1.00% None(3) None None
ANNUAL FUND OPERATING EXPENSES(4)
(expenses that are deducted from fund assets)
Management fees 0.51% 0.51% 0.51% 0.51% 0.51% 0.51%
Distribution and/or Service
(12b-1) Fees(5) 0.25% 1.00% 1.00% 0.50% 0.25% --
Other Expenses(6) 0.35% 0.35% 0.35% 0.35% 0.35% 0.13%
Total Annual Fund Operating Expenses(7) 1.11% 1.86% 1.86% 1.36% 1.11% 0.64%
Fee Waiver(8) -- -- -- -- -- --
Net Annual Fund Expenses(9),(10) 1.11% 1.86% 1.86% 1.36% 1.11% 0.64%
</Table>
AIM DYNAMICS FUND
BUYING FUND
PRO FORMA COMBINED
(AS OF 7/31/05)
CLASS A CLASS B CLASS C CLASS R INVESTOR INSTITUTIONAL
SHARES SHARES SHARES SHARES CLASS SHARES CLASS SHARES
------- ------- ------- -------- ------------ -------------
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge (Load) Imposed on
Purchase
(as a percentage of offering price) 5.50% None None None None None
Maximum Deferred Sales Charge
(as a percentage of original
purchase price or redemption
proceeds, as applicable) None(1),(2) 5.00% 1.00% None(3) None None
ANNUAL FUND OPERATING EXPENSES(4)
(expenses that are deducted from fund assets)
Management fees 0.51% 0.51% 0.51% 0.51% 0.51% 0.51%
Distribution and/or Service
(12b-1) Fees(5) 0.25% 1.00% 1.00% 0.50% 0.25% --
Other Expenses(6) 0.37% 0.37% 0.37% 0.37% 0.37% 0.13%
Total Annual Fund Operating Expenses(7) 1.13% 1.88% 1.88% 1.38% 1.13% 0.64%
Fee Waiver(8) -- -- -- -- -- --
Net Annual Fund Expenses(9),(10) 1.13% 1.88% 1.88% 1.38% 1.13% 0.64%
</Table>
- ---------
(1) If you buy $1,000,000 or more of Class A shares and redeem these shares
within 18 months from the date of purchase, you may pay a 1.00%
contingent deferred sales charge (CDSC) at the time of redemption.
(2) If you are a retirement plan participant and you buy $1,000,000 or more
of Class A shares, you may pay a 1.00% CDSC if a total redemption of
the retirement plan assets occurs within 12 months from the date of the
retirement plan's initial purchase.
(3) If you are a retirement plan participant, you may pay a 0.75% CDSC if
the distributor paid a concession to the dealer of record and a total
redemption of the retirement plan assets occurs within 12 months from
the date of the retirement plan's initial purchase.
C-1
(4) There is no guarantee that actual expenses will be the same as those
shown in the tables.
(5) Effective July 1, 2005, the Board of Trustees has approved a permanent
reduction of the Rule 12b-1 fees applicable to Class A shares to 0.25%.
Distribution and/or Service (12b-1) Fees reflect this agreement.
(6) Effective October 1, 2005, the Board of Trustees approved an amendment
to the transfer agency agreement of AIM Dynamics Fund. Other Expenses
of AIM Dynamics Fund have been restated to reflect the changes in fees
under the new agreement. Other Expenses for Class R shares of AIM
Dynamics Fund are based on estimated average net assets for the current
fiscal year.
(7) The advisor of AIM Dynamics Fund has contractually agreed to waive
advisory fees and/or reimburse expenses to the extent necessary to
limit Total Annual Fund Operating Expenses (excluding certain items
discussed below) to 1.90%, 2.65%, 2.65%, 2.15%, 1.90% and 1.65% on
Class A, Class B, Class C, Class R, Investor Class and Institutional
Class shares, 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 Operating
Expenses to exceed the numbers reflected above: (i) interest; (ii)
taxes; (iii) dividend expense on short sales; (iv) extraordinary items;
(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, in addition to the expense reimbursement arrangement with
AMVESCAP (as defined herein) described more fully below, 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.
This expense limitation agreement is in effect through July 31, 2006.
(8) Effective January 1, 2005 through December 31, 2009, the advisor for
AIM Mid Cap Growth Fund has contractually agreed to waive a portion of
its 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% for 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. The Fee Waiver reflects this agreement.
(9) At the request of the Board of Trustees, AMVESCAP (as defined herein)
has agreed to reimburse AIM Mid Cap Growth Fund and AIM Dynamics Fund
for expenses related to market timing matters.
(10) AIM Mid Cap Growth Fund will incur additional expenses in connection
with the Reorganization.
C-2
EXPENSE EXAMPLE
This Example is intended to help you compare the costs of investing in
different classes of Your Fund and Buying Fund with the cost of investing in
other mutual funds. Pro Forma Combined costs of investing in different classes
of Buying Fund giving effect to the reorganization of Your Fund into Buying Fund
are also provided. All costs are based upon the information set forth in the Fee
Table above.
The Example assumes that you invest $10,000 for the time periods
indicated and shows the expenses that you would pay both if you redeem all of
your shares at the end of those periods and if you do not redeem your shares.
The Example also assumes that your investment has a 5% return each year and that
the operating expenses remain the same. The Example reflects fee waivers and/or
expense reimbursements that are contractual, if any, but does not reflect
voluntary fee waivers and/or expense reimbursements. To the extent fees are
waived and/or expenses are reimbursed on a voluntary basis, your expenses will
be lower. Although your actual returns and costs may be higher or lower, based
on these assumptions your costs would be:
<Table>
<Caption>
One Three Five Ten
Year Years Years Years
------ ------ ------ ------
AIM MID CAP GROWTH FUND (YOUR FUND)
Class A .................................................. $ 705 $1,030 $1,378 $2,385
Class B .................................................. 739 1,036 1,460 2,539
Class C .................................................. 339 736 1,260 2,725
Class R .................................................. 189 585 1,006 2,210
Institutional Class ...................................... 117 365 633 1,430
AIM DYNAMICS FUND (BUYING FUND)
Class A .................................................. $ 657 $ 883 $1,128 $1,827
Class B .................................................. 689 885 1,206 1,984
Class C .................................................. 289 585 1,006 2,180
Class R .................................................. 138 431 745 1,635
Investor Class ........................................... 113 353 612 1,352
Institutional Class ...................................... 65 205 357 798
AIM DYNAMICS FUND (BUYING FUND) -- PRO FORMA COMBINED
Class A .................................................. $ 659 $ 889 $1,138 $1,849
Class B .................................................. 691 891 1,216 2,005
Class C .................................................. 291 591 1,016 2,201
Class R .................................................. 141 437 755 1,657
Investor Class ........................................... 115 359 622 1,375
Institutional Class ...................................... 65 205 357 798
</Table>
C-3
You would pay the following expenses if you did not redeem your shares:
<Table>
<Caption>
One Three Five Ten
Year Years Years Years
------ ------ ------ ------
AIM MID CAP GROWTH FUND (YOUR FUND)
Class A .................................................. $ 705 $1,030 $1,378 $2,385
Class B .................................................. 239 736 1,260 2,539
Class C .................................................. 239 736 1,260 2,725
Class R .................................................. 189 585 1,006 2,210
Institutional Class ...................................... 117 365 633 1,430
AIM DYNAMICS FUND (BUYING FUND)
Class A .................................................. $ 657 $ 883 $1,128 $1,827
Class B .................................................. 189 585 1,006 1,984
Class C .................................................. 189 585 1,006 2,180
Class R .................................................. 138 431 745 1,635
Investor Class ........................................... 113 353 612 1,352
Institutional Class ...................................... 65 205 357 798
AIM DYNAMICS FUND (BUYING FUND) -- PRO FORMA COMBINED
Class A .................................................. $ 659 $ 889 $1,138 $1,849
Class B .................................................. 191 591 1,016 2,005
Class C .................................................. 191 591 1,016 2,201
Class R .................................................. 141 437 755 1,657
Investor Class ........................................... 115 359 622 1,375
Institutional Class ...................................... 65 205 357 798
</Table>
THE EXAMPLE IS NOT A REPRESENTATION OF PAST OR FUTURE EXPENSES. YOUR
FUND'S AND BUYING FUND'S ACTUAL EXPENSES, AND AN INVESTOR'S DIRECT AND INDIRECT
EXPENSES, MAY BE MORE OR LESS THAN THOSE SHOWN. THE TABLE AND THE ASSUMPTION IN
THE EXAMPLE OF A 5% ANNUAL RETURN ARE REQUIRED BY REGULATIONS OF THE SEC
APPLICABLE TO ALL MUTUAL FUNDS. THE 5% ANNUAL RETURN IS NOT A PREDICTION OF AND
DOES NOT REPRESENT YOUR FUND'S OR BUYING FUND'S PROJECTED OR ACTUAL PERFORMANCE.
THE ACTUAL EXPENSES ATTRIBUTABLE TO EACH CLASS OF A FUND'S SHARES WILL
DEPEND UPON, AMONG OTHER THINGS, THE LEVEL OF AVERAGE NET ASSETS AND THE EXTENT
TO WHICH A FUND INCURS VARIABLE EXPENSES, SUCH AS TRANSFER AGENCY COSTS.
C-4
EXHIBIT D
SHARES OUTSTANDING OF EACH CLASS OF YOUR FUND ON RECORD DATE
As of December 2, 2005, there were the following number of shares
outstanding of each class of your Fund:
YOUR FUND
Class A Shares:
Class B Shares:
Class C Shares:
Class R Shares:
Institutional Class Shares:
D-1
EXHIBIT E
OWNERSHIP OF SHARES OF YOUR FUND
SIGNIFICANT HOLDERS
Listed below is the name, address and percent ownership of each person
who, as of December 2, 2005, to the best knowledge of Trust owned 5% or more of
any class of the outstanding shares of your Fund. A shareholder who owns
beneficially 25% or more of the outstanding securities of your Fund is presumed
to "control" the fund as defined in the 1940 Act. Such control may affect the
voting rights of other shareholders.
<Table>
<Caption>
CLASS OF NUMBER OF PERCENT OWNED OF
NAME AND ADDRESS SHARES SHARES OWNED RECORD*
- ----------------- -------- ------------ -----------------
</Table>
- ----------
* Trust has no knowledge of whether all or any portion of the shares
owned of record are also owned beneficially.
E-1
EXHIBIT F
OWNERSHIP OF SHARES OF BUYING FUND
SIGNIFICANT HOLDERS
Listed below is the name, address and percent ownership of each person
who, as of December 2, 2005, to the best knowledge of Buyer owned 5% or more of
any class of the outstanding shares of Buying Fund. A shareholder who owns
beneficially 25% or more of the outstanding securities of Buying Fund is
presumed to "control" Buying Fund as defined in the 1940 Act. Such control may
affect the voting rights of other shareholders.
<Table>
<Caption>
CLASS OF NUMBER OF PERCENT OWNED
NAME AND ADDRESS SHARES SHARES OWNED OF RECORD*
- ---------------- -------- ------------ -------------
</Table>
- ----------
* Buyer has no knowledge of whether all or any portion of the shares
owned of record are also owned beneficially.
F-1
APPENDIX I
AGREEMENT
AND
PLAN OF REORGANIZATION
FOR
AIM MID CAP GROWTH FUND,
A SEPARATE PORTFOLIO OF
AIM EQUITY FUNDS
NOVEMBER 14, 2005
TABLE OF CONTENTS
Page
----
ARTICLE 1 DEFINITIONS.................................................................................... 1
SECTION 1.1. Definitions..................................................................... 1
ARTICLE 2 TRANSFER OF ASSETS............................................................................. 5
SECTION 2.1. Reorganization of Selling Fund.................................................. 5
SECTION 2.2. Computation of Net Asset Value.................................................. 5
SECTION 2.3. Valuation Date.................................................................. 6
SECTION 2.4. Delivery........................................................................ 6
SECTION 2.5. Termination of Series and Redemption of Selling Fund Shares..................... 6
SECTION 2.6. Issuance of Buying Fund Shares.................................................. 6
SECTION 2.7. Investment Securities........................................................... 7
SECTION 2.8. Liabilities..................................................................... 7
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF SELLER....................................................... 7
SECTION 3.1. Organization; Authority......................................................... 7
SECTION 3.2. Registration and Regulation of Seller........................................... 7
SECTION 3.3. Financial Statements............................................................ 8
SECTION 3.4. No Material Adverse Changes; Contingent Liabilities............................. 8
SECTION 3.5. Selling Fund Shares; Business Operations........................................ 8
SECTION 3.6. Accountants..................................................................... 9
SECTION 3.7. Binding Obligation.............................................................. 9
SECTION 3.8. No Breaches or Defaults......................................................... 9
SECTION 3.9. Authorizations or Consents...................................................... 9
SECTION 3.10. Permits......................................................................... 9
SECTION 3.11. No Actions, Suits or Proceedings............................................... 10
SECTION 3.12. Contracts...................................................................... 10
SECTION 3.13. Properties and Assets.......................................................... 10
SECTION 3.14. Taxes.......................................................................... 10
SECTION 3.15. Benefit and Employment Obligations............................................. 11
SECTION 3.16. Brokers........................................................................ 11
SECTION 3.17. Voting Requirements............................................................ 11
SECTION 3.18. State Takeover Statutes........................................................ 11
SECTION 3.19. Books and Records.............................................................. 12
SECTION 3.20. Prospectus and Statement of Additional Information............................. 12
SECTION 3.21. No Distribution................................................................ 12
SECTION 3.22. Liabilities of Selling Fund.................................................... 12
SECTION 3.23. Value of Shares................................................................ 12
SECTION 3.24. Shareholder Expenses........................................................... 12
SECTION 3.25. Intercompany Indebtedness; Consideration....................................... 12
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF BUYER....................................................... 12
SECTION 4.1. Organization; Authority........................................................ 12
SECTION 4.2. Registration and Regulation of Buyer........................................... 13
SECTION 4.3. Financial Statements........................................................... 13
i
Page
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SECTION 4.4. No Material Adverse Changes; Contingent Liabilities............................ 13
SECTION 4.5. Registration of Buying Fund Shares............................................. 13
SECTION 4.6. Accountants.................................................................... 14
SECTION 4.7. Binding Obligation............................................................. 14
SECTION 4.8. No Breaches or Defaults........................................................ 14
SECTION 4.9. Authorizations or Consents..................................................... 15
SECTION 4.10. Permits........................................................................ 15
SECTION 4.11. No Actions, Suits or Proceedings............................................... 15
SECTION 4.12. Taxes.......................................................................... 15
SECTION 4.13. Brokers........................................................................ 16
SECTION 4.14. Representations Concerning the Reorganization.................................. 16
SECTION 4.15. Prospectus and Statement of Additional Information............................. 17
SECTION 4.16. Value of Shares................................................................ 17
SECTION 4.17. Intercompany Indebtedness; Consideration....................................... 17
ARTICLE 5 COVENANTS..................................................................................... 17
SECTION 5.1. Conduct of Business............................................................ 17
SECTION 5.2. Expenses....................................................................... 18
SECTION 5.3. Further Assurances............................................................. 18
SECTION 5.4. Notice of Events............................................................... 18
SECTION 5.5. Consents, Approvals and Filings................................................ 18
SECTION 5.6. Submission of Agreement to Shareholders........................................ 19
ARTICLE 6 CONDITIONS PRECEDENT TO THE REORGANIZATION.................................................... 19
SECTION 6.1. Conditions Precedent of Buyer.................................................. 19
SECTION 6.2. Mutual Conditions.............................................................. 19
SECTION 6.3. Conditions Precedent of Seller................................................. 21
ARTICLE 7 TERMINATION OF AGREEMENT...................................................................... 21
SECTION 7.1. Termination.................................................................... 21
SECTION 7.2. Survival After Termination..................................................... 22
ARTICLE 8 MISCELLANEOUS................................................................................. 22
SECTION 8.1. Survival of Representations, Warranties and Covenants.......................... 22
SECTION 8.2. Governing Law.................................................................. 22
SECTION 8.3. Binding Effect, Persons Benefiting, No Assignment.............................. 22
SECTION 8.4. Obligations of Buyer and Seller................................................ 22
SECTION 8.5. Amendments..................................................................... 23
SECTION 8.6. Enforcement.................................................................... 23
SECTION 8.7. Interpretation................................................................. 23
SECTION 8.8. Counterparts................................................................... 23
SECTION 8.9. Entire Agreement; Exhibits and Schedules....................................... 23
SECTION 8.10. Notices........................................................................ 23
SECTION 8.11. Representations by Investment Adviser.......................................... 24
SECTION 8.12. Successors and Assigns; Assignment............................................. 25
ii
EXHIBIT A Excluded Liabilities of Selling Fund
SCHEDULE 2.1 Classes of Shares of Selling Fund and Corresponding Classes of Shares of
Buying Fund
SCHEDULE 3.4 Certain Contingent Liabilities of Selling Fund
SCHEDULE 4.4 Certain Contingent Liabilities of Buying Fund
SCHEDULE 4.5(a) Classes of Shares of Buying Fund
SCHEDULE 4.14(b) Permitted Reorganizations of Funds
SCHEDULE 6.2(f) Tax Opinions
iii
AGREEMENT AND PLAN OF REORGANIZATION
AGREEMENT AND PLAN OF REORGANIZATION, dated as of November , 2005
(this "Agreement"), by and among AIM Equity Funds, a Delaware statutory trust
("Seller"), acting on behalf of AIM Mid Cap Growth Fund ("Selling Fund"), a
separate series of Seller, AIM Stock Funds, a Delaware statutory trust
("Buyer"), acting on behalf of AIM Dynamics Fund ("Buying Fund"), a separate
series of Buyer, and A I M Advisors, Inc., a Delaware corporation.
WITNESSETH
WHEREAS, Seller is a management investment company registered with the
SEC (as defined below) under the Investment Company Act (as defined below) that
offers separate series of its shares representing interests in its investment
portfolios, including Selling Fund, for sale to the public; and
WHEREAS, Buyer is a management investment company registered with the
SEC under the Investment Company Act that offers separate series of its shares
representing interests in investment portfolios, including Buying Fund, for sale
to the public; and
WHEREAS, Seller desires to provide for the reorganization of Selling
Fund through the transfer of all of its assets to Buying Fund in exchange for
the assumption by Buying Fund of all of the Liabilities (as defined below) of
Selling Fund and the issuance by Buyer of shares of Buying Fund in the manner
set forth in this Agreement; and
WHEREAS, the Investment Adviser (as defined below) serves as the
investment advisor to both Buying Fund and Selling Fund and is making certain
representations, warranties and agreements set forth in this Agreement;
WHEREAS, this Agreement is intended to be and is adopted by the parties
hereto as a Plan of Reorganization within the meaning of the regulations under
Section 368(a) of the Code (as defined below).
NOW, THEREFORE, in consideration of the foregoing premises and the
agreements and undertakings contained in this Agreement, Seller and Buyer agree
as follows:
ARTICLE 1
DEFINITIONS
SECTION 1.1. Definitions. For all purposes in this Agreement, the
following terms shall have the respective meanings set forth in this Section 1.1
(such definitions to be equally applicable to both the singular and plural forms
of the terms herein defined):
"Advisers Act" means the Investment Advisers Act of 1940, as amended,
and all rules and regulations of the SEC adopted pursuant thereto.
"Affiliated Person" means an affiliated person as defined in Section
2(a)(3) of the Investment Company Act.
"Agreement" means this Agreement and Plan of Reorganization, together
with all exhibits and schedules attached hereto and all amendments hereto and
thereof.
"Applicable Law" means the applicable laws of the state of Delaware and
shall include the Delaware Statutory Trust Act.
"Benefit Plan" means any material "employee benefit plan" (as defined
in Section 3(3) of ERISA) and any material bonus, deferred compensation,
incentive compensation, stock ownership, stock purchase, stock option, phantom
stock, vacation, retirement, profit sharing, welfare plans or other plan,
arrangement or understanding maintained or contributed to by Seller on behalf of
Selling Fund, or otherwise providing benefits to any current or former employee,
officer or director/trustee of Seller.
"Buyer" means AIM Stock Funds, a Delaware statutory trust.
"Buyer Counsel" means Ballard Spahr Andrews & Ingersoll, LLP.
"Buyer Custodian" means State Street Bank and Trust Company acting in
its capacity as custodian for the assets of Buying Fund.
"Buyer Registration Statement" means the registration statement on Form
N-1A of Buyer, as amended, 1940 Act Registration No. 811-1474.
"Buying Fund" means AIM Dynamics Fund, a separate series of Buyer.
"Buying Fund Auditors" means PricewaterhouseCoopers LLP.
"Buying Fund Financial Statements" means the audited financial
statements of Buying Fund for the fiscal year ended July 31, 2005.
"Buying Fund Shares" means shares of each class of Buying Fund issued
pursuant to Section 2.6 of this Agreement.
"Closing" means the transfer of the assets of Selling Fund to Buying
Fund, the assumption of all of Selling Fund's Liabilities by Buying Fund and the
issuance of Buying Fund Shares directly to Selling Fund Shareholders as
described in Section 2.1 of this Agreement.
"Closing Date" means March 27, 2006, or such other date as the parties
may mutually agree upon.
"Code" means the Internal Revenue Code of 1986, as amended, and all
rules and regulations adopted pursuant thereto.
"Corresponding" means, when used with respect to a class of shares of
Selling Fund or Buying Fund, the classes of their shares set forth opposite each
other on Schedule 2.1.
2
"Effective Time" means 8:00 a.m. Eastern Time on the Closing Date.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and all rules or regulations adopted pursuant thereto.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
and all rules and regulations adopted pursuant thereto.
"Governing Documents" means the organic documents which govern the
business and operations of each of Buyer and Seller and shall include, as
applicable, Amended and Restated Agreement and Declaration of Trust, Amended and
Restated Bylaws and Bylaws.
"Governmental Authority" means any foreign, United States or state
government, government agency, department, board, commission (including the SEC)
or instrumentality, and any court, tribunal or arbitrator of competent
jurisdiction, and any governmental or non-governmental self-regulatory
organization, agency or authority (including the NASD Regulation, Inc., the
Commodity Futures Trading Commission, the National Futures Association, the
Investment Management Regulatory Organization Limited and the Office of Fair
Trading).
"Investment Adviser" means A I M Advisors, Inc.
"Investment Company Act" means the Investment Company Act of 1940, as
amended, and all rules and regulations adopted pursuant thereto.
"Liabilities" means all of the liabilities of any kind of Selling Fund,
including without limitation all liabilities included in the calculation of the
net asset value per share of each class of Selling Fund Shares on the Closing
Date, but not including the excluded liabilities set forth on Exhibit A.
"Lien" means any pledge, lien, security interest, charge, claim or
encumbrance of any kind.
"Material Adverse Effect" means an effect that would cause a change in
the condition (financial or otherwise), properties, assets or prospects of an
entity having an adverse monetary effect in an amount equal to or greater than
$50,000.
"NYSE" means the New York Stock Exchange.
"Permits" shall have the meaning set forth in Section 3.10 of this
Agreement.
"Person" means an individual or a corporation, partnership, joint
venture, association, trust, unincorporated organization or other entity.
"Reorganization" means the acquisition of the assets of Selling Fund by
Buying Fund in consideration of the assumption by Buying Fund of all of the
Liabilities of Selling Fund and the issuance by Buyer of Buying Fund Shares
directly to Selling Fund Shareholders as described in this Agreement, and the
termination of Selling Fund's status as a designated series of shares of Seller.
3
"Required Shareholder Vote" means, if a quorum is present, the
affirmative vote of a majority of the shares cast at the Shareholders Meeting.
"Return" means any return, report or form or any attachment thereto
required to be filed with any taxing authority.
"SEC" means the United States Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended, and all
rules and regulations adopted pursuant thereto.
"Seller" means AIM Equity Funds, a Delaware statutory trust.
"Seller Custodian" means State Street Bank and Trust acting in its
capacity as custodian for the assets of Selling Fund.
"Seller Registration Statement" means the registration statement on
Form N-1A of Seller, as amended, 1940 Act Registration No. 811-1424.
"Selling Fund" means AIM Mid Cap Growth Fund, a separate series of
Seller.
"Selling Fund Auditors" means Ernst & Young LLP for the fiscal year
ended October 31, 2004, and PricewaterhouseCoopers LLP for the periods
subsequent to October 31, 2004.
"Selling Fund Financial Statements" means the audited financial
statements of Selling Fund for the fiscal year ended October 31, 2004 and the
Selling Fund Semiannual Report to Shareholders dated April 30, 2005.
"Selling Fund Shareholders" means the holders of record of the
outstanding shares of each class of Selling Fund as of the close of regular
trading on the NYSE on the Valuation Date.
"Selling Fund Shares" means the outstanding shares of each class of
Selling Fund.
"Shareholders Meeting" means a meeting of the shareholders of Selling
Fund convened in accordance with Applicable Law and the Governing Documents of
Seller to consider and vote upon the approval of this Agreement.
"Tax" means any tax or similar governmental charge, impost or levy
(including income taxes (including alternative minimum tax and estimated tax),
franchise taxes, transfer taxes or fees, sales taxes, use taxes, gross receipts
taxes, value added taxes, employment taxes, excise taxes, ad valorem taxes,
property taxes, withholding taxes, payroll taxes, minimum taxes, or windfall
profit taxes), together with any related penalties, fines, additions to tax or
interest, imposed by the United States or any state, county, local or foreign
government or subdivision or agency thereof.
"Termination Date" means September 30, 2006, or such later date as the
parties may mutually agree upon.
4
"Treasury Regulations" means the Federal income tax regulations adopted
pursuant to the Code.
"Trustee Benefit Plans" means the Deferred Compensation Agreement for
the Directors/Trustees of the AIM Funds, the AIM Funds Retirement Plan for
Eligible Directors/Trustees, the Deferred Fee Agreement, the INVESCO Funds
Retirement Plan for Independent Directors and the Deferred Retirement Plan
Account Agreement.
"Valuation Date" shall have the meaning set forth in Section 2.2 of
this Agreement.
ARTICLE 2
TRANSFER OF ASSETS
SECTION 2.1. Reorganization of Selling Fund. At the Effective Time, all
of the assets of Selling Fund shall be delivered to Buyer Custodian for the
account of Buying Fund in exchange for the assumption by Buying Fund of all of
the Liabilities of Selling Fund and delivery by Buyer directly to the holders of
record as of the Effective Time of the issued and outstanding shares of each
class of Selling Fund of a number of shares of each corresponding class of
Buying Fund, as set forth on Schedule 2.1 (including, if applicable, fractional
shares rounded to the nearest thousandth), having an aggregate net asset value
equal to the value of the net assets of Selling Fund so transferred, assigned
and delivered, all determined and adjusted as provided in Section 2.2 below.
Upon delivery of such assets, Buying Fund will receive good and marketable title
to such assets free and clear of all Liens.
SECTION 2.2. Computation of Net Asset Value.
(a) The net asset value per share of each class of Buying Fund
Shares, and the value of the assets and the amount of the Liabilities of Selling
Fund, shall, in each case, be determined as of the close of regular trading on
the NYSE on the business day next preceding the Closing Date (the "Valuation
Date").
(b) The net asset value per share of each class of Buying Fund
Shares shall be computed in accordance with the policies and procedures of
Buying Fund as described in the Buyer Registration Statement.
(c) The value of the assets and the amount of the Liabilities
of Selling Fund to be transferred to Buying Fund pursuant to this Agreement
shall be computed in accordance with the policies and procedures of Selling Fund
as described in the Seller Registration Statement.
(d) Subject to Sections 2.2(b) and (c) above, all computations
of value regarding the assets and Liabilities of Selling Fund and the net asset
value per share of each class of Buying Fund Shares to be issued pursuant to
this Agreement shall be made by agreement of Seller and Buyer. The parties agree
to use commercially reasonable efforts to resolve any material pricing
differences between the prices of portfolio securities determined in accordance
with their respective pricing policies and procedures.
5
SECTION 2.3. Valuation Date. The share transfer books of Selling Fund
will be permanently closed as of the close of business on the Valuation Date and
only requests for the redemption of shares of Selling Fund received in proper
form prior to the close of regular trading on the NYSE on the Valuation Date
shall be accepted by Selling Fund. Redemption requests thereafter received by
Selling Fund shall be deemed to be redemption requests for Buying Fund Shares of
the corresponding class (assuming that the transactions contemplated by this
Agreement have been consummated), to be distributed to Selling Fund Shareholders
under this Agreement.
SECTION 2.4. Delivery.
(a) No later than three (3) business days preceding the
Closing Date, Seller shall instruct Seller Custodian to transfer all assets held
by Selling Fund to the account of Buying Fund maintained at Buyer Custodian.
Such assets shall be delivered by Seller to Buyer Custodian on the Closing Date.
The assets so delivered shall be duly endorsed in proper form for transfer in
such condition as to constitute a good delivery thereof, in accordance with the
custom of brokers, and shall be accompanied by all necessary state stock
transfer stamps, if any, or a check for the appropriate purchase price thereof.
Cash held by Selling Fund shall be delivered on the Closing Date and shall be in
the form of currency or wire transfer in Federal funds, payable to the order of
the account of Buying Fund at Buyer Custodian.
(b) If, on the Closing Date, Selling Fund is unable to make
delivery in the manner contemplated by Section 2.4(a) of securities held by
Selling Fund for the reason that any of such securities purchased prior to the
Closing Date have not yet been delivered to Selling Fund or its broker, then
Buyer shall waive the delivery requirements of Section 2.4(a) with respect to
said undelivered securities if Selling Fund has delivered to Buyer Custodian by
or on the Closing Date, and with respect to said undelivered securities,
executed copies of an agreement of assignment and escrow and due bills executed
on behalf of said broker or brokers, together with such other documents as may
be required by Buyer or Buyer Custodian, including brokers' confirmation slips.
SECTION 2.5. Termination of Series and Redemption of Selling Fund
Shares. Following receipt of the Required Shareholder Vote and as soon as
reasonably practicable after the Closing, the status of Selling Fund as a
designated series of Seller shall be terminated and Seller shall redeem the
outstanding shares of Selling Fund from Selling Fund Shareholders in accordance
with its Governing Documents and all issued and outstanding shares of Selling
Fund shall thereupon be canceled on the books of Seller.
SECTION 2.6. Issuance of Buying Fund Shares. At the Effective Time,
Selling Fund Shareholders holding shares of a class of Selling Fund shall be
issued that number of full and fractional shares of the corresponding class of
Buying Fund having a net asset value equal to the net asset value of such shares
of such class of Selling Fund held by Selling Fund Shareholders on the Valuation
Date in accordance with Sections 2.1 and 2.2. Seller shall provide instructions
to the transfer agent of Buyer with respect to the shares of each class of
Buying Fund to be issued to Selling Fund Shareholders. Buyer shall have no
obligation to inquire as to the validity, propriety or correctness of any such
instruction, but shall, in each case, assume that such instruction is valid,
proper and correct. Buyer shall record on its books the ownership of the
6
shares of each class of Buying Fund by Selling Fund Shareholders and shall
forward a confirmation of such ownership to Selling Fund Shareholders. No
redemption or repurchase of such shares credited to former Selling Fund
Shareholders in respect of Selling Fund Shares represented by unsurrendered
share certificates shall be permitted until such certificates have been
surrendered to Buyer for cancellation, or if such certificates are lost or
misplaced, until lost certificate affidavits have been executed and delivered to
Buyer.
SECTION 2.7. Investment Securities. On or prior to the Valuation Date,
Seller shall deliver a list setting forth the securities Selling Fund then owned
together with the respective Federal income tax bases thereof and holding
periods therefor. Seller shall provide to Buyer on or before the Valuation Date
detailed tax basis accounting records for each security to be transferred to it
pursuant to this Agreement. Such records shall be prepared in accordance with
the requirements for specific identification tax lot accounting and clearly
reflect the bases used for determination of gain and loss realized on the sale
of any security transferred to Buying Fund hereunder. Such records shall be made
available by Seller prior to the Valuation Date for inspection by the Treasurer
(or his or her designee) or Buying Fund Auditors upon reasonable request.
SECTION 2.8. Liabilities. Selling Fund shall use reasonable best
efforts to discharge all of its known liabilities, so far as may be possible,
prior to the Closing Date.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller, on behalf of Selling Fund, represents and warrants to Buyer as
follows:
SECTION 3.1. Organization; Authority. Seller is duly organized, validly
existing and in good standing under Applicable Law, with all requisite trust
power and authority to enter into this Agreement and perform its obligations
hereunder.
SECTION 3.2. Registration and Regulation of Seller. Seller is duly
registered with the SEC as an investment company under the Investment Company
Act and all Selling Fund Shares which have been or are being offered for sale
have been duly registered under the Securities Act and have been duly
registered, qualified or are exempt from registration or qualification under the
securities laws of each state or other jurisdiction in which such shares have
been or are being offered for sale, and no action has been taken by Seller to
revoke or rescind any such registration or qualification. Selling Fund is in
compliance in all material respects with all applicable laws, rules and
regulations, including, without limitation, the Investment Company Act, the
Securities Act, the Exchange Act and all applicable state securities laws.
Selling Fund is in compliance in all material respects with the investment
policies and restrictions applicable to it set forth in the Seller Registration
Statement. The value of the net assets of Selling Fund is determined using
portfolio valuation methods that comply in all material respects with the
requirements of the Investment Company Act and the policies of Selling Fund and
all purchases and redemptions of Selling Fund Shares have been effected at the
net asset value per share calculated in such manner.
7
SECTION 3.3. Financial Statements. The books of account and related
records of Selling Fund fairly reflect in reasonable detail its assets,
liabilities and transactions in accordance with generally accepted accounting
principles applied on a consistent basis. The Selling Fund Financial Statements
previously delivered to Buyer present fairly in all material respects the
financial position of Selling Fund as of the dates indicated and the results of
operations and changes in net assets for the periods then ended in accordance
with generally accepted accounting principles applied on a consistent basis for
the periods then ended.
SECTION 3.4. No Material Adverse Changes; Contingent Liabilities. Since
the date of the Selling Fund Financial Statements, no material adverse change
has occurred in the financial condition, results of operations, business, assets
or liabilities of Selling Fund or the status of Selling Fund as a regulated
investment company under the Code, other than changes resulting from any change
in general conditions in the financial or securities markets or the performance
of any investments made by Selling Fund or occurring in the ordinary course of
business of Selling Fund or Seller. Except as set forth on Schedule 3.4, there
are no contingent liabilities of Selling Fund not disclosed in the Selling Fund
Financial Statements and no contingent liabilities of Selling Fund have arisen
since the date of the most recent financial statements included in the Selling
Fund Financial Statements.
SECTION 3.5. Selling Fund Shares; Business Operations.
(a) Selling Fund Shares have been duly authorized and validly
issued and are fully paid and non-assessable.
(b) During the five-year period ending on the date of the
Reorganization, neither Selling Fund nor any person related to Selling Fund (as
defined in Section 1.368-1(e)(3) of the Treasury Regulations without regard to
Section 1.368-1(e)(3)(i)(A)) will have directly or through any transaction,
agreement, or arrangement with any other person, (i) acquired shares of Selling
Fund for consideration other than shares of Selling Fund, except for shares
redeemed in the ordinary course of Selling Fund's business as an open-end
investment company as required by the Investment Company Act, or (ii) made
distributions with respect to Selling Fund's shares, except for (a)
distributions necessary to satisfy the requirements of Sections 852 and 4982 of
the Code for qualification as a regulated investment company and avoidance of
excise tax liability and (b) additional distributions, to the extent such
additional distributions do not exceed 50 percent of the value (without giving
effect to such distributions) of the proprietary interest in Selling Fund on the
Effective Date.
(c) At the time of its Reorganization, Selling Fund shall not
have outstanding any warrants, options, convertible securities or any other type
of right pursuant to which any Person could acquire Selling Fund Shares, except
for the right of investors to acquire Selling Fund Shares at net asset value in
the normal course of its business as a series of an open-end management
investment company operating under the Investment Company Act.
(d) Except for the Senior Officer Seller is required to employ
pursuant to the Assurance of Discontinuance entered into by the Investment
Adviser with the Attorney General of the State of New York on or about October
7, 2004, Seller does not have, and has not had
8
during the six (6) months prior to the date of this Agreement, any employees,
and shall not hire any employees from and after the date of this Agreement
through the Closing Date.
SECTION 3.6. Accountants. Selling Fund Auditors, which have reported
upon the Selling Fund Financial Statements for the fiscal year ending October
31, 2004, are independent registered public accountants as required by the
Securities Act and the Exchange Act.
SECTION 3.7. Binding Obligation. This Agreement has been duly
authorized, executed and delivered by Seller on behalf of Selling Fund and,
assuming this Agreement has been duly executed and delivered by Buyer and
approved by the shareholders of Selling Fund, constitutes the legal, valid and
binding obligation of Seller enforceable against Seller in accordance with its
terms from and with respect to the revenues and assets of Selling Fund, except
as the enforceability hereof may be limited by bankruptcy, insolvency,
reorganization or similar laws relating to or affecting creditors rights
generally, or by general equity principles (whether applied in a court of law or
a court of equity and including limitations on the availability of specific
performance or other equitable remedies).
SECTION 3.8. No Breaches or Defaults. The execution and delivery of
this Agreement by Seller on behalf of Selling Fund and performance by Seller of
its obligations hereunder has been duly authorized by all necessary trust action
on the part of Seller, other than approval by the shareholders of Selling Fund,
and (i) do not, and on the Closing Date will not, result in any violation of the
Governing Documents of Seller and (ii) do not, and on the Closing Date will not,
result in a breach of any of the terms or provisions of, or constitute (with or
without the giving of notice or the lapse of time or both) a default under, or
give rise to a right of termination, cancellation or acceleration of any
obligation or to the loss of a material benefit under, or result in the creation
or imposition of any Lien upon any property or assets of Selling Fund (except
for such breaches or defaults or Liens that would not reasonably be expected,
individually or in the aggregate, to have a Material Adverse Effect) under (A)
any indenture, mortgage or loan agreement or any other material agreement or
instrument to which Seller is a party or by which it may be bound and which
relates to the assets of Selling Fund or to which any property of Selling Fund
may be subject; (B) any Permit (as defined below); or (C) any existing
applicable law, rule, regulation, judgment, order or decree of any Governmental
Authority having jurisdiction over Seller or any property of Selling Fund.
Seller is not under the jurisdiction of a court in a proceeding under Title 11
of the United States Code or similar case within the meaning of Section
368(a)(3)(A) of the Code.
SECTION 3.9. Authorizations or Consents. Other than those which shall
have been obtained or made on or prior to the Closing Date and those that must
be made after the Closing Date to comply with Section 2.5 of this Agreement, no
authorization or approval or other action by, and no notice to or filing with,
any Governmental Authority will be required to be obtained or made by Seller in
connection with the due execution and delivery by Seller of this Agreement and
the consummation by Seller of the transactions contemplated hereby.
SECTION 3.10. Permits. Seller has in full force and effect all
approvals, consents, authorizations, certificates, filings, franchises,
licenses, notices, permits and rights of Governmental Authorities (collectively,
"Permits") necessary for it to conduct its business as presently conducted as it
relates to Selling Fund, and there has occurred no default under any
9
Permit, except for the absence of Permits and for defaults under Permits the
absence or default of which would not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect. To the knowledge of
Seller there are no proceedings relating to the suspension, revocation or
modification of any Permit, except for such that would not reasonably be
expected, individually or in the aggregate, to have a Material Adverse Effect.
SECTION 3.11. No Actions, Suits or Proceedings.
(a) There is no pending action, suit or proceeding, nor, to
the knowledge of Seller, has any litigation been overtly threatened in writing
or, if probable of assertion, orally, against Seller before any Governmental
Authority which questions the validity or legality of this Agreement or of the
actions contemplated hereby or which seeks to prevent the consummation of the
transactions contemplated hereby, including the Reorganization.
(b) There are no judicial, administrative or arbitration
actions, suits, or proceedings instituted or pending or, to the knowledge of
Seller, threatened in writing or, if probable of assertion, orally, against
Seller affecting any property, asset, interest or right of Selling Fund, that
could reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect with respect to Selling Fund. There are not in existence
on the date hereof any plea agreements, judgments, injunctions, consents,
decrees, exceptions or orders that were entered by, filed with or issued by any
Governmental Authority relating to Seller's conduct of the business of Selling
Fund affecting in any significant respect the conduct of such business. Seller
is not, and has not been, to the knowledge of Seller, the target of any
investigation by the SEC or any state securities administrator with respect to
its conduct of the business of Selling Fund, other than as has been disclosed to
Seller's Board of Trustees.
SECTION 3.12. Contracts. Seller is not in default under any contract,
agreement, commitment, arrangement, lease, insurance policy or other instrument
to which it is a party and which involves or affects the assets of Selling Fund,
by which the assets, business, or operations of Selling Fund may be bound or
affected, or under which it or the assets, business or operations of Selling
Fund receives benefits, and which default could reasonably be expected,
individually or in the aggregate, to have a Material Adverse Effect, and, to the
knowledge of Seller there has not occurred any event that, with the lapse of
time or the giving of notice or both, would constitute such a default.
SECTION 3.13. Properties and Assets. Selling Fund has good and
marketable title to all properties and assets reflected in the Selling Fund
Financial Statements as owned by it, free and clear of all Liens, except as
described in the Selling Fund Financial Statements.
SECTION 3.14. Taxes.
(a) Selling Fund has elected to be a regulated investment
company under Subchapter M of the Code and is a fund that is treated as a
separate corporation under Section 851(g) of the Code. Since inception, Selling
Fund has qualified for treatment as a regulated investment company for each
taxable year that has ended prior to the Closing Date and will have satisfied
the requirements of Part I of Subchapter M of the Code to maintain such
qualification for the period beginning on the first day of its current taxable
year and ending on the Closing
10
Date. Selling Fund has no earnings and profits accumulated in any taxable year
in which the provisions of Subchapter M of the Code did not apply to it. In
order to (i) ensure continued qualification of Selling Fund for treatment as a
"regulated investment company" for tax purposes and (ii) eliminate any tax
liability of Selling Fund arising by reason of undistributed investment company
taxable income or net capital gain, Seller will declare on or prior to the
Valuation Date to the shareholders of Selling Fund a dividend or dividends that,
together with all previous such dividends, shall have the effect of distributing
(A) all of Selling Fund's investment company taxable income (determined without
regard to any deductions for dividends paid) for the taxable year ended October
31, 2005 and for the short taxable year beginning on November 1, 2005 and ending
on the Closing Date and (B) all of Selling Fund's net capital gain recognized in
its taxable year ended October 31, 2005 and in such short taxable year (after
reduction for any capital loss carryover).
(b) Selling Fund has timely filed all Returns required to be
filed by it and all Taxes with respect thereto have been paid, except where the
failure so to file or so to pay, would not reasonably be expected, individually
or in the aggregate, to have a Material Adverse Effect. Adequate provision has
been made in the Selling Fund Financial Statements for all Taxes in respect of
all periods ended on or before the date of such financial statements, except
where the failure to make such provisions would not reasonably be expected,
individually or in the aggregate, to have a Material Adverse Effect. No
deficiencies for any Taxes have been proposed, assessed or asserted in writing
by any taxing authority against Selling Fund, and no deficiency has been
proposed, assessed or asserted, in writing, where such deficiency would
reasonably be expected, individually or in the aggregate, to have a Material
Adverse Effect. No waivers of the time to assess any such Taxes are outstanding
nor are any written requests for such waivers pending and no Return of Selling
Fund is currently being or has been audited with respect to income taxes or
other Taxes by any Federal, state, local or foreign Tax authority.
SECTION 3.15. Benefit and Employment Obligations. Except for the
Trustee Benefit Plans, Selling Fund has no obligation to provide any
post-retirement or post-employment benefit to any Person, including but not
limited to, under any Benefit Plan, and has no obligation to provide unfunded
deferred compensation or other unfunded or self-funded benefits to any Person.
SECTION 3.16. Brokers. No broker, finder or similar intermediary has
acted for or on behalf of Seller in connection with this Agreement or the
transactions contemplated hereby, and no broker, finder, agent or similar
intermediary is entitled to any broker's, finder's or similar fee or other
commission in connection therewith based on any agreement, arrangement or
understanding with Seller or any action taken by it.
SECTION 3.17. Voting Requirements. The Required Shareholder Vote is the
only vote of the holders of any class of shares of Selling Fund necessary to
approve this Agreement.
SECTION 3.18. State Takeover Statutes. No state takeover statute or
similar statute or regulation applies or purports to apply to this Agreement or
any of the transactions contemplated by this Agreement.
11
SECTION 3.19. Books and Records. The books and records of Seller
relating to Selling Fund, reflecting, among other things, the purchase and sale
of Selling Fund Shares, the number of issued and outstanding shares owned by
each Selling Fund Shareholder and the state or other jurisdiction in which such
shares were offered and sold, are complete and accurate in all material
respects.
SECTION 3.20. Prospectus and Statement of Additional Information. The
current prospectus and statement of additional information for Selling Fund as
of the date on which they were issued did not contain, and as supplemented by
any supplement thereto dated prior to or on the Closing Date do not contain, any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading.
SECTION 3.21. No Distribution. Buying Fund Shares are not being
acquired for the purpose of any distribution thereof, other than in accordance
with the terms of this Agreement.
SECTION 3.22. Liabilities of Selling Fund. The Liabilities of Selling
Fund that are to be assumed by Buying Fund in connection with the
Reorganization, or to which the assets of Selling Fund to be transferred in the
Reorganization are subject, were incurred by Selling Fund in the ordinary course
of its business. The fair market value of the assets of Selling Fund to be
transferred to Buying Fund in the Reorganization will equal or exceed the sum of
the Liabilities to be assumed by Buying Fund, plus the amount of Liabilities, if
any, to which such transferred assets will be subject.
SECTION 3.23. Value of Shares. The fair market value of the shares of
each class of Buying Fund received by Selling Fund Shareholders in the
Reorganization will be approximately equal, as of the Effective Time, to the
fair market value of the shares of each corresponding class of Selling Fund to
be constructively surrendered in exchange therefor.
SECTION 3.24. Shareholder Expenses. Selling Fund Shareholders will pay
their own expenses, if any, incurred in connection with the Reorganization.
SECTION 3.25. Intercompany Indebtedness; Consideration. There is no
intercompany indebtedness between Seller and Buyer that was issued or acquired,
or will be settled, at a discount. No consideration other than Buying Fund
Shares (and Buying Fund's assumption of Selling Fund's Liabilities, including
for this purpose any liabilities to which the assets of Selling Fund are
subject) will be given in exchange for the assets of Selling Fund acquired by
Buying Fund in connection with the Reorganization.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer, on behalf of Buying Fund, represents and warrants to Seller as
follows:
SECTION 4.1. Organization; Authority. Buyer is duly organized, validly
existing and in good standing under Applicable Law, with all requisite corporate
or trust power, as applicable, and authority to enter into this Agreement and
perform its obligations hereunder.
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SECTION 4.2. Registration and Regulation of Buyer. Buyer is duly
registered with the SEC as an investment company under the Investment Company
Act. Buying Fund is in compliance in all material respects with all applicable
laws, rules and regulations, including, without limitation, the Investment
Company Act, the Securities Act, the Exchange Act and all applicable state
securities laws. Buying Fund is in compliance in all material respects with the
applicable investment policies and restrictions set forth in the Buyer
Registration Statement. The value of the net assets of Buying Fund is determined
using portfolio valuation methods that comply in all material respects with the
requirements of the Investment Company Act and the policies of Buying Fund and
all purchases and redemptions of Buying Fund Shares have been effected at the
net asset value per share calculated in such manner.
SECTION 4.3. Financial Statements. The books of account and related
records of Buying Fund fairly reflect in reasonable detail its assets,
liabilities and transactions in accordance with generally accepted accounting
principles applied on a consistent basis. The Buying Fund Financial Statements
previously delivered to Seller present fairly in all material respects the
financial position of Buying Fund as of the dates indicated and the results of
operations and changes in net assets for the periods then ended in accordance
with generally accepted accounting principles applied on a consistent basis for
the periods then ended.
SECTION 4.4. No Material Adverse Changes; Contingent Liabilities. Since
the date of the Buying Fund Financial Statements, no material adverse change has
occurred in the financial condition, results of operations, business, assets or
liabilities of Buying Fund or the status of Buying Fund as a regulated
investment company under the Code, other than changes resulting from any change
in general conditions in the financial or securities markets or the performance
of any investments made by Buying Fund or occurring in the ordinary course of
business of Buying Fund or Buyer. There are no contingent liabilities of Buying
Fund not disclosed in the Buying Fund Financial Statements which are required to
be disclosed in accordance with generally accepted accounting principles. Except
as set forth on Schedule 4.4, no contingent liabilities of Buying Fund have
arisen since the date of the most recent financial statements included in the
Buying Fund Financial Statements which are required to be disclosed in
accordance with generally accepted accounting principles.
SECTION 4.5. Registration of Buying Fund Shares.
(a) Buying Fund currently has those classes of shares that are
set forth on Schedule 4.5(a). Under its Governing Documents, Buyer is authorized
to issue an unlimited number of shares of each such class.
(b) Buying Fund Shares to be issued pursuant to Section 2.6
shall on the Closing Date be duly registered under the Securities Act by a
Registration Statement on Form N-14 of Buyer then in effect.
(c) Buying Fund Shares to be issued pursuant to Section 2.6
are duly authorized and on the Closing Date will be validly issued and fully
paid and non-assessable and will conform to the description thereof contained in
the Registration Statement on Form N-14 then in effect. At the time of its
Reorganization, Buying Fund shall not have outstanding any warrants, options,
convertible securities or any other type of right pursuant to which any Person
13
could acquire shares of Buying Fund, except for the right of investors to
acquire shares of Buying Fund at net asset value in the normal course of its
business as a series of an open-end management investment company operating
under the Investment Company Act.
(d) The combined proxy statement/prospectus (the "Combined
Proxy Statement/Prospectus"), which forms a part of Buyer's Registration
Statement on Form N-14, shall be furnished to the shareholders of Selling Fund
entitled to vote at the Shareholders Meeting in accordance with normal market
practice for such transactions. The Combined Proxy Statement/Prospectus and
related Statement of Additional Information of Buying Fund, when they become
effective, shall conform in all material respects to the applicable requirements
of the Securities Act and the Investment Company Act and shall not include any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not materially misleading.
(e) The shares of Buying Fund which have been or are being
offered for sale (other than the Buying Fund Shares to be issued in connection
with the Reorganization) have been duly registered under the Securities Act by
the Buyer Registration Statement and have been duly registered, qualified or are
exempt from registration or qualification under the securities laws of each
state or other jurisdiction in which such shares have been or are being offered
for sale, and no action has been taken by Buyer to revoke or rescind any such
registration or qualification.
SECTION 4.6. Accountants. Buying Fund Auditors, which have reported
upon the Buying Fund Financial Statements for the fiscal year ending July 31,
2005, are independent registered public accountants as required by the
Securities Act and the Exchange Act.
SECTION 4.7. Binding Obligation. This Agreement has been duly
authorized, executed and delivered by Buyer on behalf of Buying Fund and,
assuming this Agreement has been duly executed and delivered by Seller,
constitutes the legal, valid and binding obligation of Buyer, enforceable
against Buyer in accordance with its terms from and with respect to the revenues
and assets of Buying Fund, except as the enforceability hereof may be limited by
bankruptcy, insolvency, reorganization or similar laws relating to or affecting
creditors' rights generally, or by general equity principles (whether applied in
a court of law or a court of equity and including limitations on the
availability of specific performance or other equitable remedies).
SECTION 4.8. No Breaches or Defaults. The execution and delivery of
this Agreement by Buyer on behalf of Buying Fund and performance by Buyer of its
obligations hereunder have been duly authorized by all necessary trust action on
the part of Buyer and (i) do not, and on the Closing Date will not, result in
any violation of the Governing Documents of Buyer and (ii) do not, and on the
Closing Date will not, result in a breach of any of the terms or provisions of,
or constitute (with or without the giving of notice or the lapse of time or
both) a default under, or give rise to a right of termination, cancellation or
acceleration of any obligation or to the loss of a material benefit under, or
result in the creation or imposition of any Lien upon any property or assets of
Buying Fund (except for such breaches or defaults or Liens that would not
reasonably be expected, individually or in the aggregate, to have a Material
Adverse Effect) under (A) any indenture, mortgage or loan agreement or any other
material agreement or instrument to which
14
Buyer is a party or by which it may be bound and which relates to the assets of
Buying Fund or to which any properties of Buying Fund may be subject; (B) any
Permit; or (C) any existing applicable law, rule, regulation, judgment, order or
decree of any Governmental Authority having jurisdiction over Buyer or any
property of Buying Fund. Buyer is not under the jurisdiction of a court in a
proceeding under Title 11 of the United States Code or similar case within the
meaning of Section 368(a)(3)(A) of the Code.
SECTION 4.9. Authorizations or Consents. Other than those which shall
have been obtained or made on or prior to the Closing Date, no authorization or
approval or other action by, and no notice to or filing with, any Governmental
Authority will be required to be obtained or made by Buyer in connection with
the due execution and delivery by Buyer of this Agreement and the consummation
by Buyer of the transactions contemplated hereby.
SECTION 4.10. Permits. Buyer has in full force and effect all Permits
necessary for it to conduct its business as presently conducted as it relates to
Buying Fund, and there has occurred no default under any Permit, except for the
absence of Permits and for defaults under Permits the absence or default of
which would not reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect. To the knowledge of Buyer there are no
proceedings relating to the suspension, revocation or modification of any
Permit, except for such that would not reasonably be expected, individually or
in the aggregate, to have a Material Adverse Effect.
SECTION 4.11. No Actions, Suits or Proceedings.
(a) There is no pending action, suit or proceeding, nor, to
the knowledge of Buyer, has any litigation been overtly threatened in writing
or, if probable of assertion, orally, against Buyer before any Governmental
Authority which questions the validity or legality of this Agreement or of the
transactions contemplated hereby, or which seeks to prevent the consummation of
the transactions contemplated hereby, including the Reorganization.
(b) There are no judicial, administrative or arbitration
actions, suits, or proceedings instituted or pending or, to the knowledge of
Buyer, threatened in writing or, if probable of assertion, orally, against
Buyer, affecting any property, asset, interest or right of Buying Fund, that
could reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect with respect to Buying Fund. There are not in existence
on the date hereof any plea agreements, judgments, injunctions, consents,
decrees, exceptions or orders that were entered by, filed with or issued by any
Governmental Authority relating to Buyer's conduct of the business of Buying
Fund affecting in any significant respect the conduct of such business. Buyer is
not, and has not been, to the knowledge of Buyer, the target of any
investigation by the SEC or any state securities administrator with respect to
its conduct of the business of Buying Fund, other than as has been disclosed to
Buyer's Board of Trustees.
SECTION 4.12. Taxes.
(a) Buying Fund has elected to be a regulated investment
company under Subchapter M of the Code and is a fund that is treated as a
separate corporation under Section 851(g) of the Code. Since inception, Buying
Fund has qualified for treatment as a regulated
15
investment company for each taxable year that has ended prior to the Closing
Date and will satisfy the requirements of Part I of Subchapter M of the Code to
maintain such qualification for its current taxable year. Buying Fund has no
earnings or profits accumulated in any taxable year in which the provisions of
Subchapter M of the Code did not apply to it.
(b) Buying Fund has timely filed all Returns required to be
filed by it and all Taxes with respect thereto have been paid, except where the
failure so to file or so to pay, would not reasonably be expected, individually
or in the aggregate, to have a Material Adverse Effect. Adequate provision has
been made in the Buying Fund Financial Statements for all Taxes in respect of
all periods ending on or before the date of such financial statements, except
where the failure to make such provisions would not reasonably be expected,
individually or in the aggregate, to have a Material Adverse Effect. No
deficiencies for any Taxes have been proposed, assessed or asserted in writing
by any taxing authority against Buying Fund, and no deficiency has been
proposed, assessed or asserted, in writing, where such deficiency would
reasonably be expected, individually or in the aggregate, to have a Material
Adverse Effect. No waivers of the time to assess any such Taxes are outstanding
nor are any written requests for such waivers pending and no Return of Buying
Fund is currently being or has been audited with respect to income taxes or
other Taxes by any Federal, state, local or foreign Tax authority.
SECTION 4.13. Brokers. No broker, finder or similar intermediary has
acted for or on behalf of Buyer in connection with this Agreement or the
transactions contemplated hereby, and no broker, finder, agent or similar
intermediary is entitled to any broker's, finder's or similar fee or other
commission in connection therewith based on any agreement, arrangement or
understanding with Buyer or any action taken by it.
SECTION 4.14. Representations Concerning the Reorganization.
(a) There is no plan or intention by Buyer or any person
related to Buyer to acquire or redeem any Buying Fund Shares issued in the
Reorganization, except to the extent that Buying Fund is required by the
Investment Company Act to redeem any of its shares presented for redemption at
net asset value in the ordinary course of its business as an open-end,
management investment company.
(b) Buying Fund has no plan or intention to sell or otherwise
dispose of any of the assets of Selling Fund acquired in the Reorganization,
other than in the ordinary course of its business and to the extent necessary to
maintain its status as a "regulated investment company" under the Code;
provided, however, that this Section 4.14(b) shall not preclude any of the
reorganizations of funds set forth on Schedule 4.14(b).
(c) Following the Reorganization, Buying Fund will continue an
"historic business" of Selling Fund or use a significant portion of Selling
Fund's "historic business assets" in a business. For purposes of this
representation, the terms "historic business" and "historic business assets"
shall have the meanings ascribed to them in Section 1.368-1(d) of the Treasury
Regulations; provided, however, that this Section 4.14(c) shall not preclude any
of the reorganizations of funds set forth on Schedule 4.14(b).
16
(d) Prior to or in the Reorganization, neither Buying Fund nor
any person related to Buying Fund (for purposes of this paragraph as defined in
Section 1.368-1(e)(3) of the Treasury Regulations) will have acquired directly
or through any transaction, agreement or arrangement with any other person,
shares of Selling Fund with consideration other than shares of Buying Fund.
There is no plan or intention by Buying Fund to redeem, or by any person related
to Buying Fund to acquire any of the Buying Fund Shares issued in the
Reorganization either directly or through any transaction, agreement, or
arrangement with any other person, other than redemptions in the ordinary course
of Buying Fund's business as an open-end investment company as required by the
Investment Company Act.
SECTION 4.15. Prospectus and Statement of Additional Information. The
current prospectus and statement of additional information for Buying Fund as of
the date on which it was issued does not contain, and as supplemented by any
supplement thereto dated prior to or on the Closing Date does not contain, any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading.
SECTION 4.16. Value of Shares. The fair market value of the shares of
each class of Buying Fund received by Selling Fund Shareholders in the
Reorganization will be approximately equal, as of the Effective Time, to the
fair market value of the shares of each corresponding class of Selling Fund to
be constructively surrendered in exchange therefor. The fair market value of the
assets of Buying Fund will exceed the amount of its liabilities immediately
after the exchange.
SECTION 4.17. Intercompany Indebtedness; Consideration. There is no
intercompany indebtedness between Seller and Buyer that was issued or acquired,
or will be settled, at a discount. No consideration other than Buying Fund
Shares (and Buying Fund's assumption of Selling Fund's Liabilities, including
for this purpose any liabilities to which the assets of Selling Fund are
subject) will be given in exchange for the assets of Selling Fund acquired by
Buying Fund in connection with the Reorganization. The fair market value of the
assets of Selling Fund transferred to Buying Fund in the Reorganization will
equal or exceed the sum of the Liabilities assumed by Buying Fund, plus the
amount of liabilities, if any, to which such transferred assets are subject.
ARTICLE 5
COVENANTS
SECTION 5.1. Conduct of Business.
(a) From the date of this Agreement up to and including the
Closing Date (or, if earlier, the date upon which this Agreement is terminated
pursuant to Article 7), Seller shall conduct the business of Selling Fund only
in the ordinary course and substantially in accordance with past practices, and
shall use its reasonable best efforts to preserve intact its business
organization and material assets and maintain the rights, franchises and
business and customer relations necessary to conduct the business operations of
Selling Fund in the ordinary course in
17
all material respects; provided, however, that this Section 5.1(a) shall not
preclude any of the reorganizations of funds set forth on Schedule 4.14(b).
(b) From the date of this Agreement up to and including the
Closing Date (or, if earlier, the date upon which this Agreement is terminated
pursuant to Article 7), Buyer shall conduct the business of Buying Fund only in
the ordinary course and substantially in accordance with past practices, and
shall use its reasonable best efforts to preserve intact its business
organization and material assets and maintain the rights, franchises and
business and customer relations necessary to conduct the business operations of
Buying Fund in the ordinary course in all material respects; provided, however,
that this Section 5.1(b) shall not preclude any of the reorganizations of funds
set forth on Schedule 4.14(b).
SECTION 5.2. Expenses. Selling Fund and Buying Fund shall each bear
their respective costs and expenses incurred in connection with this Plan and
the Reorganization and other transactions contemplated hereby.
SECTION 5.3. Further Assurances. Each of the parties hereto shall
execute such documents and other papers and perform such further acts as may be
reasonably required to carry out the provisions hereof and the transactions
contemplated hereby. Each such party shall, on or prior to the Closing Date, use
its reasonable best efforts to fulfill or obtain the fulfillment of the
conditions precedent to the consummation of the Reorganization, including the
execution and delivery of any documents, certificates, instruments or other
papers that are reasonably required for the consummation of the Reorganization.
SECTION 5.4. Notice of Events. Buyer shall give prompt notice to
Seller, and Seller shall give prompt notice to Buyer, of (a) the occurrence or
non-occurrence of any event which to the knowledge of Buyer or to the knowledge
of Seller would be likely to result in any of the conditions specified in (i) in
the case of Seller, Sections 6.1 and 6.2 or (ii) in the case of Buyer, Sections
6.2 and 6.3, not being satisfied so as to permit the consummation of the
Reorganization and (b) any material failure on its part, or on the part of the
other party hereto of which it has knowledge, to comply with or satisfy any
covenant, condition or agreement to be complied with or satisfied by it
hereunder; provided, however, that the delivery of any notice pursuant to this
Section 5.5 shall not limit or otherwise affect the remedies available hereunder
to any party.
SECTION 5.5. Consents, Approvals and Filings. Each of Seller and Buyer
shall make all necessary filings, as soon as reasonably practicable, including,
without limitation, those required under the Securities Act, the Exchange Act,
the Investment Company Act and the Advisers Act, in order to facilitate prompt
consummation of the Reorganization and the other transactions contemplated by
this Agreement. In addition, each of Seller and Buyer shall use its reasonable
best efforts, and shall cooperate fully with each other (i) to comply as
promptly as reasonably practicable with all requirements of Governmental
Authorities applicable to the Reorganization and the other transactions
contemplated herein and (ii) to obtain as promptly as reasonably practicable all
necessary permits, orders or other consents of Governmental Authorities and
consents of all third parties necessary for the consummation of the
Reorganization and the other transactions contemplated herein. Each of Seller
and Buyer shall use reasonable efforts to provide such information and
communications
18
SECTION 5.6. Submission of Agreement to Shareholders. Seller shall take
all action necessary in accordance with applicable law and its Governing
Documents to convene the Shareholders Meeting. Seller shall, through its Board
of Trustees, recommend to the shareholders of Selling Fund approval of this
Agreement. Seller shall use its reasonable best efforts to hold a Shareholders
Meeting as soon as practicable and advisable after the date hereof.
ARTICLE 6
CONDITIONS PRECEDENT TO THE REORGANIZATION
SECTION 6.1. Conditions Precedent of Buyer. The obligation of Buyer to
consummate the Reorganization is subject to the satisfaction, at or prior to the
Closing Date, of all of the following conditions, any one or more of which may
be waived in writing by Buyer.
(a) The representations and warranties of Seller on behalf of
Selling Fund set forth in this Agreement shall be true and correct in all
material respects as of the date of this Agreement and as of the Closing Date
with the same effect as though all such representations and warranties had been
made as of the Closing Date.
(b) Seller shall have complied with and satisfied in all
material respects all agreements and conditions relating to Selling Fund set
forth herein on its part to be performed or satisfied at or prior to the Closing
Date.
(c) Buyer shall have received at the Closing Date (i) a
certificate, dated as of the Closing Date, from an officer of Seller, in such
individual's capacity as an officer of Seller and not as an individual, to the
effect that the conditions specified in Sections 6.1(a) and (b) have been
satisfied and (ii) a certificate, dated as of the Closing Date, from the
Secretary or Assistant Secretary (in such capacity) of Seller certifying as to
the accuracy and completeness of the attached Governing Documents of Seller, and
resolutions, consents and authorizations of or regarding Seller with respect to
the execution and delivery of this Agreement and the transactions contemplated
hereby.
(d) The dividend or dividends described in the last sentence
of Section 3.14(a) shall have been declared.
(e) Buyer shall have received from Seller confirmations or
other adequate evidence as to the tax costs and holding periods of the assets
and property of Selling Fund transferred to Buying Fund in accordance with the
terms of this Agreement.
(f) To the extent applicable, the Investment Adviser shall
have terminated or waived, in either case in writing, any rights to
reimbursement from Selling Fund to which it is entitled for fees and expenses
absorbed by the Investment Adviser pursuant to voluntary and contractual fee
waiver or expense limitation commitments between the Investment Adviser and
Selling Fund.
SECTION 6.2. Mutual Conditions. The obligations of Seller and Buyer to
consummate the Reorganization are subject to the satisfaction, at or prior to
the Closing Date, of all of the
19
following further conditions, any one or more of which may be waived in writing
by Seller and Buyer, but only if and to the extent that such waiver is mutual.
(a) All filings required to be made prior to the Closing Date
with, and all consents, approvals, permits and authorizations required to be
obtained on or prior to the Closing Date from, Governmental Authorities in
connection with the execution and delivery of this Agreement and the
consummation of the transactions contemplated herein by Seller and Buyer shall
have been made or obtained, as the case may be; provided, however, that such
consents, approvals, permits and authorizations may be subject to conditions
that would not reasonably be expected, individually or in the aggregate, to have
a Material Adverse Effect.
(b) This Agreement, the Reorganization of Selling Fund and
related matters shall have been approved and adopted at the Shareholders Meeting
by the shareholders of Selling Fund on the record date by the Required
Shareholder Vote.
(c) The assets of Selling Fund to be acquired by Buying Fund
shall constitute at least 90% of the fair market value of the net assets and at
least 70% of the fair market value of the gross assets held by Selling Fund
immediately prior to the Reorganization. For purposes of this Section 6.2(c),
assets used by Selling Fund to pay the expenses it incurs in connection with
this Agreement and the Reorganization and to effect all shareholder redemptions
and distributions (other than regular, normal dividends and regular, normal
redemptions pursuant to the Investment Company Act, and not in excess of the
requirements of Section 852 of the Code, occurring in the ordinary course of
Selling Fund's business as a series of an open-end management investment
company) after the date of this Agreement shall be included as assets of Selling
Fund held immediately prior to the Reorganization.
(d) No temporary restraining order, preliminary or permanent
injunction or other order issued by any Governmental Authority preventing the
consummation of the Reorganization on the Closing Date shall be in effect;
provided, however, that the party or parties invoking this condition shall use
reasonable efforts to have any such order or injunction vacated.
(e) The Registration Statement on Form N-14 filed by Buyer
with respect to Buying Fund Shares to be issued to Selling Fund Shareholders in
connection with the Reorganization shall have become effective under the
Securities Act and shall include an undertaking therein to file the opinion
referenced in Section 6.2(f) as a post-effective amendment to such Registration
Statement after the Closing Date, and no stop order suspending the effectiveness
thereof shall have been issued and, to the best knowledge of the parties hereto,
no investigation or proceeding for that purpose shall have been instituted or be
pending, threatened or contemplated under the Securities Act.
(f) Seller and Buyer shall have received on or before the
Closing Date an opinion of Buyer Counsel in form and substance reasonably
acceptable to Seller and Buyer, as to the matters set forth on Schedule 6.2(f).
In rendering such opinion, Buyer Counsel may request and rely upon
representations contained in certificates of officers of Seller, Buyer and
others, and the officers of Seller and Buyer shall use their best efforts to
make available such truthful certificates.
20
SECTION 6.3. Conditions Precedent of Seller. The obligation of Seller
to consummate the Reorganization is subject to the satisfaction, at or prior to
the Closing Date, of all of the following conditions, any one or more of which
may be waived in writing by Seller.
(a) The representations and warranties of Buyer on behalf of
Buying Fund set forth in this Agreement shall be true and correct in all
material respects as of the date of this Agreement and as of the Closing Date
with the same effect as though all such representations and warranties had been
made as of the Closing Date.
(b) Buyer shall have complied with and satisfied in all
material respects all agreements and conditions relating to Buying Fund set
forth herein on its part to be performed or satisfied at or prior to the Closing
Date.
(c) Seller shall have received on the Closing Date (i) a
certificate, dated as of the Closing Date, from an officer of Buyer, in such
individual's capacity as an officer of Buyer and not as an individual, to the
effect that the conditions specified in Sections 6.3(a) and (b) have been
satisfied and (ii) a certificate, dated as of the Closing Date, from the
Secretary or Assistant Secretary of Buyer (in such capacity) certifying as to
the accuracy and completeness of the attached Governing Documents of Buyer and
resolutions, consents and authorizations of or regarding Buyer with respect to
the execution and delivery of this Agreement and the transactions contemplated
hereby.
ARTICLE 7
TERMINATION OF AGREEMENT
SECTION 7.1. Termination. This Agreement may be terminated on or prior
to the Closing Date as follows:
(a) by mutual written consent of Seller and Buyer; or
(b) at the election of Seller or Buyer, to be effectuated by
the delivery by the terminating party to the other party of a written notice of
such termination:
(i) if the Closing Date shall not be on or before the
Termination Date, unless the failure to consummate the Reorganization is the
result of a willful and material breach of this Agreement by the party seeking
to terminate this Agreement;
(ii) if, upon a vote at the Shareholders Meeting or
any final adjournment thereof, the Required Shareholder Vote shall not have been
obtained as contemplated by Section 5.8; or
(iii) if any Governmental Authority shall have issued
an order, decree or ruling or taken any other action permanently enjoining,
restraining or otherwise prohibiting the Reorganization and such order, decree,
ruling or other action shall have become final and nonappealable.
21
SECTION 7.2. Survival After Termination. If this Agreement is
terminated in accordance with Section 7.1 hereof and the Reorganization of
Selling Fund is not consummated, this Agreement shall become void and of no
further force and effect with respect to the Reorganization and Selling Fund,
except for the provisions of Section 5.3.
ARTICLE 8
MISCELLANEOUS
SECTION 8.1. Survival of Representations, Warranties and Covenants. The
representations and warranties in this Agreement, and the covenants in this
Agreement that are required to be performed at or prior to the Closing Date,
shall terminate upon the consummation of the transactions contemplated
hereunder. The covenants in this Agreement that are required to be performed in
whole or in part subsequent to the Closing Date shall survive the consummation
of the transactions contemplated hereunder for a period of one (1) year
following the Closing Date.
SECTION 8.2. Governing Law. This Agreement shall be construed and
interpreted according to the laws of the State of Delaware applicable to
contracts made and to be performed wholly within such state.
SECTION 8.3. Binding Effect, Persons Benefiting, No Assignment. This
Agreement shall inure to the benefit of and be binding upon the parties hereto
and the respective successors and assigns of the parties and such Persons.
Nothing in this Agreement is intended or shall be construed to confer upon any
entity or Person other than the parties hereto and their respective successors
and permitted assigns any right, remedy or claim under or by reason of this
Agreement or any part hereof. Without the prior written consent of the parties
hereto, this Agreement may not be assigned by any of the parties hereto.
SECTION 8.4. Obligations of Buyer and Seller.
(a) Seller and Buyer hereby acknowledge and agree that Buying
Fund is a separate investment portfolio of Buyer, that Buyer is executing this
Agreement on behalf of Buying Fund, and that any amounts payable by Buyer under
or in connection with this Agreement shall be payable solely from the revenues
and assets of Buying Fund. Seller further acknowledges and agrees that this
Agreement has been executed by a duly authorized officer of Buyer in his or her
capacity as an officer of Buyer intending to bind Buyer as provided herein, and
that no officer, trustee or shareholder of Buyer shall be personally liable for
the liabilities or obligations of Buyer incurred hereunder. Finally, Seller
acknowledges and agrees that the liabilities and obligations of Buying Fund
pursuant to this Agreement shall be enforceable against the assets of Buying
Fund only and not against the assets of Buyer generally or assets belonging to
any other series of Buyer.
(b) Seller and Buyer hereby acknowledge and agree that Selling
Fund is a separate investment portfolio of Seller, that Seller is executing this
Agreement on behalf of Selling Fund and that any amounts payable by Seller under
or in connection with this Agreement shall be payable solely from the revenues
and assets of Selling Fund. Buyer further
22
acknowledges and agrees that this Agreement has been executed by a duly
authorized officer of Seller in his or her capacity as an officer of Seller
intending to bind Seller as provided herein, and that no officer, trustee or
shareholder of Seller shall be personally liable for the liabilities or
obligations of Seller incurred hereunder. Finally, Buyer acknowledges and agrees
that the liabilities and obligations of Selling Fund pursuant to this Agreement
shall be enforceable against the assets of Selling Fund only and not against the
assets of Seller generally or assets belonging to any other series of Seller.
SECTION 8.5. Amendments. This Agreement may not be amended, altered or
modified except by a written instrument executed by Seller and Buyer.
SECTION 8.6. Enforcement. The parties agree irreparable damage would
occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached. It
is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in any court of the United States or
any state having jurisdiction, in addition to any other remedy to which they are
entitled at law or in equity.
SECTION 8.7. Interpretation. When a reference is made in this Agreement
to a Section, Exhibit or Schedule, such reference shall be to a Section of, or
an Exhibit or a Schedule to, this Agreement unless otherwise indicated. The
table of contents and headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement. Whenever the words "include," "includes" or "including" are used
in this Agreement, they shall be deemed to be followed by the words "without
limitation." Each representation and warranty contained in Article 3 or 4 that
relates to a general category of a subject matter shall be deemed superseded by
a specific representation and warranty relating to a subcategory thereof to the
extent of such specific representation or warranty.
SECTION 8.8. Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original and each of which shall
constitute one and the same instrument.
SECTION 8.9. Entire Agreement; Exhibits and Schedules. This Agreement,
including the Exhibits, Schedules, certificates and lists referred to herein,
and any documents executed by the parties simultaneously herewith or pursuant
thereto, constitute the entire understanding and agreement of the parties hereto
with respect to the subject matter hereof and supersedes all other prior
agreements and understandings, written or oral, between the parties with respect
to such subject matter.
SECTION 8.10. Notices. All notices, requests, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given when delivered by hand or by overnight courier, two days after being
sent by registered mail, return receipt requested, or when sent by telecopier
(with receipt confirmed), provided, in the case of a telecopied notice, a copy
is also sent by registered mail, return receipt requested, or by courier,
addressed as follows (or to such other address as a party may designate by
notice to the other):
23
(a) If to Seller:
AIM Equity Funds
11 Greenway Plaza, Suite 100
Houston, TX 77046-1173
Attn: Kevin M. Carome
with a copy to:
Ballard Spahr Andrews & Ingersoll, LLP
1735 Market Street, 51st Floor
Philadelphia, PA 19103-7599
Attn: Martha J. Hays
(b) If to Buyer:
AIM Stock Funds
11 Greenway Plaza, Suite 100
Houston, TX 77046-1173
Attn: Kevin M. Carome
with a copy to:
Ballard Spahr Andrews & Ingersoll, LLP
1735 Market Street, 51st Floor
Philadelphia, PA 19103-7599
Attn: Martha J. Hays
SECTION 8.11. Representations by Investment Adviser.
(a) In its capacity as investment adviser to Seller, the
Investment Adviser represents to Buyer that to the best of its knowledge the
representations and warranties of Seller and Selling Fund contained in this
Agreement are true and correct as of the date of this Agreement. For purposes of
this Section 8.11(a), the best knowledge standard shall be deemed to mean that
the officers of the Investment Adviser who have substantive responsibility for
the provision of investment advisory services to Seller do not have actual
knowledge to the contrary after due inquiry.
(b) In its capacity as investment adviser to Buyer, the
Investment Adviser represents to Seller that to the best of its knowledge the
representations and warranties of Buyer and Buying Fund contained in this
Agreement are true and correct as of the date of this Agreement. For purposes of
this Section 8.11(b), the best knowledge standard shall be deemed to mean that
the officers of the Investment Adviser who have substantive responsibility for
the provision of investment advisory services to Buyer do not have actual
knowledge to the contrary after due inquiry.
24
SECTION 8.12. Successors and Assigns; Assignment. This Agreement shall
be binding upon and inure to the benefit of Seller, on behalf of Selling Fund,
and Buyer, on behalf of Buying Fund, and their respective successors and
permitted assigns. The parties hereto expressly acknowledge and agree that this
Agreement shall be binding upon and inure to the benefit of those Delaware
statutory trusts that are the resulting entities in the permitted
reorganizations of funds set forth on Schedule 4.14(b).
25
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
AIM EQUITY FUNDS, acting on behalf of AIM
MID CAP GROWTH FUND
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
AIM STOCK FUNDS, acting on behalf of AIM
DYNAMICS FUND
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
A I M ADVISORS, INC.
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
26
EXHIBIT A
EXCLUDED LIABILITIES OF SELLING FUND
None.
SCHEDULE 2.1
CLASSES OF SHARES OF SELLING FUND AND CORRESPONDING CLASSES OF SHARES OF BUYING
FUND
<Table>
<Caption>
Corresponding Classes of
Classes of Shares of Selling Fund Shares of Buying Fund
- --------------------------------- ------------------------
AIM Mid Cap Growth Fund AIM Dynamics Fund
Class A Shares Class A Shares
Class B Shares Class B Shares
Class C Shares Class C Shares
Class R Shares Class R Shares
Investor Class Shares
Institutional Class Shares Institutional Class Shares
</Table>
SCHEDULE 3.4
CERTAIN CONTINGENT LIABILITIES OF SELLING FUND
None.
SCHEDULE 4.4
CERTAIN CONTINGENT LIABILITIES OF BUYING FUND
None.
SCHEDULE 4.5(a)
CLASSES OF SHARES OF BUYING FUND
Classes of Shares of Buying Fund
- --------------------------------
Class A Shares
Class B Shares
Class C Shares
Class R Shares
Investor Class Shares
Institutional Shares
SCHEDULE 4.14(b)
PERMITTED REORGANIZATIONS OF FUNDS
AIM Aggressive Growth Fund into AIM Constellation Fund
AIM Weingarten Fund into AIM Constellation Fund
AIM Blue Chip Fund into AIM Large Cap Growth Fund
AIM Small Company Growth Fund into AIM Small Cap Growth Fund
AIM Premier Equity Fund into AIM Charter Fund
AIM V.I. Aggressive Growth Fund into AIM V.I. Capital Appreciation Fund
AIM V.I. Growth Fund into AIM V.I. Capital Appreciation Fund
AIM V.I. Blue Chip Fund into AIM V.I. Large Cap Growth Fund
AIM V.I. Premier Equity Fund into AIM V.I. Core Equity Fund
1
SCHEDULE 6.2(f)
TAX OPINIONS
(i) The transfer of the assets of Selling Fund to Buying Fund in
exchange solely for Buying Fund Shares distributed directly to Selling Fund
Shareholders and Buying Fund's assumption of the Liabilities, as provided in the
Agreement, will constitute a "reorganization" within the meaning of Section
368(a) of the Code and Selling Fund and Buying Fund will be "a party to a
reorganization" within the meaning of Section 368(b) of the Code.
(ii) In accordance with Section 361(a) and Section 361(c)(1) of the
Code, no gain or loss will be recognized by Selling Fund on the transfer of its
assets to Buying Fund solely in exchange for Buying Fund Shares and Buying
Fund's assumption of the Liabilities or on the distribution of Buying Fund
Shares to Selling Fund Shareholders.
(iii) In accordance with Section 1032 of the Code, no gain or loss will
be recognized by Buying Fund upon the receipt of assets of Selling Fund in
exchange for Buying Fund Shares issued directly to Selling Fund Shareholders.
(iv) In accordance with Section 354(a)(1) of the Code, no gain or loss
will be recognized by Selling Fund Shareholders on the receipt of Buying Fund
Shares in exchange for Selling Fund Shares.
(v) In accordance with Section 362(b) of the Code, the basis to Buying
Fund of the assets of Selling Fund will be the same as the basis of such assets
in the hands of Selling Fund immediately prior to the Reorganization.
(vi) In accordance with Section 358(a) of the Code, a Selling Fund
Shareholder's basis for Buying Fund Shares received by the Selling Fund
Shareholder will be the same as his or her basis for Selling Fund Shares
exchanged therefor.
(vii) In accordance with Section 1223(1) of the Code, a Selling Fund
Shareholder's holding period for Buying Fund Shares will be determined by
including such Selling Fund Shareholder's holding period for Selling Fund Shares
exchanged therefor, provided that such Selling Fund Shareholder held such
Selling Fund Shares as a capital asset.
(viii) In accordance with Section 1223(2) of the Code, the holding
period with respect to the assets of Selling Fund transferred to Buying Fund in
the Reorganization will include the holding period for such assets in the hands
of Selling Fund.
(ix) In accordance with Section 381(a)(2) of the Code, Buying Fund will
succeed to and take into account the items of Selling Fund described in Section
381(c) of the Code, subject to the conditions and limitations specified in
Sections 381 through 384 of the Code and the Treasury Regulations thereunder.
APPENDIX II
AIM Dynamics Fund
PROSPECTUS
October 25, 2005
AIM Dynamics Fund seeks long-term capital growth.
- --------------------------------------------------------------------------------
This prospectus contains important information about the Investor Class, Class
A, B, C and R shares of the fund. Please read it before investing and keep it
for future reference.
Investor Class shares offered by this prospectus are offered only to
grandfathered investors. Please see the section of the prospectus entitled
"Purchasing Shares--Grandfathered Investors."
As with all other mutual fund securities, the Securities and Exchange
Commission has not approved or disapproved these securities or determined
whether the information in this prospectus is adequate or accurate. Anyone who
tells you otherwise is committing a crime.
Investments in the fund:
... are not FDIC insured;
... may lose value; and
... are not guaranteed by a bank.
AIM DYNAMICS FUND
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE AND STRATEGIES 1
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
PRINCIPAL RISKS OF INVESTING IN THE FUND 1
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
PERFORMANCE INFORMATION 3
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Annual Total Returns 3
Performance Table 4
FEE TABLE AND EXPENSE EXAMPLE 5
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Fee Table 5
Expense Example 6
Hypothetical Investment and Expense Information 7
DISCLOSURE OF PORTFOLIO HOLDINGS 7
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
FUND MANAGEMENT 8
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
The Advisor 8
Advisor Compensation 8
Portfolio Managers 8
OTHER INFORMATION 9
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Sales Charges 9
Dividends and Distributions 9
FINANCIAL HIGHLIGHTS 10
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
SHAREHOLDER INFORMATION A-1
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Choosing a Share Class A-1
Excessive Short-Term Trading Activity Disclosures A-5
Purchasing Shares A-7
Redeeming Shares A-9
Exchanging Shares A-11
Pricing of Shares A-14
Taxes A-16
OBTAINING ADDITIONAL INFORMATION Back Cover
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
The AIM Family of Funds, AIM and Design, AIM, AIM Funds, AIM Funds and Design,
AIM Investments, AIM Investor, AIM Lifetime America, AIM LINK, AIM
Institutional Funds, aimfunds.com, La Familia AIM de Fondos, La Familia AIM de
Fondos and Design, Invierta con DISCIPLINA and Invest with DISCIPLINE, The AIM
College Savings Plan, AIM Solo 401(k), AIM Investments and Design and Your
goals. Our solutions. are registered service marks and AIM Bank Connection,
AIM Internet Connect, AIM Private Asset Management, AIM Private Asset
Management and Design, AIM Stylized and/or Design, AIM Alternative Assets and
Design and myaim.com are service marks of A I M Management Group Inc.
AIM Trimark is a service mark of A I M Management Group Inc. and AIM Funds
Management Inc.
No dealer, salesperson or any other person has been authorized to give any
information or to make any representations other than those contained in this
prospectus, and you should not rely on such other information or
representations.
AIM DYNAMICS FUND
INVESTMENT OBJECTIVE AND STRATEGIES
- --------------------------------------------------------------------------------
The fund's investment objective is long-term growth of capital. The fund
normally invests at least 65% of its net assets in common stocks of mid-size
companies.
The advisor actively manages the fund, focusing on mid-cap companies with
high growth potential that also are favorably priced relative to the growth
expectations for that company. The fund considers a company to be a
mid-capitalization company if it has a market capitalization, at the time of
purchase, within the range of the largest and smallest capitalized companies
included in the Russell MidCap(R) Index during the most recent 11-month period
(based on month-end data) plus the most recent data during the current month.
The Russell MidCap Index measures the performance of the 800 companies with the
lowest market capitalization in the Russell 1000(R) Index. The Russell 1000
Index is a widely recognized, unmanaged index of common stocks of the 1000
largest companies in the Russell 3000(R) Index, which measures the performance
of the 3000 largest U.S. companies based on total market capitalization. These
companies are considered representative of medium-sized companies.
The advisor bases its selection of stocks for the fund on an analysis of
individual companies. The investment process involves:
... Identifying medium-sized companies with sustainable revenue and earnings
growth that have attractive stock price valuations relative to their
projected growth rates;
... Applying fundamental research, including financial statement analysis and
management visits to identify stocks of companies with large potential
markets, cash-generating business models, improving balance sheets and solid
management teams; and
... Using a variety of valuation techniques to determine target buy and sell
prices and a stock's valuation upside and downside potential.
The resulting fund portfolio contains (1) "core holdings," which are industry
leaders serving growing, non-cyclical markets whose performance tends to remain
constant regardless of economic conditions; and (2) "earnings-acceleration"
holdings that are driven by near-term catalysts such as new products, improved
processes, and/or specific economic conditions which may lead to rapid sales
and earnings growth.
The advisor strives to control the fund's volatility and risk by diversifying
fund holdings across sectors and also by building a portfolio of 100 to 120
stocks with approximately equal weights.
The advisor considers selling or reducing its holdings in a stock if:
(1) It no longer meets the investment criteria;
(2) A company's fundamentals deteriorate;
(3) A stock's price reaches our valuation target;
(4) A company moves into the large capitalization range; and/or
(5) A more attractive investment option is identified.
For cash management purposes, the fund may also hold a portion of its assets
in cash or cash equivalents, including shares of affiliated money market funds.
Any percentage limitations with respect to assets of the fund are applied at
the time of purchase.
In anticipation of or in response to adverse market or other conditions, or
atypical circumstances such as unusually large cash inflows or redemptions, the
fund may temporarily hold all or a portion of its assets in cash, cash
equivalents or high-quality debt instruments. As a result, the fund may not
achieve its investment objective.
PRINCIPAL RISKS OF INVESTING IN THE FUND
- --------------------------------------------------------------------------------
As an individual investor, you have a risk that you could lose all or a portion
of your investment in the fund. Your individual risk is directly related to the
risk to which the fund is exposed as a result of its investing activities. The
value of your investment in the fund will go up and down with the prices of the
securities in which the fund invests.
The prices of securities in which the fund invests change in response to many
factors including the historical and prospective earnings of the issuer, the
value of its assets, general economic conditions, interest rates, investor
perceptions and market liquidity. The primary risks that could affect the
fund's performance are described in this section.
Investment Style Risk. Because the fund is a growth style fund, it is subject
to risks associated with investment styles. Growth investing may be more
volatile than other investment styles because growth stocks are more sensitive
to investor perceptions of an issuing company's growth potential.
Growth-oriented funds typically will underperform value-oriented funds when
investment sentiment favors the value investing style.
Sector Risk. At any given time, the fund may be subject to sector risk.
Sector risk is the possibility that a certain sector may underperform other
sectors or the market as a whole. The fund is not limited with respect to
sectors in which it can invest. If the advisor allocates more of the fund's
portfolio holdings to a particular economic sector, the fund's overall
performance will be more susceptible to the economic, business, or other
developments which generally affect that sector.
Mid-Size Issuer Risk. Investments in mid-size companies carry greater risk
than investments in larger, more established companies.
1
AIM DYNAMICS FUND
PRINCIPAL RISKS OF INVESTING IN THE FUND (continued)
- --------------------------------------------------------------------------------
Developing companies generally face intense competition and have a higher rate
of failure than large companies. In general, the securities of mid-size
companies are more volatile than those of large companies.
Market Risk. Equity stock prices vary and may fall, thus reducing the value
of the fund's investments. Certain stocks selected for the fund's portfolio may
decline in value more than the overall stock market.
Liquidity Risk. The fund's portfolio is liquid if the fund is able to sell
the securities it owns at a fair price within a reasonable time. Liquidity is
generally related to the market trading volume for a particular security.
Investments in smaller companies or in foreign companies or companies in
emerging markets are subject to a variety of risks, including potential lack of
liquidity.
Derivatives Risk. A derivative is a financial instrument whose value is
"derived", in some manner, from the price of another security, index, asset, or
rate. Derivatives include options contracts, among a wide range of other
instruments. The principal risk of investments in derivatives is that the
fluctuations in their values may not correlate perfectly with the overall
securities markets. Some derivatives are more sensitive to interest rate
changes and market prices fluctuations than others. Also, derivatives are
subject to counterparty risk, described below.
Counterparty Risk. This is a risk associated primarily with repurchase
agreements and some derivatives transactions. It is the risk that the other
party in the transaction will not fulfill its contractual obligation to
complete the transaction with the fund.
Foreign Securities Risk. Investments in foreign and emerging markets carry
special risks, including currency, political, regulatory, and diplomatic risks.
... Currency Risk. A change in the exchange rate between U.S. dollars and a
foreign currency may reduce the value of the fund's investment in a security
valued in the foreign currency, or based on that currency value.
... Political Risk. Political actions, events, and instability may affect the
value of a security.
... Regulatory Risk. Government regulations may affect the value of a security.
In foreign countries, securities markets that are less regulated than those
in the U.S. may permit trading practices that are not allowed in the U.S.
... Diplomatic Risk. A change in diplomatic relations between the U.S. and a
foreign country could affect the value or liquidity of investments.
Risk Resulting From Lack of Timely Information. Timely information about a
security or its issuers may be unavailable, incomplete, or inaccurate. This
risk is more common to securities issued by foreign companies and companies in
emerging markets than it is to the securities of U.S.-based companies.
You should also be aware that to the extent the fund holds cash or cash
equivalents rather than equity securities for risk management purposes, the
fund may not achieve its investment objective.
An investment in the fund is not a deposit in a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
2
AIM DYNAMICS FUND
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
The bar chart and table shown below provide an indication of the risks of
investing in the fund. The fund's past performance (before and after taxes) is
not necessarily an indication of its future performance.
ANNUAL TOTAL RETURNS
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
The following bar chart shows changes in the performance of the fund's Investor
Class shares from year to year. The bar chart does not reflect sales loads.
Investor Class shares are not subject to front-end or back-end sales loads.
[CHART]
12/31/1995 12/31/1996 12/31/1997 12/31/1998 12/31/1999 12/31/2000 12/31/2001 12/31/2002 12/31/2003 12/31/2004
- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
37.55% 15.65% 24.09% 23.25% 71.80% -7.76% -32.89% -33.08% 38.27% 11.94%
The Investor Class shares' year-to-date total return as of September 30, 2005
was 7.64%.
During the period shown in the bar chart, the highest quarterly return was
38.83% (quarter ended December 31, 1999) and the lowest quarterly return was
- -35.02% (quarter ended September 30, 2001).
3
AIM DYNAMICS FUND
PERFORMANCE INFORMATION (continued)
- --------------------------------------------------------------------------------
PERFORMANCE TABLE
The following performance table compares the fund's performance to that of a
broad-based securities market index, a style specific index and a peer group
index. The fund's performance reflects payment of sales loads, if applicable.
The indices may not reflect payment of fees, expenses or taxes. The fund is not
managed to track the performance of any particular index, including the indices
shown below, and consequently, the performance of the fund may deviate
significantly from the performance of the indices shown below.
AVERAGE ANNUAL TOTAL RETURNS
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
(for the periods ended December 31, 2004) SINCE INCEPTION
1 YEAR 5 YEARS 10 YEARS INCEPTION DATE
- -----------------------------------------------------------------------------------------
Investor Class
9/15/67
Return Before Taxes 11.94% -8.51% 10.36% --
Return After Taxes on Distributions 11.94 -8.52 8.53 --
Return After Taxes on Distributions and
Sale of Fund Shares 7.76 -7.02 8.02 --
Class A
3/28/02
Return Before Taxes 5.63 -- -- 0.71%
Class B
3/28/02
Return Before Taxes 6.07 -- -- 0.94
Class C
2/14/00
Return Before Taxes 10.07 -- -- -11.08
Class R/1/
10/25/05
Return Before Taxes -- -- -- --
- -----------------------------------------------------------------------------------------
S&P 500 Index/2/ 10.87 -2.30 12.07
Russell Midcap Growth Index/2,3/ 15.48 -3.36 11.23
Lipper Mid-Cap Growth Fund Index/2,4/ 14.03 -6.07 9.68
- -----------------------------------------------------------------------------------------
After-tax returns are calculated using the historical highest individual
federal marginal income tax rates and do not reflect the impact of state and
local taxes. Actual after-tax returns depend on an investor's tax situation and
may differ from those shown, and after-tax returns shown are not relevant to
investors who hold their fund shares through tax-deferred arrangements, such as
401(k) plans or individual retirement accounts. After-tax returns are shown for
Investor Class only and after-tax returns for Class A, B, C and R will vary.
/1/ Performance information is not provided for Class R shares since the class
commenced operations on October 25, 2005.
/2/ The Standard and Poor's 500 Index measures the performance of the 500 most
widely held common stocks and is considered one of the best indicators of
U.S. stock market performance. The fund has also included the Russell
Midcap Growth Index which the fund believes more closely reflects the
performance of the types of securities in which the fund invests. In
addition, the Lipper Mid-Cap Growth Fund Index (which may or may not
include the fund) is included for comparison to a peer group.
/3/ The Russell Midcap Growth Index is an unmanaged index that measures the
performance of those Russell Midcap Companies with higher price-to-book
ratios and higher forecasted growth values.
/4/ The Lipper Mid-Cap Growth Fund Index is an equally weighted representation
of the 30 largest funds in the Lipper Mid-Cap Growth category. These funds,
by portfolio practice, invest at least 75% of their equity assets in
companies with market capitalizations (on a three-year weighted basis) less
than 300% of the dollar-weighted median market capitalization of the middle
1,000 securities of the S&P SuperComposite 1500 Index. The S&P
SuperComposite 1500 Index is a market cap weighted index made up of 1500
liquid securities of companies with market capitalizations of $300 million
and above, and represents the small-, mid-, and large-cap markets. Mid-Cap
Growth funds typically have an above-average price-to-earnings ratio,
price-to-book ratio, and three year sales-per-share growth value, compared
to the S&P MidCap 400 Index. The S&P MidCap 400 Index consists of 400
domestic midcap stocks chosen for market size, liquidity, and industry
group representation. It is also a market-value weighted index and was the
first benchmark of midcap stock price movement. Inception was December 31,
1990.
4
AIM DYNAMICS FUND
FEE TABLE AND EXPENSE EXAMPLE
- --------------------------------------------------------------------------------
FEE TABLE
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.
SHAREHOLDER FEES
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
(fees paid directly
from your INVESTOR
investment) CLASS CLASS A CLASS B CLASS C CLASS R
---------------------------------------------------------------
Maximum Sales
Charge (Load)
Imposed on
Purchases
(as a percentage of
offering price) None 5.50% None None None
Maximum Deferred
Sales Charge (Load)
(as a percentage of
original purchase
price or redemption
proceeds, whichever
is less) None None/1,2/ 5.00% 1.00% None/3/
ANNUAL FUND OPERATING EXPENSES/4/
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
(expenses that are
deducted from INVESTOR
fund assets) CLASS CLASS A CLASS B CLASS C CLASS R
------------------------------------------------------------
Management Fees 0.51% 0.51% 0.51% 0.51% 0.51%
Distribution and/or
Service (12b-1)
Fees/5/ 0.25 0.25 1.00 1.00 0.50
Other Expenses/6/ 0.35 0.35 0.35 0.35 0.35
Total Annual Fund
Operating
Expenses/7,8,9/ 1.11 1.11 1.86 1.86 1.36
------------------------------------------------------------
/1/ If you buy $1,000,000 or more of Class A shares and redeem these shares
within 18 months from the date of purchase, you may pay a 1.00% contingent
deferred sales charge (CDSC) at the time of redemption.
/2/ If you are a retirement plan participant and you buy $1,000,000 or more of
Class A shares, you may pay a 1.00% CDSC if a total redemption of the
retirement plan assets occurs within 12 months from the date of the
retirement plan's initial purchase.
/3/ If you are a retirement plan participant, you may pay a 0.75% CDSC if the
distributor paid a concession to the dealer of record and a total
redemption of the retirement plan assets occurs within 12 months from the
date of the retirement plan's initial purchase.
/4/ There is no guarantee that actual expenses will be the same as those shown
in the tables.
/5/ The Board of Trustees has approved a permanent reduction of the Rule 12b-1
fees applicable to Class A shares to 0.25% effective July 1, 2005.
Distribution and/or Service (12b-1) Fees reflect this agreement.
/6/ Effective October 1, 2005, the Board of Trustees approved an amendment to
the transfer agency agreement. Other Expenses have been restated to reflect
the changes in fees under the new agreement. Other Expenses for Class R
shares are based on estimated average net assets for the current fiscal
year.
/7/ The fund's advisor has contractually agreed to waive advisory fees and/or
reimburse expenses to the extent necessary to limit Total Annual Fund
Operating Expenses (excluding certain items discussed below) to 1.90%,
1.90%, 2.65%, 2.65% and 2.15% on Investor Class, Class A, Class B, Class C
and Class R shares, 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 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,
in addition to the expense reimbursement arrangement with AMVESCAP (as
defined herein) described more fully below, 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. This expense limitation
agreement is in effect through July 31, 2006.
/8/ The fund's advisor has voluntarily agreed to waive advisory fees and/or
reimburse expenses to the extent necessary to limit Total Annual Fund
Operating Expenses (excluding certain items discussed above) to 1.20%,
1.20%, 1.95%, 1.95% and 1.45% on Investor Class, Class A, Class B, Class C
and Class R shares, respectively. These expense limitation agreements may
be modified or discontinued at any time upon consultation with the Board of
Trustees without further notice to investors.
/9/ Further, at the request of the Board of Trustees, AMVESCAP (as defined
herein) has agreed to reimburse the fund for expenses related to market
timing matters. Total Annual Fund Operating Expenses restated for the item
in Note 6, Note 7 and Note 8 and net of this arrangement were 1.10%, 1.10%,
1.85%, 1.85% and 1.35% for Investor Class, Class A, Class B, Class C and
Class R shares, respectively, for the year ended July 31, 2005.
5
AIM DYNAMICS FUND
FEE TABLE AND EXPENSE EXAMPLE (continued)
- --------------------------------------------------------------------------------
If a financial institution is managing your account, you may also be charged a
transaction or other fee by such financial institution.
As a result of 12b-1 fees, long-term shareholders in the fund may pay more
than the maximum permitted initial sales charge.
EXPENSE EXAMPLE
This example is intended to help you compare the costs of investing in
different classes of the fund with the cost of investing in other mutual funds.
The example assumes that you invest $10,000 in the fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
example also assumes that your investment has a 5% return each year, that the
fund's operating expenses remain the same and includes the effect of
contractual fee waivers and/or expense reimbursements, if any. To the extent
fees are waived and/or expenses are reimbursed voluntarily, your expenses will
be lower. Although your actual returns and costs may be higher or lower, based
on these assumptions your costs would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
----------------------------------------------
Investor Class $113 $353 $ 612 $1,352
Class A 657 883 1,128 1,827
Class B 689 885 1,206 1,984
Class C 289 585 1,006 2,180
Class R 138 431 745 1,635
----------------------------------------------
You would pay the following expenses if you did not redeem your shares:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
----------------------------------------------
Investor Class $113 $353 $ 612 $1,352
Class A 657 883 1,128 1,827
Class B 189 585 1,006 1,984
Class C 189 585 1,006 2,180
Class R 138 431 745 1,635
----------------------------------------------
6
AIM DYNAMICS FUND
HYPOTHETICAL INVESTMENT AND EXPENSE INFORMATION
The following supplemental hypothetical investment information provides
additional information in a different format from the preceding Fee Table and
Expense Example about the effect of a fund's expenses, including investment
advisory fees and other fund costs, on the fund's return over a 10-year period.
Because a fund's annual return when quoted is already reduced by the fund's
fees and expenses for that year, this hypothetical expense information is
intended to help you understand the annual and cumulative impact of a fund's
fees and expenses on your investment. Assuming a hypothetical investment of
$10,000 in each class of shares of the fund and a 5% return before expenses
each year, the chart shows the cumulative return before expenses, the
cumulative return after expenses, the ending balance and the estimated annual
expenses for each year one through ten. The chart also assumes that the annual
expense ratio stays the same throughout the 10-year period. The current annual
expense ratio for each class, which is the same as stated in the Fee Table
above, is reflected in the chart and is net of any contractual fee waiver or
expense reimbursement. There is no assurance that the annual expense ratio will
be the expense ratio for the fund class. To the extent that the advisor makes
any waivers or reimbursements pursuant to a voluntary arrangement, your actual
expenses may be less. The chart does not take into account initial or
contingent deferred sales charges, if any. You should understand that this is
only a hypothetical presentation made to illustrate what expenses and returns
would be under the above scenarios; your actual returns and expenses are likely
to differ (higher or lower) from those shown below.
INVESTOR CLASS--ANNUAL EXPENSE
RATIO 1.11% YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5 YEAR 6 YEAR 7 YEAR 8
- ----------------------------------------------------------------------------------------------------------------------------
Cumulative Return Before Expenses 5.00% 10.25% 15.76% 21.55% 27.63% 34.01% 40.71% 47.75%
Cumulative Return After Expenses 3.89% 7.93% 12.13% 16.49% 21.02% 25.73% 30.62% 35.70%
End of Year Balance $10,389.00 $10,793.13 $11,212.98 $11,649.17 $12,102.32 $12,573.10 $13,062.20 $13,570.32
Estimated Annual Expenses $ 113.16 $ 117.56 $ 122.13 $ 126.88 $ 131.82 $ 136.95 $ 142.28 $ 147.81
- ----------------------------------------------------------------------------------------------------------------------------
CLASS A--ANNUAL EXPENSE RATIO 1.11% YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5 YEAR 6 YEAR 7 YEAR 8
- ----------------------------------------------------------------------------------------------------------------------------
Cumulative Return Before Expenses 5.00% 10.25% 15.76% 21.55% 27.63% 34.01% 40.71% 47.75%
Cumulative Return After Expenses 3.89% 7.93% 12.13% 16.49% 21.02% 25.73% 30.62% 35.70%
End of Year Balance $10,389.00 $10,793.13 $11,212.98 $11,649.17 $12,102.32 $12,573.10 $13,062.20 $13,570.32
Estimated Annual Expenses $ 113.16 $ 117.56 $ 122.13 $ 126.88 $ 131.82 $ 136.95 $ 142.28 $ 147.81
- ----------------------------------------------------------------------------------------------------------------------------
CLASS B--ANNUAL EXPENSE RATIO 1.86% YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5 YEAR 6 YEAR 7 YEAR 8
- ----------------------------------------------------------------------------------------------------------------------------
Cumulative Return Before Expenses 5.00% 10.25% 15.76% 21.55% 27.63% 34.01% 40.71% 47.75%
Cumulative Return After Expenses 3.14% 6.38% 9.72% 13.16% 16.72% 20.38% 24.16% 28.06%
End of Year Balance $10,314.00 $10,637.86 $10,971.89 $11,316.41 $11,671.74 $12,038.23 $12,416.23 $12,806.10
Estimated Annual Expenses $ 188.92 $ 194.85 $ 200.97 $ 207.28 $ 213.79 $ 220.50 $ 227.43 $ 234.57
- ----------------------------------------------------------------------------------------------------------------------------
CLASS C--ANNUAL EXPENSE RATIO 1.86% YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5 YEAR 6 YEAR 7 YEAR 8
- ----------------------------------------------------------------------------------------------------------------------------
Cumulative Return Before Expenses 5.00% 10.25% 15.76% 21.55% 27.63% 34.01% 40.71% 47.75%
Cumulative Return After Expenses 3.14% 6.38% 9.72% 13.16% 16.72% 20.38% 24.16% 28.06%
End of Year Balance $10,314.00 $10,637.86 $10,971.89 $11,316.41 $11,671.74 $12,038.23 $12,416.23 $12,806.10
Estimated Annual Expenses $ 188.92 $ 194.85 $ 200.97 $ 207.28 $ 213.79 $ 220.50 $ 227.43 $ 234.57
- ----------------------------------------------------------------------------------------------------------------------------
CLASS R--ANNUAL EXPENSE RATIO 1.36% YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5 YEAR 6 YEAR 7 YEAR 8
- ----------------------------------------------------------------------------------------------------------------------------
Cumulative Return Before Expenses 5.00% 10.25% 15.76% 21.55% 27.63% 34.01% 40.71% 47.75%
Cumulative Return After Expenses 3.64% 7.41% 11.32% 15.37% 19.57% 23.93% 28.44% 33.11%
End of Year Balance $10,364.00 $10,741.25 $11,132.23 $11,537.44 $11,957.41 $12,392.66 $12,843.75 $13,311.26
Estimated Annual Expenses $ 138.48 $ 143.52 $ 148.74 $ 154.15 $ 159.76 $ 165.58 $ 171.61 $ 177.85
- ----------------------------------------------------------------------------------------------------------------------------
INVESTOR CLASS--ANNUAL EXPENSE
RATIO 1.11% YEAR 9 YEAR 10
- ---------------------------------------------------------
Cumulative Return Before Expenses 55.13% 62.89%
Cumulative Return After Expenses 40.98% 46.47%
End of Year Balance $14,098.20 $14,646.62
Estimated Annual Expenses $ 153.56 $ 159.53
- ---------------------------------------------------------
CLASS A--ANNUAL EXPENSE RATIO 1.11% YEAR 9 YEAR 10
- ---------------------------------------------------------
Cumulative Return Before Expenses 55.13% 62.89%
Cumulative Return After Expenses 40.98% 46.47%
End of Year Balance $14,098.20 $14,646.62
Estimated Annual Expenses $ 153.56 $ 159.53
- ---------------------------------------------------------
CLASS B--ANNUAL EXPENSE RATIO 1.86% YEAR 9 YEAR 10
- ---------------------------------------------------------
Cumulative Return Before Expenses 55.13% 62.89%
Cumulative Return After Expenses 33.04% 38.22%
End of Year Balance $13,304.26 $13,821.80
Estimated Annual Expenses $ 144.91 $ 150.55
- ---------------------------------------------------------
CLASS C--ANNUAL EXPENSE RATIO 1.86% YEAR 9 YEAR 10
- ---------------------------------------------------------
Cumulative Return Before Expenses 55.13% 62.89%
Cumulative Return After Expenses 32.08% 36.23%
End of Year Balance $13,208.22 $13,622.95
Estimated Annual Expenses $ 241.93 $ 249.53
- ---------------------------------------------------------
CLASS R--ANNUAL EXPENSE RATIO 1.36% YEAR 9 YEAR 10
- ---------------------------------------------------------
Cumulative Return Before Expenses 55.13% 62.89%
Cumulative Return After Expenses 37.96% 42.98%
End of Year Balance $13,795.79 $14,297.96
Estimated Annual Expenses $ 184.33 $ 191.04
- ---------------------------------------------------------
DISCLOSURE OF PORTFOLIO HOLDINGS
- --------------------------------------------------------------------------------
The fund's portfolio holdings are disclosed on a regular basis in its
semi-annual and annual reports to shareholders, and on Form N-Q, which is filed
with the Securities and Exchange Commission (SEC) within 60 days of the fund's
first and third fiscal quarter-ends. In addition, portfolio holdings
information for the fund is available at (http://www.aiminvestments.com). To
reach this information, access the fund's overview page on the website. Links
to the following fund information are located in the upper right side of this
website page:
------------------------------------------------------------------------------
APPROXIMATE DATE OF INFORMATION REMAINS
INFORMATION WEBSITE POSTING POSTED ON WEBSITE
------------------------------------------------------------------------------
Top ten holdings as of
month end 15 days after month end Until posting of the
following month's top
ten holdings
------------------------------------------------------------------------------
Complete portfolio
holdings as of calendar
quarter end 30 days after calendar
quarter end For one year
------------------------------------------------------------------------------
A description of the fund's policies and procedures with respect to the
disclosure of the fund's portfolio holdings is available in the fund's
Statement of Additional Information, which is available at
(http://www.aiminvestments.com).
7
AIM DYNAMICS FUND
FUND MANAGEMENT
- --------------------------------------------------------------------------------
THE ADVISOR
A I M Advisors, Inc. (the advisor or AIM) serves as the fund's investment
advisor and is responsible for its day-to-day management. The advisor is
located at 11 Greenway Plaza, Suite 100, Houston, Texas 77046-1173. The advisor
supervises all aspects of the fund's operations and provides investment
advisory services to the fund, including obtaining and evaluating economic,
statistical and financial information to formulate and implement investment
programs for the fund.
The advisor has acted as an investment advisor since its organization in
1976. Today, the advisor, together with its subsidiaries, advises or manages
over 200 investment portfolios, including the fund, encompassing a broad range
of investment objectives.
On October 8, 2004, INVESCO Funds Group, Inc. (IFG) (the former investment
advisor to certain AIM funds), AIM and A I M Distributors, Inc. (ADI) (the
distributor of the retail AIM funds) reached final settlements with certain
regulators, including the SEC, the New York Attorney General and the Colorado
Attorney General, to resolve civil enforcement actions and/or investigations
related to market timing and related activity in the AIM funds, including those
formerly advised by IFG. As part of the settlements, a $325 million fair fund
($110 million of which is civil penalties) has been created to compensate
shareholders harmed by market timing and related activity in funds formerly
advised by IFG. Half of this amount has already been paid to the fair fund
pursuant to the terms of the settlement with the remainder due December 31,
2005. Additionally, AIM and ADI created a $50 million fair fund ($30 million of
which is civil penalties) to compensate shareholders harmed by market timing
and related activity in funds advised by AIM, which was done pursuant to the
terms of the settlement. These two fair funds may increase as a result of
contributions from third parties who reach final settlements with the SEC or
other regulators to resolve allegations of market timing and/or late trading
that also may have harmed applicable AIM funds. These two fair funds will be
distributed in accordance with a methodology to be determined by AIM's
independent distribution consultant, in consultation with AIM and the
independent trustees of the AIM funds and acceptable to the staff of the SEC.
Civil lawsuits, including a regulatory proceeding and purported class action
and shareholder derivative suits, have been filed against certain of the AIM
funds, IFG, AIM, ADI and/or related entities and individuals, depending on the
lawsuit, alleging among other things: (i) that the defendants permitted
improper market timing and related activity in the funds; (ii) that certain
funds inadequately employed fair value pricing; (iii) 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 and that the
defendants adopted unlawful distribution plans; (iv) 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; (v) that the defendants improperly used the assets of the
funds to pay brokers to aggressively promote the sale of the funds over other
mutual funds and that the defendants concealed such payments from investors by
disguising them as brokerage commissions; and (vi) that the defendants breached
their fiduciary duties by failing to ensure that the funds participated in
class action settlements in which they were eligible to participate.
Additional civil lawsuits related to the above or other matters may be filed
by regulators or private litigants against the AIM funds, IFG, AIM, ADI and/or
related entities and individuals in the future. You can find more detailed
information concerning all of the above matters, including the parties to the
civil lawsuits and summaries of the various allegations and remedies sought in
such lawsuits, in the fund's Statement of Additional Information.
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.
ADVISOR COMPENSATION
During the fiscal year ended July 31, 2005, the advisor received compensation
of 0.51% of average daily net assets.
A discussion regarding the basis for the Board of Trustees approving the
investment advisory agreement of the fund is available in the fund's annual
report to shareholders for the twelve month period ended July 31, 2005.
PORTFOLIO MANAGERS
The following individuals are jointly and primarily responsible for the
day-to-day management of the fund's portfolio:
... Paul J. Rasplicka (lead manager), Senior Portfolio Manager, has been
responsible for the fund since 2004 and has been associated with the advisor
and/or its affiliates since 1994. As the lead manager, Mr. Rasplicka
generally has final authority over all aspects of the fund's investment
portfolio, including but not limited to, purchases and sales of individual
securities, portfolio construction techniques, portfolio risk assessment, and
the management of daily cash flows in accordance with portfolio holdings. The
degree to which Mr. Rasplicka may perform these functions, and the nature of
these functions, may change from time to time.
... Karl Farmer, Portfolio Manager, has been responsible for the fund since 2005
and has been associated with the advisor and/or its affiliates since 1998.
The portfolio managers are assisted by the Mid Cap Growth & GARP (growth at a
reasonable price) Team, which may be comprised of portfolio managers, research
analysts and other investment professionals of the advisor. Team members
provide research support and make securities recommendations with respect to
the fund's portfolio, but do not have day-to-day management responsibilities
with respect to the fund's portfolio. Members of the team may change from time
to time. More information on the portfolio managers and the team, including
biographies of other members of the team, may be found on the advisor's website
(http//www.aiminvestments.com). The website is not part of this prospectus.
The fund's Statement of Additional Information provides additional
information about the portfolio managers' investments in the fund, a
description of their compensation structure, and information regarding other
accounts they manage.
8
AIM DYNAMICS FUND
OTHER INFORMATION
- --------------------------------------------------------------------------------
SALES CHARGES
Purchases of Class A shares of AIM Dynamics Fund are subject to the maximum
5.50% initial sales charge as listed under the heading "CATEGORY I Initial
Sales Charges" in the "Shareholder Information--Choosing a Share Class" section
of this prospectus. Certain purchases of Class A shares at net asset value may
be subject to the contingent deferred sales charge listed in that section.
Purchases of Class B and Class C shares are subject to the contingent deferred
sales charges listed in that section. Certain purchases of Class R shares may
be subject to the contingent deferred sales charge listed in that section.
DIVIDENDS AND DISTRIBUTIONS
The fund expects that its distributions, if any, will consist of capital gains.
DIVIDENDS
The fund generally declares and pays dividends, if any, annually.
CAPITAL GAINS DISTRIBUTIONS
The fund generally distributes long-term and short-term capital gains, if any,
annually.
9
AIM DYNAMICS FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The financial highlights table is intended to help you understand the fund's
financial performance. Certain information reflects financial results for a
single fund share.
The total returns in the table represent the rate that an investor would have
earned (or lost) on an investment in the fund (assuming reinvestment of all
dividends and distributions).
This information has been audited by PricewaterhouseCoopers LLP, whose
report, along with the fund's financial statements, is included in the fund's
annual report, which is available upon request.
The fund's Class R shares commenced operations on October 25, 2005 and,
therefore, financial information for such shares is not available.
----------------------------------
----------------------------------
2005 2004
---------- ----------
Net asset value, beginning of period $ 14.19 $ 12.81
- ------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.07)/(a)/ (0.11)/(a)/
- ------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and unrealized) 3.59 1.49
- ------------------------------------------------------------------------------------------------------
Total from investment operations 3.52 1.38
- ------------------------------------------------------------------------------------------------------
Less distributions from net realized gains -- --
- ------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 17.71 $ 14.19
- ------------------------------------------------------------------------------------------------------
Total return/(c)/ 24.81% 10.77%
- ------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $1,984,687 $2,992,578
- ------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.15%/(d)/ 1.19%
- ------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.16%/(d)/ 1.29%
- ------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net assets (0.44)%/(d)/ (0.78)%
- ------------------------------------------------------------------------------------------------------
Portfolio turnover rate 87% 95%
- ------------------------------------------------------------------------------------------------------
INVESTOR CLASS
---------------------------------------------
YEAR ENDED JULY 31,
---------------------------------------------
2003 2002 2001
---------- ---------- ----------
Net asset value, beginning of period $ 10.81 $ 17.23 $ 27.86
- ------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.00)/(b)/ (0.00)/(b)/ (0.12)/(a)(b)/
- ------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and unrealized) 2.00 (6.40) (10.43)
- ------------------------------------------------------------------------------------------------------------------------
Total from investment operations 2.00 (6.40) (10.55)
- ------------------------------------------------------------------------------------------------------------------------
Less distributions from net realized gains -- (0.02) (0.08)
- ------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 12.81 $ 10.81 $ 17.23
- ------------------------------------------------------------------------------------------------------------------------
Total return/(c)/ 18.50% (37.17)% (37.94)%
- ------------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $3,863,821 $3,688,213 $6,562,467
- ------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.21% 1.21% 1.00%
- ------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.46% 1.23% 1.00%
- ------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net assets (0.78)% (0.86)% (0.49)%
- ------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 91% 81% 55%
- ------------------------------------------------------------------------------------------------------------------------
/(a)/Calculated using average shares outstanding.
/(b)/The net investment income (loss) per share was calculated after permanent
book tax differences, such as net operating losses, were reclassified from
accumulated net investment income (loss) to paid in capital. Had net
investment income (loss) per share been calculated using the current
method, which is before reclassification of net operating losses, net
investment income (loss) per share would have been $(0.09), $(0.14), and
$(0.06) for the year ended July 31, 2003, 2002 and 2001, 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.
/(d)/Ratios are based on average daily net assets of $2,404,496,829.
10
AIM DYNAMICS FUND
FINANCIAL HIGHLIGHTS (continued)
- --------------------------------------------------------------------------------
CLASS A
----------------------------------------------------
MARCH 28, 2002
(DATE SALES
YEAR ENDED JULY 31, COMMENCED) TO
----------------------------------- JULY 31,
2005 2004 2003 2002
------- ------- ------ --------------
Net asset value, beginning of period $ 14.21 $ 12.84 $10.82 $ 15.30
- ------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.08)/(a)/ (0.13)/(a)/ (0.09)/(b)/ (0.03)/(a)/
- ------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and unrealized) 3.58 1.50 2.11 (4.45)
- ------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 3.50 1.37 2.02 (4.48)
- ------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 17.71 $ 14.21 $12.84 $ 10.82
- ------------------------------------------------------------------------------------------------------------------------------
Total return/(c)/ 24.63% 10.67% 18.56% (29.22)%
- ------------------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $15,895 $12,692 $6,108 $ 2,006
- ------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.24%/(d)/ 1.30% 1.24% 1.11%/(e)/
- ------------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.25%/(d)/ 1.31% 1.24% 1.11%/(e)/
- ------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net assets (0.53)%/(d)/ (0.89)% (0.81)% (0.76)%/(e)/
- ------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate/(f)/ 87% 95% 91% 81%
- ------------------------------------------------------------------------------------------------------------------------------
/(a)/Calculated using average shares outstanding.
/(b)/The net investment income (loss) per share was calculated after permanent
book tax differences, such as net operating losses, were reclassified from
accumulated net investment income (loss) to paid in capital. Had net
investment income (loss) per share been calculated using the current
method, which is before reclassification of net operating losses, net
investment income (loss) per share would have been $(0.18) for the year
ended July 31, 2003.
/(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 $14,421,408.
/(e)/Annualized.
/(f)/Not annualized for periods less than one year.
11
AIM DYNAMICS FUND
FINANCIAL HIGHLIGHTS (continued)
- --------------------------------------------------------------------------------
CLASS B
--------------------------------------------------
MARCH 28, 2002
(DATE SALES
YEAR ENDED JULY 31, COMMENCED) TO
--------------------------------- JULY 31,
2005 2004 2003 2002
------ ------ ------ --------------
Net asset value, beginning of period $13.94 $12.69 $10.78 $ 15.30
- ------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.18)/(a)/ (0.22)/(a)/ (0.08)/(b)/ (0.06)/(a)/
- ------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized
and unrealized) 3.51 1.47 1.99 (4.46)
- ------------------------------------------------------------------------------------------------------------
Total from investment operations 3.33 1.25 1.91 (4.52)
- ------------------------------------------------------------------------------------------------------------
Net asset value, end of period $17.27 $13.94 $12.69 $ 10.78
- ------------------------------------------------------------------------------------------------------------
Total return/(c)/ 23.89% 9.85% 17.72% (29.54)%
- ------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $2,908 $2,282 $1,409 $ 390
- ------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.90%/(d)/ 1.95% 1.96% 2.09%/(e)/
- ------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.91%/(d)/ 2.26% 2.52% 2.09%/(e)/
- ------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average
net assets (1.19)%/(d)/ (1.54)% (1.53)% (1.71)%/(e)/
- ------------------------------------------------------------------------------------------------------------
Portfolio turnover rate/(f)/ 87% 95% 91% 81%
- ------------------------------------------------------------------------------------------------------------
/(a)/Calculated using average shares outstanding.
/(b)/The net investment income (loss) per share was calculated after permanent
book tax differences, such as net operating losses, were reclassified from
accumulated net investment income (loss) to paid in capital. Had net
investment income (loss) per share been calculated using the current
method, which is before reclassification of net operating losses, net
investment income (loss) per share would have been $(0.17) for the year
ended July 31, 2003.
/(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 $2,637,924.
/(e)/Annualized.
/(f)/Not annualized for periods less than one year.
12
AIM DYNAMICS FUND
FINANCIAL HIGHLIGHTS (continued)
- --------------------------------------------------------------------------------
CLASS C
-------------------------------------------------------
YEAR ENDED JULY 31,
-------------------------------------------------------
2005 2004 2003 2002
------ ------- ------- -------
Net asset value, beginning of period $13.67 $ 12.44 $ 10.60 $ 17.04
- ---------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.18)/(a)/ (0.22)/(a)/ (0.18)/(b)/ (0.25)/(b)/
- ---------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and unrealized) 3.44 1.45 2.02 (6.17)
- ---------------------------------------------------------------------------------------------------------------------------
Total from investment operations 3.26 1.23 1.84 (6.42)
- ---------------------------------------------------------------------------------------------------------------------------
Less distributions from net realized gains -- -- -- (0.02)
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $16.93 $ 13.67 $ 12.44 $ 10.60
- ---------------------------------------------------------------------------------------------------------------------------
Total return/(c)/ 23.85% 9.89% 17.47% (37.76)%
- ---------------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $9,081 $11,287 $13,537 $13,440
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.90%/(d)/ 1.95% 1.96% 1.96%
- ---------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.91%/(d)/ 2.67% 3.05% 2.16%
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net assets (1.19)%/(d)/ (1.54)% (1.54)% (1.59)%
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 87% 95% 91% 81%
- ---------------------------------------------------------------------------------------------------------------------------
--------
--------
2001
-------
Net asset value, beginning of period $ 27.78
- --------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.06)/(b)/
- --------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and unrealized) (10.60)
- --------------------------------------------------------------------------------
Total from investment operations (10.66)
- --------------------------------------------------------------------------------
Less distributions from net realized gains (0.08)
- --------------------------------------------------------------------------------
Net asset value, end of period $ 17.04
- --------------------------------------------------------------------------------
Total return/(c)/ (38.45)%
- --------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $28,887
- --------------------------------------------------------------------------------
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.86%
- --------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.86%
- --------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net assets (1.34)%
- --------------------------------------------------------------------------------
Portfolio turnover rate 55%
- --------------------------------------------------------------------------------
/(a)/Calculated using average shares outstanding.
/(b)/The net investment income (loss) per share was calculated after permanent
book tax differences, such as net operating losses, were reclassified from
accumulated net investment income (loss) to paid in capital. Had net
investment income (loss) per share been calculated using the current
method, which is before reclassification of net operating losses, net
investment income (loss) per share would have been $(0.27), $(0.38), and
$(0.10) for the year ended July 31, 2003, 2002, and 2001, 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 $9,799,764.
13
THE AIM FUNDS
SHAREHOLDER INFORMATION
- --------------------------------------------------------------------------------
In addition to the fund, AIM serves as investment advisor to many other mutual
funds (the funds). The following information is about all the funds.
CHOOSING A SHARE CLASS
Most of the funds have multiple classes of shares, each class representing an
interest in the same portfolio of investments. Certain classes have higher
expenses than other classes which may lower the return on your investment
relative to a less expensive class. In deciding which class of shares to
purchase, you should consider, among other things, (i) the length of time you
expect to hold your shares, (ii) the provisions of the distribution plan, if
any, applicable to the class (iii) the eligibility requirements that apply to
purchases of a particular class, and (iv) any services you may receive in
making your investment determination. In addition, you should consider the
other factors described below. Please contact your financial advisor to assist
you in making your decision.
CLASS A/1/ CLASS A3 CLASS B/4/ CLASS C CLASS R INVESTOR CLASS
- ------------------------------------------------------------------------------------------------------------
... Initial sales . No initial . No initial . No initial . No initial . No initial
charge sales charge sales charge sales charge sales charge sales charge
... Reduced or . No contingent . Contingent . Contingent . Generally, no . No contingent
waived initial deferred sales deferred sales deferred sales contingent deferred sales
sales charge charge on charge on deferred sales charge
charge for redemptions redemptions charge/2/
certain within six within one
purchases/2/ years year/7/
... Generally, . 12b-1 fee of . 12b-1 fee of . 12b-1 fee of . 12b-1 fee of . 12b-1 fee of
lower 0.35% 1.00% 1.00% 0.50% 0.25%/3/
distribution
and service
(12b-1) fee
than Class B,
Class C, Class
K or Class R
shares (See
"Fee Table and
Expense
Example")/3/
. Does not . Converts to . Does not . Does not . Does not
convert to Class A shares convert to convert to convert to
Class A shares at the end of Class A shares Class A shares Class A shares
the month
which is eight
years after
the date on
which shares
were purchased
along with a
pro rata
portion of its
reinvested
dividends and
distributions/5/
... Generally more . Available only . Purchase . Generally more . Generally, . Closed to new
appropriate for a limited orders limited appropriate only available investors,
for long-term number of funds to amount less for short-term to employee except as
investors than $ investors benefit described in
100,000/6/ . Purchase plans/9/ the
orders limited "Purchasing
to amount less Shares --
than Grandfathered
$1,000,000/8/ Investors"
section of
your prospectus
- ------------------------------------------------------------------------------------------------------------
Certain funds also offer Institutional Class shares to certain eligible
institutional investors; consult the fund's Statement of Additional
Information for the Institutional Class shares for details.
/1/ As of the close of business on October 30, 2002, Class A shares of AIM
Limited Maturity Treasury Fund and AIM Tax-Free Intermediate Fund were
closed to new investors.
/2/ A contingent deferred sales charge may apply in some cases.
/3/ Class A shares of AIM Tax-Free Intermediate Fund and Investor Class shares
of AIM Money Market Fund, AIM Tax-Exempt Cash Fund, Premier Portfolio,
Premier Tax-Exempt Portfolio and Premier U.S. Government Money Portfolio do
not have a 12b-1 fee.
/4/ Class B shares are not available as an investment for retirement plans
maintained pursuant to Section 401 of the Internal Revenue Code. These
plans include 401(k) plans (including AIM Solo 401(k) plans), money
purchase pension plans and profit sharing plans. Plans that have existing
accounts invested in Class B shares will continue to be allowed to make
additional purchases.
/5/ AIM Money Market Fund: Class B shares convert to AIM Cash Reserve Shares.
AIM Global Equity Fund: If you held Class B shares on May 29, 1998 and
continue to hold them, those shares will convert to Class A shares of that
fund at the end of the month which is seven years after the date on which
shares were purchased. If you exchange those shares for Class B shares of
another fund, the shares into which you exchanged will not convert to Class A
shares until the end of the month which is eight years after the date on
which you purchased your original shares.
MCF--10/05 A-1
THE AIM FUNDS
/6/ Any purchase order for Class B shares in an amount equal to or in excess of
$100,000 will be rejected. Although our ability to monitor or enforce this
limitation for underlying shareholders of omnibus accounts is severely
limited, we have advised the administrators of omnibus accounts maintained
by brokers, retirement plans and approved fee-based programs of this
limitation.
/7/ A contingent deferred sales charge (CDSC) does not apply to redemption of
Class C shares of AIM Short Term Bond Fund unless you exchange Class C
shares of another fund that are subject to a CDSC into AIM Short Term Bond
Fund.
/8/ Any purchase order for Class C shares in an amount equal to or in excess of
$1,000,000 will be rejected. Although our ability to monitor or enforce
this limitation for underlying shareholders of omnibus accounts is severely
limited, we have advised the administrators of omnibus accounts maintained
by brokers, retirement plans and approved fee-based programs of this
limitation.
/9/ Generally, Class R shares are only available to employee benefit plans.
These may include, for example, retirement and deferred compensation plans
maintained pursuant to Sections 401, 403, 457 of the Internal Revenue Code;
nonqualified deferred compensation plans; health savings accounts
maintained pursuant to Section 223 of the Internal Revenue Code,
respectively; and voluntary employees' beneficiary arrangements maintained
pursuant to Section 501(c)(9) of the Internal Revenue Code. Retirement
plans maintained pursuant to Section 401 generally include 401(k) plans,
profit sharing plans, money purchase pension plans, and defined benefit
plans. Retirement plans maintained pursuant to Section 403 must be
established and maintained by non-profit organizations operating pursuant
to Section 501(c)(3) of the Internal Revenue Code in order to purchase
Class R shares. Class R shares are generally not available for individual
retirement accounts such as traditional, Roth, SEP, SAR-SEP and SIMPLE IRAs.
DISTRIBUTION AND SERVICE (12B-1) FEES
Each fund (except AIM Tax-Free Intermediate Fund with respect to its Class A
shares and AIM Money Market Fund, AIM Tax-Exempt Cash Fund, Premier Portfolio,
Premier Tax-Exempt Portfolio and Premier U.S. Government Money Portfolio with
respect to their Investor Class shares) has adopted 12b-1 plans that allow the
fund to pay distribution fees to A I M Distributors, Inc. (ADI) for the sale
and distribution of its shares and fees for services provided to shareholders,
all or a substantial portion of which are paid to the dealer of record. Because
the fund pays these fees out of its assets on an ongoing basis, over time these
fees will increase the cost of your investment and may cost you more than
paying other types of sales charges.
SALES CHARGES
Sales charges on the funds and classes of those funds are detailed below. As
used below, the term "offering price" with respect to all categories of Class A
shares includes the initial sales charge.
Certain categories of persons are permitted to purchase Class A shares of the
funds without paying an initial sales charge because their transactions involve
little expense, such as persons who have a relationship with the funds or with
AIM and certain programs for purchase. For more detailed information regarding
eligibility to purchase or redeem shares at reduced or without sales charges,
please consult the fund's website at www.aiminvestments.com and click on the
links "My Account", Service Center, or consult the fund's Statement of
Additional Information, which is available upon request free of charge.
INITIAL SALES CHARGES
The funds (except AIM Short Term Bond Fund) are grouped into three categories
with respect to initial sales charges. The "Other Information" section of your
prospectus will tell you in what category your particular fund is classified.
CATEGORY I INITIAL SALES CHARGES
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
INVESTOR'S
SALES CHARGE
-------------------------
AMOUNT OF INVESTMENT AS A % OF AS A % OF
IN SINGLE TRANSACTION OFFERING PRICE INVESTMENT
- -----------------------------------------------------------
Less than $ 25,000 5.50% 5.82%
$ 25,000 but less than $ 50,000 5.25 5.54
$ 50,000 but less than $ 100,000 4.75 4.99
$100,000 but less than $ 250,000 3.75 3.90
$250,000 but less than $ 500,000 3.00 3.09
$500,000 but less than $1,000,000 2.00 2.04
- -----------------------------------------------------------
CATEGORY II INITIAL SALES CHARGES
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
INVESTOR'S
SALES CHARGE
-------------------------
AMOUNT OF INVESTMENT AS A % OF AS A % OF
IN SINGLE TRANSACTION OFFERING PRICE INVESTMENT
- -----------------------------------------------------------
Less than $ 50,000 4.75% 4.99%
$ 50,000 but less than $ 100,000 4.00 4.17
$100,000 but less than $ 250,000 3.75 3.90
$250,000 but less than $ 500,000 2.50 2.56
$500,000 but less than $1,000,000 2.00 2.04
- -----------------------------------------------------------
CATEGORY III INITIAL SALES CHARGES
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
INVESTOR'S
SALES CHARGE
-------------------------
AMOUNT OF INVESTMENT AS A % OF AS A % OF
IN SINGLE TRANSACTION OFFERING PRICE INVESTMENT
- -----------------------------------------------------------
Less than $ 100,000 1.00% 1.01%
$100,000 but less than $ 250,000 0.75 0.76
$250,000 but less than $1,000,000 0.50 0.50
- -----------------------------------------------------------
AIM SHORT TERM BOND FUND INITIAL SALES CHARGES
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
INVESTOR'S
SALES CHARGE
-------------------------
AMOUNT OF INVESTMENT AS A % OF AS A % OF
IN SINGLE TRANSACTION OFFERING PRICE INVESTMENT
- -----------------------------------------------------------
Less than $ 100,000 2.50% 2.56%
$100,000 but less than $ 250,000 2.00 2.04
$250,000 but less than $ 500,000 1.50 1.52
$500,000 but less than $1,000,000 1.25 1.27
- -----------------------------------------------------------
A-2 MCF--10/05
THE AIM FUNDS
SHARES SOLD WITHOUT A SALES CHARGE
You will not pay an initial sales charge on purchases of Class A shares of AIM
Tax-Exempt Cash Fund or AIM Cash Reserve Shares of AIM Money Market Fund.
You will not pay an initial sales charge or a contingent deferred sales
charge (CDSC) on Class A3 shares of AIM Limited Maturity Treasury Fund and AIM
Tax-Free Intermediate Fund.
You will not pay an initial sales charge or a CDSC on Investor Class shares
of any fund.
CONTINGENT DEFERRED SALES CHARGES FOR CLASS A SHARES AND AIM CASH RESERVE
SHARES OF AIM MONEY MARKET FUND
You can purchase $1,000,000 or more (a Large Purchase) of Class A shares of
Category I and II funds and AIM Short Term Bond Fund at net asset value.
However, if you redeem these shares prior to 18 months after the date of
purchase, they will be subject to a CDSC of 1%.
If you currently own Class A shares of a Category I or II fund or AIM Short
Term Bond Fund and make additional purchases at net asset value that result in
account balances of $1,000,000 or more, the additional shares purchased will be
subject to an 18-month,
1% CDSC.
Some retirement plans can purchase Class A shares at their net asset value
per share. If ADI paid a concession to the dealer of record in connection with
a Large Purchase of Class A shares by a retirement plan, the Class A shares may
be subject to a 1% CDSC at the time of redemption if all retirement plan assets
are redeemed within one year from the date of the plan's initial purchase.
You may be charged a CDSC when you redeem AIM Cash Reserve Shares of AIM
Money Market Fund or Class A shares of AIM Tax-Exempt Cash Fund if you acquired
those shares through an exchange, and the shares originally purchased were
subject to a CDSC.
ADI may pay a dealer concession and/or a service fee for Large Purchases and
purchases by certain retirement plans.
CONTINGENT DEFERRED SALES CHARGES FOR CLASS B AND CLASS C SHARES
You can purchase Class B and Class C shares at their net asset value per share.
However, when you redeem them, they are subject to a CDSC in the following
percentages:
YEAR SINCE
PURCHASE MADE CLASS B CLASS C
- -------------------------------------
First 5% 1%
Second 4 None
Third 3 None
Fourth 3 None
Fifth 2 None
Sixth 1 None
Seventh and following None None
- -------------------------------------
You can purchase Class C shares of AIM Short Term Bond Fund at their net asset
value and not subject to a CDSC. However, you may be charged a CDSC when you
redeem Class C shares of AIM Short Term Bond Fund if you acquired those shares
through an exchange, and the shares originally purchased were subject to a CDSC.
CONTINGENT DEFERRED SALES CHARGES FOR CLASS R SHARES
You can purchase Class R shares at their net asset value per share. If ADI pays
a concession to the dealer of record, however, the Class R shares are subject
to a 0.75% CDSC at the time of redemption if all retirement plan assets are
redeemed within 12 months from the date of the retirement plan's initial
purchase.
COMPUTING A CDSC
The CDSC on redemptions of shares is computed based on the lower of their
original purchase price or current market value, net of reinvested dividends
and capital gains distributions. In determining whether to charge a CDSC, we
will assume that you are redeeming shares on which there is no CDSC first and,
then, shares in the order of purchase.
REDUCED SALES CHARGES AND SALES CHARGE EXCEPTIONS
You may qualify for reduced sales charges or sales charge exceptions. To
qualify for these reductions or exceptions, you or your financial advisor must
notify the transfer agent at the time of purchase that your purchase qualifies
for such treatment. Certain individuals and employer-sponsored retirement plans
may link accounts for the purpose of qualifying for lower initial sales
charges. You or your financial consultant must provide other account numbers to
be considered for Rights of Accumulation, or mark the Letter of Intent section
on the account application, or provide other relevant documentation, so that
the transfer agent can verify your eligibility for the reduction or exception.
Consult the fund's Statement of Additional Information for details.
REDUCED SALES CHARGES
You may be eligible to buy Class A shares at reduced initial sales charge rates
under Rights of Accumulation or Letters of Intent under certain circumstances.
Purchases of Class A shares of AIM Tax-Exempt Cash Fund, Class A3 shares of
AIM Limited Maturity Treasury Fund and AIM Tax-Free Intermediate Fund, AIM Cash
Reserve Shares of AIM Money Market Fund and Class B and Class C shares of AIM
Floating Rate Fund and Investor Class shares of any fund will not be taken into
account in determining whether a purchase qualifies for a reduction in initial
sales charges pursuant to Rights of Accumulation or Letters of Intent.
RIGHTS OF ACCUMULATION
You may combine your new purchases of Class A shares of a fund with fund shares
currently owned (Class A, B, C, or R) and investments in the AIM College
Savings Plan/SM/ for the purpose of qualifying for the lower initial sales
charge rates that apply to larger purchases. The applicable initial sales
charge for the new purchase is based on the total of your current purchase and
the public offering price of all other shares you own. The transfer agent may
automatically link certain accounts registered in the same name, with the same
taxpayer identification number, for the purpose of qualifying you for lower
initial sales charge rates.
MCF--10/05 A-3
THE AIM FUNDS
LETTERS OF INTENT
Under a Letter of Intent (LOI), you commit to purchase a specified dollar
amount of Class A shares of the funds during a 13-month period. The amount you
agree to purchase determines the initial sales charge you pay. If the full face
amount of the LOI is not invested by the end of the 13-month period, your
account will be adjusted to the higher initial sales charge level for the
amount actually invested.
INITIAL SALES CHARGE EXCEPTIONS
You will not pay initial sales charges
... on shares purchased by reinvesting dividends and distributions;
... when exchanging shares among certain funds;
... when shares are purchased in connection with the repayment of a retirement
plan loan administered by AIM Investment Services, Inc.; or
... when a merger, consolidation, or acquisition of assets of a fund occurs.
CONTINGENT DEFERRED SALES CHARGE (CDSC) EXCEPTIONS
You will not pay a CDSC
... if you redeem Class B shares you held for more than six years;
... if you redeem Class C shares you held for more than one year;
... if you redeem Class C shares of a fund other than AIM Short Term Bond Fund
and you received such Class C shares by exchanging Class C shares of AIM
Short Term Bond Fund;
... if you redeem Class C shares of AIM Short Term Bond Fund unless you received
such Class C shares by exchanging Class C shares of another fund and the
original purchase was subject to a CDSC;
... if you are a participant in a retirement plan and your plan redeems, at any
time, less than all of the Class A, C, or Class R shares held through such
plan that would otherwise be subject to a CDSC;
... if you are a participant in a retirement plan and your plan redeems, after
having held them for more than one year from the date of the plan's initial
purchase, all of the Class A, C, or Class R shares held through such plan
that would otherwise be subject to a CDSC;
... if you are a participant in a qualified retirement plan and redeem Class A,
Class C, or Class R shares in order to fund a distribution;
... if you participate in the Systematic Redemption Plan and withdraw up to 12%
of the value of your shares that are subject to a CDSC in any twelve-month
period;
... if you redeem shares to pay account fees;
... for redemptions following the death or post-purchase disability of a
shareholder or beneficial owner;
... if you redeem shares acquired through reinvestment of dividends and
distributions; and
... on increases in the net asset value of your shares.
There may be other situations when you may be able to purchase or redeem shares
at reduced or without sales charges. Consult the fund's Statement of Additional
Information for details.
ADDITIONAL PAYMENTS TO FINANCIAL ADVISORS
The financial advisor through which you purchase your shares may receive all or
a portion of the sales charges and Rule 12b-1 distribution fees discussed
above. In addition to those payments, ADI or one or more of its corporate
affiliates (collectively, ADI Affiliates) may make additional cash payments to
financial advisors in connection with the promotion and sale of shares of the
funds. These additional cash payments may include cash revenue sharing payments
and other payments for certain administrative services, transaction processing
services and certain other marketing support services. ADI Affiliates make
these payments from their own resources, from ADI's retention of underwriting
concessions and from payments to ADI under Rule 12b-1 plans. In this context,
"financial advisors" include any broker, dealer, bank (including bank trust
departments), registered investment advisor, financial planner, retirement plan
administrator and any other financial intermediary having a selling,
administration or similar agreement with ADI Affiliates.
ADI Affiliates make revenue sharing payments as incentives to certain
financial advisors to promote and sell shares of the funds. The benefits ADI
Affiliates receive when they make these payments include, among other things,
placing the funds on the financial advisor's funds sales system, placing the
funds on the financial advisor's preferred or recommended fund list, and access
(in some cases on a preferential basis over other competitors) to individual
members of the financial advisor's sales force or to the financial advisor's
management. Revenue sharing payments are sometimes referred to as "shelf space"
payments because the payments compensate the financial advisor for including
the funds in its fund sales system (on its "sales shelf"). ADI Affiliates
compensate financial advisors differently depending typically on the level
and/or type of considerations provided by the financial advisor. The revenue
sharing payments ADI Affiliates make may be calculated on sales of shares of
the funds (Sales-Based Payments), in which case the total amount of such
payments shall not exceed 0.25% of the public offering price of all shares sold
by the financial advisor during the particular period. Such payments also may
be calculated on the average daily net assets of the applicable AIM funds
attributable to that particular financial advisor (Asset-Based Payments), in
which case the total amount of such cash payments shall not exceed 0.25% per
annum of those assets during a defined period. Sales-Based Payments primarily
create incentives to make new sales of shares of the funds and Asset-Based
Payments primarily create incentives to retain previously sold shares of the
funds in investor accounts. ADI Affiliates may pay a financial advisor either
or both Sales-Based Payments and Asset-Based Payments.
ADI Affiliates also may make other payments to certain financial advisors for
processing certain transactions or account maintenance activities (such as
processing purchases, redemptions or exchanges or producing customer account
statements) or for providing certain other marketing support services (such as
financial assistance for conferences, seminars or sales or training programs at
which ADI Affiliates personnel may make presentations on the funds to the
financial advisor's sales force). Financial advisors may earn profits on
A-4 MCF--10/05
THE AIM FUNDS
these payments for these services, since the amount of the payment may exceed
the cost of providing the service. Certain of these payments are subject to
limitations under applicable law.
ADI Affiliates are motivated to make the payments described above since they
promote the sale of fund shares and the retention of those investments by
clients of financial advisors. To the extent financial advisors sell more
shares of the funds or retain shares of the funds in their clients' accounts,
ADI Affiliates benefit from the incremental management and other fees paid to
ADI Affiliates by the funds with respect to those assets.
You can find further details in the fund's Statement of Additional
Information about these payments and the services provided by financial
advisors. In certain cases these payments could be significant to the financial
advisor. Your financial advisor may charge you additional fees or commissions
other than those disclosed in this prospectus. You can ask your financial
advisor about any payments it receives from ADI Affiliates or the funds, as
well as about fees and/or commissions it charges.
EXCESSIVE SHORT-TERM TRADING ACTIVITY DISCLOSURES
While the funds provide their shareholders with daily liquidity, their
investment programs are designed to serve long-term investors and are not
designed to accommodate excessive short-term trading activity in violation of
our policies described below. Excessive short-term trading activity in the
funds' shares (i.e., a purchase of fund shares followed shortly thereafter by a
redemption of such shares, or vice versa) may hurt the long-term performance of
certain funds by requiring them to maintain an excessive amount of cash or to
liquidate portfolio holdings at a disadvantageous time, thus interfering with
the efficient management of such funds by causing them to incur increased
brokerage and administrative costs. Where excessive short-term trading activity
seeks to take advantage of arbitrage opportunities from stale prices for
portfolio securities, the value of fund shares held by long-term investors may
be diluted. The Boards of Trustees have adopted policies and procedures
designed to discourage excessive or short-term trading of fund shares for all
funds except the money market funds. However, there is the risk that these
funds' policies and procedures will prove ineffective in whole or in part to
detect or prevent excessive or short-term trading. These funds may alter their
policies at any time without prior notice to shareholders if the advisor
believes the change would be in the best interests of long-term shareholders.
AIM and its affiliates (collectively, AIM Affiliates) currently use the
following tools designed to discourage excessive short-term trading in the
retail funds:
(1) trade activity monitoring;
(2) trading guidelines;
(3) redemption fee on trades in certain funds; and
(4) use of fair value pricing consistent with procedures approved by the Boards
of Trustees of the funds.
Each of these tools is described in more detail below. Although these tools are
designed to discourage excessive short-term trading, you should understand that
none of these tools alone nor all of them taken together eliminate the
possibility that excessive short-term trading activity in the funds will occur.
Moreover, each of these tools involves judgments that are inherently
subjective. The AIM Affiliates seek to make these judgments to the best of
their abilities in a manner that they believe is consistent with long-term
shareholder interests.
The Boards of Trustees of AIM Money Market Fund, AIM Tax-Exempt Cash Fund,
Premier Portfolio, Premier Tax-Exempt Portfolio and Premier U.S. Government
Money Portfolio (the money market funds) have not adopted any policies and
procedures that would limit frequent purchases and redemptions of such funds'
shares. The Boards do not believe that it is appropriate to adopt any such
policies and procedures for the money market funds for the following reasons:
... The money market funds are offered to investors as cash management vehicles.
Investors must perceive an investment in such funds as an alternative to
cash, and must be able to purchase and redeem shares regularly and frequently.
... One of the advantages of a money market fund as compared to other investment
options is liquidity. Any policy that diminishes the liquidity of the money
market funds will be detrimental to the continuing operations of such funds.
... The money market funds' portfolio securities are valued on the basis of
amortized cost, and such funds seeks to maintain a constant net asset value.
As a result, there are no price arbitrage opportunities.
... Because the money market funds seek to maintain a constant net asset value,
investors expect to receive upon redemption the amount they originally
invested in such funds. Imposition of redemption fees would run contrary to
investor expectations.
The Boards considered the risks of not having a specific policy that limits
frequent purchases and redemptions, and it determined that those risks are
minimal, especially in light of the reasons for not having such a policy as
described above. Nonetheless, to the extent that the fund must maintain
additional cash and/or securities with short-term durations than may otherwise
be required, the fund's yield could be negatively impacted.
TRADE ACTIVITY MONITORING
The AIM Affiliates monitor selected trades on a daily basis in an effort to
detect excessive short-term trading activities. If, as a result of this
monitoring, the AIM Affiliates believe that a shareholder has engaged in
excessive short-term trading, they will seek to act in a manner that they
believe is consistent with the best interests of long-term investors, which may
include taking steps such as (i) asking the shareholder to take action to stop
such activities or (ii) refusing to process future purchases or exchanges
related to such activities in the shareholder's accounts other than exchanges
into a money market fund. AIM Affiliates will use reasonable efforts to apply
the fund's policies uniformly given the practical limitations described above.
MCF--10/05 A-5
THE AIM FUNDS
The ability of the AIM Affiliates to monitor trades that are placed by the
underlying shareholders of omnibus accounts maintained by brokers, retirement
plan accounts and approved fee-based program accounts is severely limited or
non-existent in those instances in which the broker, retirement plan
administrator or fee-based program sponsor maintains the underlying shareholder
accounts. This is one reason why this tool cannot eliminate the possibility of
excessive short-term trading.
TRADING GUIDELINES
If you exceed four exchanges out of a fund (other than AIM Money Market Fund,
AIM Tax-Exempt Cash Fund, AIM Limited Maturity Treasury Fund, Premier
Portfolio, Premier Tax-Exempt Portfolio and Premier U.S. Government Money
Portfolio) per calendar year, or a fund or an AIM Affiliate determines, in its
sole discretion, that your short-term trading activity is excessive (regardless
of whether or not you exceed such guidelines), it may, in its discretion,
reject any additional purchase and exchange orders. Each fund and the AIM
Affiliates reserve the discretion to accept exchanges in excess of these
guidelines on a case-by-case basis if they believe that granting such
exceptions would be consistent with the best interests of shareholders. An
exchange is the purchase of shares in one fund which is paid for with the
proceeds from a redemption of shares of another fund effectuated on the same
day. The movement out of one fund (redemption) and into one or more other funds
(purchase) on the same day shall be counted as one exchange. Exchanges effected
as part of programs that have been determined by an AIM Affiliate to be
non-discretionary, such as dollar cost averaging, portfolio rebalancing, or
other automatic non-discretionary programs that involve exchanges, generally
will not be counted toward the trading guidelines limitation of four exchanges
out of a fund per calendar year.
The ability of the AIM Affiliates to monitor exchanges made by the underlying
shareholders of omnibus accounts maintained by brokers, retirement plan
accounts and approved fee-based program accounts is severely limited or
non-existent in those instances in which the broker, retirement plan
administrator or fee-based program sponsor maintains the underlying shareholder
accounts and is unwilling or unable to implement these trading guidelines and
may be further limited by systems limitations applicable to those types of
accounts.
Some investments in the funds are made indirectly through vehicles such as
qualified tuition plans, variable annuity and insurance contracts, and funds of
funds which use the funds as underlying investments (each a conduit investment
vehicle). If shares of the funds are held in the name of a conduit investment
vehicle and not in the names of the individual investors who have invested in
the funds through the conduit investment vehicle, the conduit investment
vehicle may be considered an individual shareholder of the funds. To the extent
that a conduit investment vehicle is considered an individual shareholder of
the funds, the funds are likely to be limited in their ability to impose
exchange limitations on individual transactions initiated by investors who have
invested in the funds through the conduit investment vehicle.
REDEMPTION FEE
You may be charged a 2% redemption fee if you redeem, including redeeming by
exchange, shares of certain funds within 30 days of purchase. See "Redeeming
Shares -- Redemption Fee" for more information.
The ability of a fund to assess a redemption fee on the underlying
shareholders of omnibus accounts maintained by brokers, retirement plan
accounts and approved fee-based program accounts is severely limited or
non-existent in those instances in which the broker, retirement plan
administrator or fee-based program sponsor maintains the underlying shareholder
accounts and is unwilling or unable to assess such fees and may be further
limited by systems limitations applicable to these types of accounts.
For additional discussion of the applicability of redemption fees on shares
of the fund held through omnibus accounts, retirement plan accounts, approved
fee-based program accounts and conduit investment vehicles, see "Redeeming
Shares -- Redemption Fee".
FAIR VALUE PRICING
Securities owned by a fund are to be valued at current market value if market
quotations are readily available. All other securities and assets of a fund for
which market quotations are not readily available are to be valued at fair
value determined in good faith using procedures approved by the Board of
Trustees of the fund. Fair value pricing may reduce the ability of frequent
traders to take advantage of arbitrage opportunities resulting from potentially
"stale" prices of portfolio holdings. However, it cannot eliminate the
possibility of frequent trading.
See "Pricing of Shares -- Determination of Net Asset Value" for more
information.
A-6 MCF--10/05
THE AIM FUNDS
PURCHASING SHARES
If you hold your shares through a broker/dealer or other financial institution,
your eligibility to purchase those shares, the conditions for purchase and
sale, and the minimum and maximum amounts allowed may differ depending on that
institution's policies.
MINIMUM INVESTMENTS PER FUND ACCOUNT
There are no minimum investments with respect to Class R shares for fund
accounts. The minimum investments with respect to Class A, A3, B and C shares
and Investor Class shares for fund accounts are as follows:
INITIAL ADDITIONAL
TYPE OF ACCOUNT INVESTMENTS INVESTMENTS
- --------------------------------------------------------------------------------------------------------------------------------
Employer-Sponsored Retirement Plans (includes section 401, 403 and 0 ($25 per fund investment for salary $25
457 plans, and SEP, SARSEP and SIMPLE IRA plans) deferrals from Employer-Sponsored
Retirement Plans)
Systematic Purchase Plan 50 50
IRA, Roth IRA or Coverdell ESA 250 25
All other accounts 1,000 50
ADI has the discretion to accept orders for lesser amounts.
- --------------------------------------------------------------------------------------------------------------------------------
HOW TO PURCHASE SHARES
You may purchase shares using one of the options below. Purchase orders will
not be processed unless the account application and purchase payment are
received in good order. In accordance with the USA PATRIOT Act, if you fail to
provide all the required information requested in the current account
application, your purchase order will not be processed. Additionally, Federal
law requires that the fund verify and record your identifying information.
PURCHASE OPTIONS
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
OPENING AN ACCOUNT ADDING TO AN ACCOUNT
- --------------------------------------------------------------------------------------------
Through a Financial Advisor Contact your financial Same
advisor.
By Mail Mail completed account Mail your check and the
application and check to the remittance slip from your
transfer agent, AIM confirmation statement to the
Investment Services, Inc., transfer agent.
P.O. Box 4739, Houston, TX
77210-4739.
By Wire Mail completed account Call the transfer agent to
application to the transfer receive a reference number.
agent. Call the transfer Then, use the wire
agent at (800) 959-4246 to instructions at left.
receive a reference number.
Then, use the following wire
instructions:
Beneficiary Bank ABA/Routing
#: 02100021
Beneficiary Account Number:
00100366807
Beneficiary Account Name: AIM
Investment Services, Inc.
RFB: Fund Name, Reference #
OBI: Your Name, Account #
By Telephone Open your account using one Select the AIM Bank
of the methods described Connection/SM/ option on your
above. completed account application
or complete an AIM Bank
Connection form. Mail the
application or form to the
transfer agent. Once the
transfer agent has received
the form, call the transfer
agent to place your purchase
order.
Call the AIM 24-hour
Automated Investor Line at
1-800-246-5463. You may place
your order after you have
provided the bank
instructions that will be
requested.
By Internet Open your account using one Access your account at
of the methods described www.aiminvestments.com. The
above. proper bank instructions must
have been provided on your
account. You may not purchase
shares in retirement accounts
on the internet.
- --------------------------------------------------------------------------------------------
MCF--10/05 A-7
THE AIM FUNDS
GRANDFATHERED INVESTORS
Investor Class shares of a fund may be purchased only by: (1) persons or
entities who had established an account, prior to April 1, 2002, in Investor
Class shares of any of the funds currently distributed by ADI (the
Grandfathered Funds) and have continuously maintained such account in Investor
Class shares since April 1, 2002; (2) any person or entity listed in the
account registration for any Grandfathered Funds, which account was established
prior to April 1, 2002 and continuously maintained since April 1, 2002, such as
joint owners, trustees, custodians and designated beneficiaries; (3) customers
of certain financial institutions, wrap accounts or other fee-based advisory
programs, or insurance company separate accounts, which have had relationships
with ADI and/or any of the Grandfathered Funds prior to April 1, 2002 and
continuously maintained such relationships since April 1, 2002; (4) defined
benefit, defined contribution and deferred compensation plans; and (5) fund
trustees, employees of AMVESCAP PLC and its subsidiaries, AMVESCAP directors,
and their immediate families.
SPECIAL PLANS
SYSTEMATIC PURCHASE PLAN
You can arrange for periodic investments in any of the funds by authorizing the
transfer agent to withdraw the amount of your investment from your bank account
on a day or dates you specify and in an amount of at least $50. You may stop
the Systematic Purchase Plan at any time by giving the transfer agent notice
ten days prior to your next scheduled withdrawal.
DOLLAR COST AVERAGING
Dollar Cost Averaging allows you to make automatic monthly or quarterly
exchanges, if permitted, from one fund account to one or more other fund
accounts with the identical registration. The account from which exchanges are
to be made must have a minimum balance of $5,000 before you can use this
option. Exchanges will occur on (or about) the day of the month you specify, in
the amount you specify. Dollar Cost Averaging cannot be set up for the 29th
through the 31st of the month. The minimum amount you can exchange to another
fund is $50. You may participate in a dollar cost averaging program hosted by
your dealer of record, your financial advisor or another financial
intermediary. If such program is the same or similar to AIM's Dollar Cost
Averaging program and is non-discretionary, both as determined by an AIM
Affiliate, exchanges made pursuant to such program generally will not be
counted toward the trading guideline limitation of four exchanges out of a fund
per calendar year.
AUTOMATIC DIVIDEND INVESTMENT
All of your dividends and distributions may be paid in cash or invested in any
fund at net asset value. Unless you specify otherwise, your dividends and
distributions will automatically be reinvested in the same fund. You may invest
your dividends and distributions per the rules listed in the "Permitted
Exchanges" section.
You must comply with the following requirements to be eligible to invest your
dividends and distributions in shares of another fund:
(1) Your account balance (a) in the fund paying the dividend must be at least
$5,000; and (b) in the fund receiving the dividend must be at least $500;
and
(2) Both accounts must have identical registration information.
PORTFOLIO REBALANCING PROGRAM
If you have at least $5,000 in your account, you may participate in the
Portfolio Rebalancing Program. Under this Program, you can designate how the
total value of your fund holdings should be rebalanced, on a percentage basis,
between two and ten of your funds on a quarterly, semiannual or annual basis.
Your portfolio will be rebalanced through the exchange of shares in one or more
of your funds for shares of the same class of one or more other funds in your
portfolio. Rebalancing will NOT occur if your portfolio is within 2% of your
stated allocation. If you wish to participate in the Program, make changes or
cancel the Program, the transfer agent must receive your request to
participate, changes, or cancellation in good order at least five business days
prior to the next rebalancing date, which is normally the 28th day of the last
month of the period you choose. You may realize taxable gains from these
exchanges. We may modify, suspend or terminate the Program at any time on 60
days prior written notice. You may participate in a portfolio rebalancing
program hosted by your dealer of record, your financial advisor or another
financial intermediary. If such program is the same or similar to AIM's
Portfolio Rebalancing Program and is non-discretionary, both as determined by
an AIM Affiliate, exchanges made pursuant to such program generally will not be
counted toward the trading guideline limitation of four exchanges out of a fund
per calendar year.
RETIREMENT PLANS
Shares of most of the funds can be purchased through tax-sheltered retirement
plans made available to corporations, individuals and employees of non-profit
organizations and public schools. A plan document must be adopted to establish
a retirement plan. You may use ADI sponsored retirement plans, which include
IRAs, Roth IRAs, SIMPLE IRA plans, SEP/SARSEP plans, 403(b) plans, Solo 401(k)
plans and Money Purchase/Profit Sharing plans, or another sponsor's retirement
plan. AIM Investment Services, Inc. assesses certain fees associated with the
maintenance of certain types of retirement plan accounts and the provision of
specialized recordkeeping services for those plan accounts. ADI assesses
certain fees associated with the maintenance of retirement plan documents for
which it acts as the prototype sponsor. Contact your financial advisor for
details.
A-8 MCF--10/05
THE AIM FUNDS
REDEEMING SHARES
REDEMPTION FEE
You may be charged a 2% redemption fee (on redemption proceeds) if you redeem,
including redeeming by exchange, shares of the following funds within 30 days
of their purchase:
AIM Asia Pacific Growth
Fund AIM Global Value Fund
AIM Developing Markets
Fund AIM High Yield Fund
AIM European Growth Fund AIM International Core
Equity Fund
AIM International Growth
AIM European Small Company Fund
Fund
AIM Global Aggressive AIM International Small
Growth Fund Company Fund
AIM Global Equity Fund AIM S&P 500 Index Fund
AIM Global Growth Fund AIM Trimark Fund
AIM Global Real Estate
Fund
The redemption fee will be retained by the fund from which you are redeeming
shares (including redemptions by exchange), and is intended to offset the
trading costs, market impact and other costs associated with short-term money
movements in and out of the fund. The redemption fee is imposed to the extent
that the number of fund shares you redeem exceeds the number of fund shares
that you have held for more than 30 days. In determining whether the minimum 30
day holding period has been met, only the period during which you have held
shares of the fund from which you are redeeming is counted. For this purpose,
shares held longest will be treated as being redeemed first and shares held
shortest as being redeemed last.
The 2% redemption fee generally will not be charged on transactions involving
the following:
(1) total or partial redemptions of shares by omnibus accounts maintained by
brokers that do not have the systematic capability to process the
redemption fee;
(2) total or partial redemptions of shares by approved fee-based programs that
do not have the systematic capability to process the redemption fee;
(3) total or partial redemptions of shares held through retirement plans
maintained pursuant to Sections 401, 403, 408, 408A and 457 of the Internal
Revenue Code (the Code) where the systematic capability to process the
redemption fee does not exist;
(4) total or partial redemptions effectuated by funds of funds, qualified
tuition plans maintained pursuant to Section 529 of the Code, and insurance
company separate accounts which use the funds as underlying investments;
(5) total or partial redemptions effectuated pursuant to an automatic
non-discretionary rebalancing program or a systematic withdrawal plan
established with the funds or a financial intermediary;
(6) total or partial redemptions requested within 30 days following the death
or post-purchase disability of (i) any registered shareholder on an account
or (ii) the settlor of a living trust which is the registered shareholder
of an account, of shares held in the account at the time of death or
initial determination of post-purchase disability;
(7) total or partial redemption of shares acquired through investment of
dividends and other distributions; or
(8) redemptions initiated by a fund.
The AIM Affiliates' goals are to apply the redemption fee on all classes of
shares of the above funds regardless of the type of account in which such
shares are held. This goal is not immediately achievable because of systems
limitations and marketplace resistance. Brokers that maintain omnibus accounts,
sponsors of fee-based program accounts and retirement plan administrators for
accounts that are exempt from the redemption fee pursuant to (1) through (8)
above may impose a redemption fee that has different characteristics, which may
be more or less restrictive, than those set forth above.
Some investments in the funds are made indirectly through conduit investment
vehicles. If shares of the funds are held in the name of a conduit investment
vehicle and not in the names of the individual investors who have invested in
the funds through the conduit investment vehicle, the conduit investment
vehicle may be considered an individual shareholder of the funds. To the extent
that a conduit investment vehicle is considered an individual shareholder of
the funds, the funds are likely to be limited in their ability to assess
redemption fees on individual transactions initiated by investors who have
invested in the funds through the conduit investment vehicle. In these cases,
the applicability of redemption fees will be determined based on the aggregate
holdings and redemptions of the conduit investment vehicle in a fund.
The funds have the discretion to waive the 2% redemption fee if a fund is in
jeopardy of losing its registered investment company qualification for tax
purposes.
Your broker or financial advisor may charge service fees for handling
redemption transactions. Your shares also may be subject to a contingent
deferred sales charge (CDSC) in addition to the redemption fee.
REDEMPTION OF CLASS A SHARES AND AIM CASH RESERVE SHARES ACQUIRED BY EXCHANGE
If you purchase $1,000,000 or more of Class A shares of any fund, or if you
make additional purchases of Class A shares on and after
MCF--10/05 A-9
THE AIM FUNDS
October 31, 2002 at net asset value, your shares may be subject to a CDSC upon
redemption as described below.
SHARES
INITIALLY SHARES HELD CDSC APPLICABLE UPON
PURCHASED AFTER AN EXCHANGE REDEMPTION OF SHARES
--------- ----------------- -----------------------------
.Class A shares .Class A shares of Category .1% if shares are redeemed
of Category I I or II Fund or AIM Short within 18 months of initial
or II Fund or Term Bond Fund purchase of Category I or
AIM Short .Class A shares of Category II Fund or AIM Short Term
Term Bond III Fund/2/ Bond Fund shares
Fund .AIM Cash Reserve Shares
of AIM Money Market Fund
.Class A shares .Class A shares of Category .1% if shares are redeemed
of Category III I or II Fund or AIM Short within 18 months of initial
Fund/1/ Term Bond Fund purchase of Category III
Fund shares
.Class A shares .Class A shares of Category .No CDSC
of Category III III Fund/2/
Fund/1/ .Class A shares of AIM Tax-
Exempt Cash Fund
.AIM Cash Reserve Shares
of AIM Money Market
/1 /As of the close of business on October 30, 2002, only existing shareholders
of Class A shares of a Category III Fund may purchase such shares.
/2 /Beginning on February 17, 2003, Class A shares of a Category I, II or III
Fund or AIM Short Term Bond Fund may not be exchanged for Class A shares of
Category III Fund.
REDEMPTION OF CLASS B SHARES ACQUIRED BY EXCHANGE FROM AIM FLOATING RATE FUND
If you redeem Class B shares you acquired by exchange via a tender offer by AIM
Floating Rate Fund, the early withdrawal charge applicable to shares of AIM
Floating Rate Fund will be applied instead of the CDSC normally applicable to
Class B shares.
HOW TO REDEEM SHARES
- ----------------------------------------------------------------------------------------
Through a Financial Advisor Contact your financial advisor, including your retirement
plan or program sponsor.
By Mail Send a written request to the transfer agent. Requests must
include (1) original signatures of all registered owners
/trustees; (2) the name of the fund and your account
number; (3) if the transfer agent does not hold your
shares, endorsed share certificates or share certificates
accompanied by an executed stock power; and (4) signature
guarantees, if necessary (see below). The transfer agent
may require that you provide additional information, such
as corporate resolutions or powers of attorney, if
applicable. If you are redeeming from an IRA account, you
must include a statement of whether or not you are at least
59 1/2 years old and whether you wish to have federal
income tax withheld from your proceeds. The transfer agent
may require certain other information before you can redeem
from an employer-sponsored retirement plan. Contact your
employer for details.
By Telephone Call the transfer agent at 1-800-959-4246 or our AIM
24-hour Automated Investor Line at 1-800-246-5463. You will
be allowed to redeem by telephone if (1) the proceeds are
to be mailed to the address on record (if there has been no
change communicated to us within the last 30 days) or
transferred electronically to a pre-authorized checking
account; (2) you do not hold physical share certificates;
(3) you can provide proper identification information;
(4) the proceeds of the redemption do not exceed $250,000;
and (5) you have not previously declined the telephone
redemption privilege. Certain retirement accounts and
403(b) plans, may not be redeemed by telephone. For funds
other than Premier Portfolio, Premier Tax-Exempt Portfolio
and Premier U.S. Government Money Portfolio, the transfer
agent must receive your call during the hours of the
customary trading session of the New York Stock Exchange
(NYSE) in order to effect the redemption at that day's
closing price. For Premier Portfolio, Premier Tax-Exempt
Portfolio and Premier U.S. Government Money Portfolio, the
transfer agent must receive your call before the last net
asset value determination on a business day in order to
effect the redemption at that day's closing price. You may,
with limited exceptions, redeem from an IRA account by
telephone. Redemptions from other types of retirement
accounts may be requested in writing.
By Internet Place your redemption request at www.aiminvestments.com.
You will be allowed to redeem by internet if (1) you do not
hold physical share certificates; (2) you can provide
proper identification information; (3) the proceeds of the
redemption do not exceed $ 250,000; and (4) you have
already provided proper bank information. AIM prototype
retirement accounts may not be redeemed on the internet.
For funds other than Premier Portfolio, Premier Tax-Exempt
Portfolio and Premier U.S. Government Money Portfolio, the
transfer agent must confirm your transaction during the
hours of the customary trading session of the NYSE in order
to effect the redemption at that day's closing price. For
Premier Portfolio, Premier Tax-Exempt Portfolio and Premier
U.S. Government Money Portfolio, the transfer agent must
confirm your transaction before the last net asset value
determination on a business day in order to effect the
redemption at that day's closing price.
- ----------------------------------------------------------------------------------------
A-10 MCF--10/05
THE AIM FUNDS
TIMING AND METHOD OF PAYMENT
We normally will send out checks within one business day, and in any event no
more than seven days, after we accept your request to redeem. If you redeem
shares recently purchased by check, you will be required to wait up to ten
business days before we will send your redemption proceeds. This delay is
necessary to ensure that the purchase check has cleared. Payment may be
postponed in cases where the SEC declares an emergency or normal trading is
halted.
REDEMPTION BY MAIL
If you mail us a request in good order to redeem your shares, we will mail you
a check in the amount of the redemption proceeds to the address on record with
us. If your request is not in good order, you may have to provide us with
additional documentation in order to redeem your shares.
REDEMPTION BY TELEPHONE
If you redeem by telephone, we will mail you a check in the amount of the
redemption proceeds to your address of record (if there has been no change
communicated to the transfer agent within the previous 30 days) or transmit
them electronically to your pre-authorized bank account. We use reasonable
procedures to confirm that instructions communicated by telephone are genuine,
but we are not liable for telephone instructions that are reasonably believed
to be genuine.
REDEMPTION BY INTERNET
If you redeem by internet, we will transmit your redemption proceeds
electronically to your pre-authorized bank account. We use reasonable
procedures to confirm that instructions communicated by internet are genuine,
but we are not liable for internet instructions that are reasonably believed to
be genuine.
PAYMENT FOR SYSTEMATIC REDEMPTIONS
You may arrange for regular monthly or quarterly withdrawals from your account
of at least $50. You also may make annual withdrawals if you own Class A
shares. We will redeem enough shares from your account to cover the amount
withdrawn. You must have an account balance of at least $5,000 to establish a
Systematic Redemption Plan. You can stop this plan at any time by giving ten
days prior notice to the transfer agent.
EXPEDITED REDEMPTIONS
(AIM CASH RESERVE SHARES OF AIM MONEY MARKET FUND ONLY)
If we receive your redemption order before 11:30 a.m. Eastern Time, we will try
to transmit payment of redemption proceeds on that same day. If we receive your
redemption order after 11:30 a.m. Eastern Time and before the close of the
customary trading session of the NYSE, we generally will transmit payment on
the next business day.
REDEMPTIONS BY CHECK
(CLASS A SHARES OF AIM TAX-EXEMPT CASH FUND, AIM CASH RESERVE SHARES OF AIM
MONEY MARKET FUND AND INVESTOR CLASS SHARES OF AIM MONEY MARKET FUND, AIM
TAX-EXEMPT CASH FUND, PREMIER PORTFOLIO, PREMIER TAX-EXEMPT PORTFOLIO AND
PREMIER U.S. GOVERNMENT MONEY PORTFOLIO ONLY)
You may redeem shares of these funds by writing checks in amounts of $250 or
more if you have completed an authorization form. Redemption by check is not
available for retirement accounts.
SIGNATURE GUARANTEES
We require a signature guarantee when you redeem by mail and
(1) the amount is greater than $250,000;
(2) you request that payment be made to someone other than the name registered
on the account;
(3) you request that payment be sent somewhere other than the bank of record on
the account; or
(4) you request that payment be sent to a new address or an address that
changed in the last 30 days.
The transfer agent will accept a guarantee of your signature by a number of
financial institutions. Call the transfer agent for additional information.
Some institutions have transaction amount maximums for these guarantees. Please
check with the guarantor institution.
REDEMPTIONS IN KIND
Although the funds generally intend to pay redemption proceeds solely in cash,
the funds reserve the right to determine, in their sole discretion, whether to
satisfy redemption requests by making payment in securities or other property
(known as a redemption in kind).
REDEMPTIONS BY THE FUNDS
If your account (Class A, Class A3, Class B, Class C and Investor Class shares
only) has been open at least one year, you have not made an additional purchase
in the account during the past six calendar months, and the value of your
account falls below $500 ($250 for Investor Class shares) for three consecutive
months due to redemptions or exchanges (excluding retirement accounts), the
funds have the right to redeem the account after giving you 60 days' prior
written notice. You may avoid having your account redeemed during the notice
period by bringing the account value up to $500 ($250 for Investor Class
shares) or by utilizing the Automatic Investment Plan.
If the fund determines that you have not provided a correct Social Security
or other tax ID number on your account application, or the fund is not able to
verify your identity as required by law, the fund may, at its discretion,
redeem the account and distribute the proceeds to you.
EXCHANGING SHARES
You may, under certain circumstances, exchange shares in one fund for those of
another fund. An exchange is the purchase of shares in one fund which is paid
for with the proceeds from a redemption of shares of another fund effectuated
on the same day. Before requesting an exchange, review the prospectus of the
fund you wish to acquire. Exchange privileges also apply to holders of the
Connecticut General Guaranteed Account, established for tax-qualified group
annuities, for contracts purchased on or before June 30, 1992.
You may be charged a redemption fee on certain redemptions, including
exchanges. See "Redeeming Shares -- Redemption Fee."
MCF--10/05 A-11
THE AIM FUNDS
PERMITTED EXCHANGES
Except as otherwise stated under "Exchanges Not Permitted," you generally may
exchange your shares for shares of the same class of another fund.
- -----------------------------------------------------------------------------------------------------------------------------
EXCHANGE FROM EXCHANGE TO
- -----------------------------------------------------------------------------------------------------------------------------
Class A Class A, A3, Investor Class, or AIM Cash Reserve Shares. Exceptions are:
.Class A Shares of AIM Limited Maturity Treasury Fund and AIM Tax-Free Intermediate Fund are
currently closed to new investors.
.Class A Shares of AIM Limited Maturity Treasury Fund, AIM Tax-Exempt Cash Fund and AIM Tax-
Free Intermediate Fund cannot be exchanged for Class A3 Shares of those funds.
.Investor Class Shares of all funds are currently offered to new investors only on a limited basis.
- -----------------------------------------------------------------------------------------------------------------------------
Class A Class B, C, P, R or Institutional Class Shares.
- -----------------------------------------------------------------------------------------------------------------------------
Class A3 Class A, A3, Investor Class, or AIM Cash Reserve Shares. Exceptions are:
.Class A3 Shares of AIM Limited Maturity Treasury Fund and AIM Tax-Free Intermediate Fund
cannot be exchanged for Class A Shares of those funds.
.Investor Class Shares of all funds are currently offered to new investors only on a limited basis.
- -----------------------------------------------------------------------------------------------------------------------------
Class A3 Class B, C, P, R or Institutional Class Shares.
- -----------------------------------------------------------------------------------------------------------------------------
Class B Class B. Exceptions are:
.Class B Shares of other funds cannot be exchanged for Class B Shares of AIM Floating Rate
Fund.
- -----------------------------------------------------------------------------------------------------------------------------
Class B Class A, A3, C, P, R, AIM Cash Reserve Shares, Institutional or Investor Class Shares.
- -----------------------------------------------------------------------------------------------------------------------------
Class C Class C. Exceptions are:
.Class C shares of other funds cannot be exchanged for Class C shares of AIM Floating Rate Fund.
- -----------------------------------------------------------------------------------------------------------------------------
Class C Class A, A3, B, P, R, AIM Cash Reserve Shares, Institutional or Investor Class shares.
- -----------------------------------------------------------------------------------------------------------------------------
Class R Class R
- -----------------------------------------------------------------------------------------------------------------------------
Class R Class A, A3, B, C, P, AIM Cash Reserve Shares, Institutional or Investor Class shares.
- -----------------------------------------------------------------------------------------------------------------------------
AIM Cash Reserve Shares Class A, A3, B, C, R, or Investor Class shares. Exceptions are:
.Class A shares of AIM Limited Maturity Treasury Fund and AIM Tax-Free Intermediate Fund are
currently closed to new investors.
.Shares to be exchanged for Class B, C or R shares must not have been acquired by exchange
from Class A shares of any fund.
.Investor Class Shares of all funds are currently offered to new investors only on a limited basis.
- -----------------------------------------------------------------------------------------------------------------------------
AIM Cash Reserve Shares Class P or Institutional Class shares.
- -----------------------------------------------------------------------------------------------------------------------------
Institutional Class Institutional Class
- -----------------------------------------------------------------------------------------------------------------------------
Institutional Class Class A, A3, B, C, P, R, AIM Cash Reserve Shares or Investor Class shares.
- -----------------------------------------------------------------------------------------------------------------------------
Investor Class A, A3, or Investor Class. Exceptions are:
.Investor Class shares cannot be exchanged for Class A shares of any fund which offers Investor
Class shares.
.Class A shares of AIM Limited Maturity Treasury Fund and AIM Tax-Free Intermediate Fund are
currently closed to new investors.
- -----------------------------------------------------------------------------------------------------------------------------
Investor Class Class B, C, P, R, AIM Cash Reserve Shares or Institutional Class shares.
- -----------------------------------------------------------------------------------------------------------------------------
Class P Class A, A3, or AIM Cash Reserve Shares. Exceptions are:
.Class A shares of AIM Limited Maturity Treasury Fund and AIM Tax-Free Intermediate Fund are
currently closed to new investors.
- -----------------------------------------------------------------------------------------------------------------------------
Class P Class B, C, R, Institutional or Investor Class shares.
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
EXCHANGE TO ALLOWED PROHIBITED
- -----------------------------------------------------------------------------------------------------------------------
Class A, A3, Investor Class, or AIM Cash Reserve Shares. Exceptions are: X
...Class A Shares of AIM Limited Maturity Treasury Fund and AIM Tax-Free Intermediate Fund are
currently closed to new investors.
...Class A Shares of AIM Limited Maturity Treasury Fund, AIM Tax-Exempt Cash Fund and AIM Tax-
Free Intermediate Fund cannot be exchanged for Class A3 Shares of those funds.
...Investor Class Shares of all funds are currently offered to new investors only on a limited basis.
- -----------------------------------------------------------------------------------------------------------------------
Class B, C, P, R or Institutional Class Shares. X
- -----------------------------------------------------------------------------------------------------------------------
Class A, A3, Investor Class, or AIM Cash Reserve Shares. Exceptions are: X
...Class A3 Shares of AIM Limited Maturity Treasury Fund and AIM Tax-Free Intermediate Fund
cannot be exchanged for Class A Shares of those funds.
...Investor Class Shares of all funds are currently offered to new investors only on a limited basis.
- -----------------------------------------------------------------------------------------------------------------------
Class B, C, P, R or Institutional Class Shares. X
- -----------------------------------------------------------------------------------------------------------------------
Class B. Exceptions are: X
...Class B Shares of other funds cannot be exchanged for Class B Shares of AIM Floating Rate
Fund.
- -----------------------------------------------------------------------------------------------------------------------
Class A, A3, C, P, R, AIM Cash Reserve Shares, Institutional or Investor Class Shares. X
- -----------------------------------------------------------------------------------------------------------------------
Class C. Exceptions are: X
...Class C shares of other funds cannot be exchanged for Class C shares of AIM Floating Rate Fund.
- -----------------------------------------------------------------------------------------------------------------------
Class A, A3, B, P, R, AIM Cash Reserve Shares, Institutional or Investor Class shares. X
- -----------------------------------------------------------------------------------------------------------------------
Class R X
- -----------------------------------------------------------------------------------------------------------------------
Class A, A3, B, C, P, AIM Cash Reserve Shares, Institutional or Investor Class shares. X
- -----------------------------------------------------------------------------------------------------------------------
Class A, A3, B, C, R, or Investor Class shares. Exceptions are: X
...Class A shares of AIM Limited Maturity Treasury Fund and AIM Tax-Free Intermediate Fund are
currently closed to new investors.
...Shares to be exchanged for Class B, C or R shares must not have been acquired by exchange
from Class A shares of any fund.
...Investor Class Shares of all funds are currently offered to new investors only on a limited basis.
- -----------------------------------------------------------------------------------------------------------------------
Class P or Institutional Class shares. X
- -----------------------------------------------------------------------------------------------------------------------
Institutional Class X
- -----------------------------------------------------------------------------------------------------------------------
Class A, A3, B, C, P, R, AIM Cash Reserve Shares or Investor Class shares. X
- -----------------------------------------------------------------------------------------------------------------------
A, A3, or Investor Class. Exceptions are: X
...Investor Class shares cannot be exchanged for Class A shares of any fund which offers Investor
Class shares.
...Class A shares of AIM Limited Maturity Treasury Fund and AIM Tax-Free Intermediate Fund are
currently closed to new investors.
- -----------------------------------------------------------------------------------------------------------------------
Class B, C, P, R, AIM Cash Reserve Shares or Institutional Class shares. X
- -----------------------------------------------------------------------------------------------------------------------
Class A, A3, or AIM Cash Reserve Shares. Exceptions are: X
...Class A shares of AIM Limited Maturity Treasury Fund and AIM Tax-Free Intermediate Fund are
currently closed to new investors.
- -----------------------------------------------------------------------------------------------------------------------
Class B, C, R, Institutional or Investor Class shares. X
- -----------------------------------------------------------------------------------------------------------------------
A-12 MCF--10/05
THE AIM FUNDS
You may be required to pay an initial sales charge when exchanging from a
fund with a lower initial sales charge than the one into which you are
exchanging. If you exchange into shares that are subject to a CDSC, we will
begin the holding period for purposes of calculating the CDSC on the date you
made your initial purchase.
EXCHANGES NOT SUBJECT TO A SALES CHARGE
You will not pay an initial sales charge when exchanging:
(1) Class A shares with an initial sales charge (excluding Class A shares of
AIM Limited Maturity Treasury Fund and AIM Tax-Free Intermediate Fund) for
(a) Class A shares of another fund;
(b) AIM Cash Reserve Shares of AIM Money Market Fund; or
(c) Class A3 shares of AIM Limited Maturity Treasury Fund or AIM Tax-Free
Intermediate Fund.
(2) Class A shares of AIM Limited Maturity Treasury Fund and AIM Tax-Free
Intermediate Fund with an initial sales charge for
(a) AIM Cash Reserve Shares of AIM Money Market Fund or Class A shares of
AIM Tax-Exempt Cash Fund; or
(b) Class A shares of another Fund, but only if
(i) you acquired the original shares before May 1, 1994; or
(ii) you acquired the original shares on or after May 1, 1994 by way of an
exchange from shares with higher initial sales charges; or
(3) AIM Cash Reserve Shares of AIM Money Market Fund or Class A shares of AIM
Tax-Exempt Cash Fund for
(a) Class A shares of a fund subject to an initial sales charge (excluding
Class A shares of AIM Limited Maturity Treasury Fund and AIM Tax-Free
Intermediate Fund), but only if you acquired the original shares
(i) prior to May 1, 1994 by exchange from Class A shares subject to an
initial sales charge;
(ii) on or after May 1, 1994 by exchange from Class A shares subject to an
initial sales charge (excluding Class A shares of AIM Limited
Maturity Treasury Fund and AIM Tax-Free Intermediate Fund); or
(4) Class A3 shares of AIM Limited Maturity Treasury Fund or AIM Tax-Free
Intermediate Fund for
(a) AIM Cash Reserve Shares of AIM Money Market Fund; or
(b) Class A shares of AIM Tax-Exempt Cash Fund; or
(5) Investor Class shares for Class A or Class A3 shares of any fund which does
not offer Investor Class shares.
You will not pay a CDSC or other sales charge when exchanging:
(1) Class A shares for other Class A shares;
(2) Class B shares for other Class B shares;
(3) Class C shares for other Class C shares;
(4) Class R shares for other Class R shares.
EXCHANGES NOT PERMITTED
For shares purchased prior to November 15, 2001, you may not exchange:
(1) Class A shares of Category I or II funds (i) subject to an initial sales
charge or (ii) purchased at net asset value and subject to a contingent
deferred sales charge (CDSC) for Class A shares of AIM Tax-Exempt Cash Fund;
(2) Class A shares of Category III funds purchased at net asset value for Class
A shares of a Category I or II fund, Class A shares of AIM Short Term Bond
Fund;
(3) on or after January 15, 2002, AIM Cash Reserve Shares of AIM Money Market
Fund or Class A shares of AIM Tax-Exempt Cash Fund for Class A shares of
Category III AIM Funds that are subject to a CDSC.
For shares purchased on or after November 15, 2001, you may not exchange:
(1) Class A shares of Category I or II fund, Class A shares of AIM Short Term
Bond Fund (i) subject to an initial sales charge or (ii) purchased at net
asset value and subject to a CDSC for Class A shares of AIM Tax-Exempt Cash
Fund;
(2) Class A shares of AIM Tax-Exempt Cash Fund for Class A shares of any other
fund (i) subject to an initial sales charge or (ii) purchased at net asset
value and subject to a CDSC or for AIM Cash Reserve Shares of AIM Money
Market Fund; or
(3) AIM Cash Reserve Shares of AIM Money Market Fund for Class B or Class C
shares of any fund or for Class A shares of any fund that are subject to a
CDSC, however, if you originally purchased Class A shares of a Category I
or II fund or AIM Short Term Bond Fund, and exchanged those shares for AIM
Cash Reserve Shares of AIM Money Market Fund, you may further exchange the
AIM Cash Reserve Shares for Class A shares of a Category I or II fund or
AIM Short Term Bond Fund.
EXCHANGE CONDITIONS
The following conditions apply to all exchanges:
... Shares of the fund you wish to acquire must be available for sale in your
state of residence;
... Exchanges must be made between accounts with identical registration
information;
... The account you wish to exchange from must have a certified tax
identification number (or the Fund has received an appropriate Form W-8 or
W-9);
... Shares must have been held for at least one day prior to the exchange with
the exception of dividends that are reinvested; and
... If you have physical share certificates, you must return them to the transfer
agent prior to the exchange.
MCF--10/05 A-13
THE AIM FUNDS
TERMS OF EXCHANGE
Under unusual market conditions, a fund may delay the purchase of shares being
acquired in an exchange for up to five business days if it determines that it
would be materially disadvantaged by the immediate transfer of exchange
proceeds. The exchange privilege is not an option or right to purchase shares.
Any of the participating funds or the distributor may modify or terminate this
privilege at any time. The fund or the distributor will provide you with notice
of such modification or termination whenever it is required to do so by
applicable law, but may impose changes at any time for emergency purposes.
BY MAIL
If you wish to make an exchange by mail, you must include original signatures
of each registered owner exactly as the shares are registered, the account
registration and account number, the dollar amount or number of shares to be
exchanged and the names of the funds from which and into which the exchange is
to be made.
BY TELEPHONE
Conditions that apply to exchanges by telephone are the same as redemptions by
telephone, including that the transfer agent must receive exchange requests
during the hours of the customary trading session of the NYSE; however, you
still will be allowed to exchange by telephone even if you have changed your
address of record within the preceding 30 days.
BY INTERNET
You will be allowed to exchange by internet if you do not hold physical share
certificates and you provide the proper identification information.
EXCHANGING CLASS B, CLASS C AND CLASS R SHARES
If you make an exchange involving Class B or Class C shares or Class R shares
subject to a CDSC, the amount of time you held the original shares will be
credited to the holding period of the Class B, Class C or Class R shares,
respectively, into which you exchanged for the purpose of calculating
contingent deferred sales charges (CDSC) if you later redeem the exchanged
shares. If you redeem Class B or Class C shares acquired by exchange via a
tender offer by AIM Floating Rate Fund, you will be credited with the time
period you held the Class B or Class C shares of AIM Floating Rate Fund for the
purpose of computing the early withdrawal charge applicable to those shares.
EACH FUND AND ITS AGENTS RESERVE THE RIGHT AT ANY TIME TO:
... REJECT OR CANCEL ALL OR ANY PART OF ANY PURCHASE OR EXCHANGE ORDER;
... MODIFY ANY TERMS OR CONDITIONS OF PURCHASE OF SHARES OF ANY FUND;
... REJECT OR CANCEL ANY REQUEST TO ESTABLISH THE SYSTEMATIC PURCHASE PLAN AND
SYSTEMATIC REDEMPTION PLAN OPTIONS ON THE SAME ACCOUNT; OR
... SUSPEND, CHANGE OR WITHDRAW ALL OR ANY PART OF THE OFFERING MADE BY THIS
PROSPECTUS.
PRICING OF SHARES
DETERMINATION OF NET ASSET VALUE
The price of each fund's shares is the fund's net asset value per share. The
funds value portfolio securities for which market quotations are readily
available at market value. The funds value all other securities and assets for
which market quotations are unavailable or unreliable at their fair value in
good faith using procedures approved by the Boards of Trustees of the funds.
Securities and other assets quoted in foreign currencies are valued in U.S.
dollars based on the prevailing exchange rates on that day.
Even when market quotations are available, they may be stale or they may be
unreliable because the security is not traded frequently, trading on the
security ceased before the close of the trading market or issuer specific
events occurred after the security ceased trading or because of the passage of
time between the close of the market on which the security trades and the close
of the NYSE and when the fund calculates its net asset value. Issuer specific
events may cause the last market quotation to be unreliable. Such events may
include a merger or insolvency, events which affect a geographical area or an
industry segment, such as political events or natural disasters, or market
events, such as a significant movement in the U.S. market. Where market
quotations are not readily available, including where AIM determines that the
closing price of the security is unreliable, AIM will value the security at
fair value in good faith using procedures approved by the Boards of Trustees.
Fair value pricing may reduce the ability of frequent traders to take advantage
of arbitrage opportunities resulting from potentially "stale" prices of
portfolio holdings. However, it cannot eliminate the possibility of frequent
trading.
Fair value is that amount that the owner might reasonably expect to receive
for the security upon its current sale. Fair value requires consideration of
all appropriate factors, including indications of fair value available from
pricing services. A fair value price is an estimated price and may vary from
the prices used by other mutual funds to calculate their net asset values.
AIM may use indications of fair value from pricing services approved by the
Boards of Trustees. In other circumstances, the AIM valuation committee may
fair value securities in good faith using procedures approved by the Boards of
Trustees. As a means of evaluating its fair value process, AIM routinely
compares closing market prices, the next day's opening prices for the security
in its primary market if available, and indications of fair value from other
sources. Fair value pricing methods and pricing services can change from time
to time as approved by the Boards of Trustees.
Specific types of securities are valued as follows:
Domestic Exchange Traded Equity Securities: Market quotations are generally
available and reliable for domestic exchange traded equity securities. If
market quotations are not available or are unreliable, AIM will value the
security at fair value in good faith using procedures approved by the Boards of
Trustees.
Foreign Securities: If market quotations are available and reliable for
foreign exchange traded equity securities, the securities will be valued at the
market quotations. Because trading hours for certain
A-14 MCF--10/05
THE AIM FUNDS
foreign securities end before the close of the NYSE, closing market quotations
may become unreliable. If between the time trading ends on a particular
security and the close of the customary trading session on the NYSE events
occur that are significant and may make the closing price unreliable, the fund
may fair value the security. If an issuer specific event has occurred that AIM
determines, in its judgment, is likely to have affected the closing price of a
foreign security, it will price the security at fair value. AIM also relies on
a screening process from a pricing vendor 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. For foreign securities where AIM believes, at the approved degree of
certainty, that the price is not reflective of current market value, AIM will
use the indication of fair value from the pricing service to determine the fair
value of the security. The pricing vendor, pricing methodology or degree of
certainty may change from time to time.
Fund securities primarily traded on foreign markets may trade on days that
are not business days of the fund. Because the net asset value of fund shares
is determined only on business days of the fund, the value of the portfolio
securities of a fund that invests in foreign securities may change on days when
you will not be able to purchase or redeem shares of the fund.
Fixed Income Securities: Government, corporate, asset-backed and municipal
bonds and convertible securities, including high yield or junk bonds, normally
are valued on the basis of prices provided by independent pricing services.
Prices provided by the pricing services may be determined without exclusive
reliance on quoted prices, and may reflect appropriate factors such as
institution-size trading in similar groups of securities, developments related
to special securities, dividend rate, maturity and other market data. Prices
received from pricing services are fair value prices. In addition, if the price
provided by the pricing service and independent quoted prices are unreliable,
the AIM valuation committee will fair value the security using procedures
approved by the Boards of Trustees.
Short-term Securities: The funds' short-term investments are valued at
amortized cost when the security has 60 days or less to maturity. AIM Money
Market Fund, AIM Tax-Exempt Cash Fund, Premier Portfolio, Premier Tax-Exempt
Portfolio and Premier U.S. Government Money Portfolio value all their
securities at amortized cost. AIM High Income Municipal Fund, AIM Municipal
Bond Fund and AIM Tax-Free Intermediate Fund value variable rate securities
that have an unconditional demand or put feature exercisable within seven days
or less at par, which reflects the market value of such securities.
Futures and Options: Futures and options are valued on the basis of market
quotations, if available.
Open-end Funds: To the extent a fund invests in other open-end funds, the
investing fund will calculate its net asset value using the net asset value of
the underlying fund in which it invests.
Each fund determines the net asset value of its shares on each day the NYSE
is open for business (a business day), as of the close of the customary trading
session, or earlier NYSE closing time that day. AIM Money Market Fund also
determines its net asset value as of 12:00 noon Eastern Time on each business
day. Premier Portfolio, Premier Tax-Exempt Portfolio and Premier U.S.
Government Money Portfolio determine the net asset value of their shares every
fifteen minutes on each business day, beginning at 8:00 a.m. Eastern Time. The
last net asset value determination on any business day for Premier Portfolio
and Premier U.S. Government Money Portfolio will generally occur at 5:30 p.m.
Eastern Time, and the last net asset value determination on any business day
for Premier Tax-Exempt Portfolio will generally occur at 4:30 p.m. Eastern
Time. Premier Portfolio, Premier Tax-Exempt Portfolio and Premier U.S.
Government Money Portfolio are authorized not to open for trading on a day that
is otherwise a business day if the Bond Market Association recommends that
government securities dealers not open for trading and any such day will not be
considered a business day. Premier Portfolio, Premier Tax-Exempt Portfolio and
Premier U.S. Government Money Portfolio also may close early on a business day
if the Bond Market Association recommends that government securities dealers
close early. If Premier Portfolio, Premier Tax-Exempt Portfolio or Premier U.S.
Government Money Portfolio uses its discretion to close early on a business
day, the last net asset value calculation will occur as of the time of such
closing.
TIMING OF ORDERS
For funds other than Premier Portfolio, Premier Tax-Exempt Portfolio and
Premier U.S. Government Money Portfolio, you can purchase or redeem shares on
each business day prior to the close of the customary trading session or any
earlier NYSE closing time that day. For funds other than Premier Portfolio,
Premier Tax-Exempt Portfolio and Premier U.S. Government Money Portfolio,
purchase orders that are received and accepted before the close of the
customary trading session or any earlier NYSE closing time on a business day
generally are processed that day and settled on the next business day.
For Premier Portfolio, Premier Tax-Exempt Portfolio and Premier U.S.
Government Money Portfolio, you can purchase or redeem shares on each business
day, prior to the last net asset value determination on such business day;
however, if your order is received and accepted after the close of the
customary trading session or any earlier NYSE closing time that day, your order
generally will be processed on the next business day and settled on the second
business day following the receipt and acceptance of your order.
For all funds, you can exchange shares on each business day, prior to the
close of the customary trading session or any earlier NYSE closing time that
day. Shareholders of Premier Portfolio, Premier Tax-Exempt Portfolio and
Premier U.S. Government Money Portfolio therefore cannot exchange their shares
after the close of the customary trading session or any earlier NYSE closing
time on a particular day, even though these funds remain open after such
closing time.
The funds price purchase, exchange and redemption orders at the net asset
value calculated after the transfer agent receives an order in good order. Any
applicable sales charges are applied at the time an order is processed. A fund
may postpone the right of redemption only under unusual circumstances, as
allowed by the Securities and Exchange Commission, such as when the NYSE
restricts or suspends trading.
MCF--10/05 A-15
THE AIM FUNDS
TAXES
In general, dividends and distributions you receive are taxable as ordinary
income or long-term capital gains for federal income tax purposes, whether you
reinvest them in additional shares or take them in cash. Distributions are
generally taxable to you at different rates depending on the length of time the
fund holds its assets and the type of income that the fund earns. Different tax
rates apply to ordinary income, qualified dividend income, and long-term
capital gain distributions. Every year, you will be sent information showing
the amount of dividends and distributions you received from each fund during
the prior year.
Any long-term or short-term capital gains realized from redemptions of fund
shares will be subject to federal income tax. Exchanges of shares for shares of
another fund are treated as a sale, and any gain realized on the transaction
will generally be subject to federal income tax.
INVESTORS IN TAX-EXEMPT FUNDS SHOULD READ THE INFORMATION UNDER THE HEADING
"OTHER INFORMATION -- SPECIAL TAX INFORMATION REGARDING THE FUND" IN THEIR
PROSPECTUS.
The foreign, state and local tax consequences of investing in fund shares may
differ materially from the federal income tax consequences described above. In
addition, the preceding discussion concerning the taxability of fund dividends
and distributions and of redemptions and exchanges of fund shares is
inapplicable to investors that are generally exempt from federal income tax,
such as retirement plans that are qualified under Section 401, 403, 408, 408A
and 457 of the Internal Revenue Code, individual retirement accounts (IRAs) and
Roth IRAs. You should consult your tax advisor before investing.
A-16 MCF--10/05
Obtaining Additional Information
- --------------------------------------------------------------------------------
More information may be obtained free of charge upon request. The Statement of
Additional Information (SAI), a current version of which is on file with the
Securities and Exchange Commission (SEC), contains more details about the fund
and is incorporated by reference into the prospectus (is legally a part of this
prospectus). Annual and semiannual reports to shareholders contain additional
information about the fund's investments. The fund's annual report also
discusses the market conditions and investment strategies that significantly
affected the fund's performance during its last fiscal year. The fund also
files its complete schedule of portfolio holdings with the SEC for the 1st and
3rd quarters of each fiscal year on Form N-Q.
If you have questions about this fund, another fund in The AIM Family of Funds
or your account, or wish to obtain free copies of the fund's current SAI or
annual or semiannual reports, please contact us by mail at AIM Investment
Services, Inc., P.O. Box 4739, Houston, TX 77210-4739 or
By Telephone: (800) 959-4246
On the Internet: You can send us a request
by e-mail or download
prospectuses, SAIs, annual
or semiannual reports via our
website:
HTTP://WWW.AIMINVESTMENTS.COM
The fund's most recent portfolio holdings, as filed on Form N-Q, are also
available at http://www.aiminvestments.com.
You also can review and obtain copies of the fund's SAI, financial reports, the
fund's Forms N-Q and other information at the SEC's Public Reference Room in
Washington, DC; on the EDGAR database on the SEC's Internet website
(http://www.sec.gov); or, after paying a duplication fee, by sending a letter
to the SEC's Public Reference Room, Washington, DC 20549-0102 or by sending an
electronic mail request to publicinfo@sec.gov. Please call the SEC at
1-202-942-8090 for information about the Public Reference Room.
AIM Dynamics Fund
SEC 1940 Act file number: 811-1474
[LOGO]
AIMinvestments.com I-DYN-PRO-1 Your goals. Our solutions.(R) AIM INVESTMENTS(R)
APPENDIX III
AIM DYNAMICS FUND
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
- --------------------------------------------------------------------------------
PERFORMANCE SUMMARY
Stocks, as measured by leading domestic market indexes, rallied near the
midpoint and toward the end of the fiscal year. These trends helped your Fund
post impressive, double-digit gains for the period--the first full year that the
new management team has been responsible for the Fund.
Your Fund outperformed the large-cap oriented S&P 500 Index by a wide
margin, as mid-cap stocks outperformed their large-cap counterparts
significantly, during the period. However, we slightly underperformed the
Russell Midcap Growth Index as our information technology and industrials
holdings generally underperformed those of the benchmark.
- --------------------------------------------------------------------------------
FUND VS. INDEXES
TOTAL RETURNS, 7/31/04-7/31/05, EXCLUDING APPLICABLE SALES CHARGES. IF SALES
CHARGES WERE INCLUDED, RETURNS WOULD BE LOWER.
Class A Shares 24.63%
Class B Shares 23.89
Class C Shares 23.92
Class K Shares 24.50
Investor Class Shares 24.81
S&P 500 Index (Broad Market Index) 14.04
Russell Midcap Growth Index
(Style-specific Index) 25.65
Lipper Mid-Cap Growth Fund Index
(Peer Group Index) 22.17
SOURCE: LIPPER, INC.
- --------------------------------------------------------------------------------
The Fund's long-term performance can be found on Pages 6 and 7.
- --------------------------------------------------------------------------------
HOW WE INVEST
We select stocks based on analysis of individual companies, focusing on mid-cap
growth companies that are favorably priced relative to the rest of the market.
Our investment process involves:
- - identifying companies with sustainable revenue and earnings growth and low
stock prices relative to their projected growth rates
- - applying fundamental research, including financial statement analysis, to
identify stocks of companies with large potential markets, cash-generating
business models, improving balance sheets and solid management teams
- - using a variety of valuation techniques to determine target buy prices and a
stock's valuation upside and downside potential
The resulting portfolio contains both "core holdings," industry leaders
serving growing, non-cyclical markets (markets relatively insensitive to
economic conditions) whose performance tends to remain constant regardless of
economic conditions; and "earnings-acceleration" holdings driven by near-term
catalysts such as new products or improved processes that may lead to rapid
sales or earnings growth.
We strive to control volatility and risk by diversifying Fund holdings
across sectors and also by building a portfolio of 100 to 120 stocks with
approximately equal weights within the portfolio.
We consider selling a stock if:
- - a company's fundamentals deteriorate
- - a stock's price reaches our valuation target
- - a company moves into the large capitalization range
- - we find a more attractive investment option
MARKET CONDITIONS AND YOUR FUND
Solid economic growth and impressive corporate earnings generally outweighed
concerns about rising oil prices and interest rates. Two strong market rallies
helped most major stock indexes and your Fund post impressive gains for the
fiscal year.
At the close of the period, the portfolio was about equally divided between
core holdings and earnings-acceleration stocks. Our core holdings provided some
downside protection during periods of market volatility while our
earnings-acceleration stocks boosted performance during the two market rallies.
The Fund also benefited from its focus on mid-cap stocks, which
outperformed large- and small-cap stocks over the reporting period.
Every stock market sector registered positive
(CONTINUED)
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION
By sector
[PIE CHART] TOP 5 INDUSTRIES* TOP 10 EQUITY HOLDINGS*
Industrials 8.4% 1. Health Care Equipment 6.0% 1. Hilton Hotels Corp. 1.7%
Materials 5.1% 2. Semiconductors 4.8 2. Polo Ralph Lauren Corp. 1.6
Telecommunication Services 3.6% 3. Application Software 4.8 3. Starwood Hotels
Consumer Staples 2.0% 4. Wireless Telecommunication Services 3.6 & Resorts Worldwide, Inc. 1.5
Money Market Funds Plus 5. Oil & Gas Equipment & Services 3.4 4. Office Depot, Inc. 1.4
Other Assets Less Liabilities 1.3% 5. Williams Cos., Inc. (The) 1.4
Consumer Discretionary 23.2% TOTAL NET ASSETS $2.0 billion 6. Station Casinos, Inc. 1.4
Information Technology 20.3% 7. Alliance Data Systems Corp. 1.3
Health Care 16.1% TOTAL NUMBER OF HOLDINGS* 109 8. Pulte Homes, Inc. 1.3
Energy 10.2% 9. Kohl's Corp. 1.3
Financials 9.8% 10. Coach, Inc. 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.
- --------------------------------------------------------------------------------
3
AIM DYNAMICS FUND
returns for the portfolio. Changes in the Fund's sector weightings over the year
largely reflected our stock selection process, which is based upon our analysis
of individual companies in the context of our expectations of future economic
and market trends. For example, we increased the Fund's holdings in consumer
discretionary, as we found companies in this sector which benefited from healthy
consumer spending despite the rising cost of oil. A stock in this sector that
enhanced performance was Abercrombie & Fitch, an upscale casual clothing chain.
The company's management team has reversed several years of declining comparable
store sales. Additionally, the company has used its cash flow to create new
business opportunities and has bought back its stock, benefiting shareholders.
While the Fund's information technology stocks collectively posted gains,
we reduced our holdings in this sector, as we were concerned about lackluster
business spending for
EVERY STOCK MARKET SECTOR REGISTERED POSITIVE RETURNS FOR THE PORTFOLIO.
technology upgrades. One tech stock that we eliminated from the portfolio was
Avaya, which produces communication equipment and software. The stock faltered
on concerns that corporations may be slower to deploy the company's voice over
Internet protocol (VoIP) products than originally expected. VoIP technology
allows users to make phone calls without incurring typical analog telephone
charges, such as for long-distance calls, and also allows the flexibility of
connecting from virtually any location.
However, another information technology stock, VeriSign, was our
top-performing holding for the year. The company, which provides infrastructure
services for Internet and telecommunications networks, reported a 74% increase
in revenue for the quarter ended June 30, 2005, compared to the same period for
the previous year. The company has also expanded its product line through a
series of acquisitions.
While the Fund's industrials stocks collectively posted gains, we
underperformed the Russell Midcap Growth Index in this sector, largely because
of our commercial services holdings, which were negatively affected by uneven
economic growth. Examples of holdings that faltered include staffing company
Manpower and uniform services company Cintas, both of which we sold.
Health care also performed well for the Fund as demand for medical services
and products tends to remain constant regardless of economic conditions. We
shifted our emphasis in this sector to health care equipment stocks, which tend
to be more stable, away from pharmaceuticals, which have performed poorly in
recent months, and biotechnology, which tends to be more volatile. One of the
stocks we sold was Eyetech Pharmaceuticals, which was a key detractor from Fund
performance. Eyetech is a biopharmaceutical company that specializes in the
development and marketing of novel therapeutics to treat eye diseases. Its stock
declined after the company announced it did not expect to be profitable in 2005
and concerns were raised about increased competition.
IN CLOSING
We remain committed to our investment process of focusing on the stocks of
mid-cap companies with growing earnings. We believe our strategy has the
potential to provide investors with attractive returns over the long term, and
the Fund's performance over the fiscal year demonstrated this potential. While
we are pleased to have provided strong returns for our shareholders for the
reporting period, we encourage you to maintain a long-term perspective. We thank
you for your commitment to AIM Dynamics Fund.
THE VIEWS AND OPINIONS EXPRESSED IN MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
ARE THOSE OF A I M ADVISORS, INC. THESE VIEWS AND OPINIONS ARE SUBJECT TO CHANGE
AT ANY TIME BASED ON FACTORS SUCH AS MARKET AND ECONOMIC CONDITIONS. THESE VIEWS
AND OPINIONS MAY NOT BE RELIED UPON AS INVESTMENT ADVICE OR RECOMMENDATIONS, OR
AS AN OFFER FOR A PARTICULAR SECURITY. THE INFORMATION IS NOT A COMPLETE
ANALYSIS OF EVERY ASPECT OF ANY MARKET, COUNTRY, INDUSTRY, SECURITY OR THE FUND.
STATEMENTS OF FACT ARE FROM SOURCES CONSIDERED RELIABLE, BUT A I M ADVISORS,
INC. MAKES NO REPRESENTATION OR WARRANTY AS TO THEIR COMPLETENESS OR ACCURACY.
ALTHOUGH HISTORICAL PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS, THESE
INSIGHTS MAY HELP YOU UNDERSTAND OUR INVESTMENT MANAGEMENT PHILOSOPHY.
See important Fund and index disclosures inside front cover.
- --------------------------------------------------------------------------------
[RASPLICKA PHOTO]
PAUL J. RASPLICKA, Chartered Financial Analyst and Senior Portfolio Manager, is
lead manager of AIM Dynamics Fund. Mr. Rasplicka began his investment career in
1982. A native of Denver, Mr. Rasplicka is a magna cum laude graduate of the
University of Colorado at Boulder with a B.S. in business administration. He
received an M.B.A. from the University of Chicago. He is also a Chartered
Investment Counselor.
[FARMER PHOTO]
KARL FARMER, Chartered Financial Analyst, is co-manager of AIM Dynamics Fund. He
spent six years as a pension actuary, focusing on retirement plans and other
benefit programs, prior to joining AIM in July of 1998. He earned a B.S. in
economics from Texas A&M University, graduating magna cum laude. He subsequently
earned his M.B.A. in finance from The Wharton School at the University of
Pennsylvania.
Assisted by the Mid-Cap Growth/GARP (Growth at a Reasonable Price) Team
- --------------------------------------------------------------------------------
[RIGHT ARROW GRAPHIC]
FOR A PRESENTATION OF YOUR FUND'S LONG-TERM PERFORMANCE, PLEASE SEE PAGES 6 AND
7.
4
AIM DYNAMICS FUND,
A PORTFOLIO OF AIM STOCK FUNDS
11 Greenway Plaza, Suite 100
Houston, Texas 77046-1173
Toll Free: (800) 959-4246
AIM MID CAP GROWTH FUND,
A PORTFOLIO OF AIM EQUITY FUNDS
11 Greenway Plaza, Suite 100
Houston, Texas 77046-1173
Toll Free: (800) 959-4246
STATEMENT OF ADDITIONAL INFORMATION
(February 28, 2006 Special Meeting of Shareholders of AIM Mid Cap Growth Fund)
This Statement of Additional Information is not a prospectus but should
be read in conjunction with the Combined Proxy Statement and Prospectus dated
January ___, 2006 of AIM Dynamics Fund for use in connection with the Special
Meeting of Shareholders of AIM Mid Cap Growth Fund to be held on February 28,
2006. Copies of the Combined Proxy Statement and Prospectus may be obtained at
no charge by writing A I M Distributors, Inc., 11 Greenway Plaza, Suite 100,
Houston, Texas 77046-1173 or by calling 1 800-959-4246. Unless otherwise
indicated, capitalized terms used herein and not otherwise defined have the same
meanings as are given to them in the Combined Proxy Statement and Prospectus.
A Statement of Additional Information for AIM Stock Funds dated October
25, 2005, has been filed with the Securities and Exchange Commission and is
attached hereto as Appendix I which is incorporated herein by this reference.
The date of this Statement of Additional Information is January ___,
2006.
TABLE OF CONTENTS
<Table>
THE TRUST.........................................................................................................S-3
DESCRIPTION OF PERMITTED INVESTMENTS..............................................................................S-3
TRUSTEES AND OFFICERS OF THE TRUST................................................................................S-3
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES...............................................................S-3
ADVISORY AND MANAGEMENT RELATED SERVICES AGREEMENTS AND PLANS OF DISTRIBUTION.....................................S-3
PORTFOLIO TRANSACTIONS............................................................................................S-3
DESCRIPTION OF SHARES.............................................................................................S-3
DETERMINATION OF NET ASSET VALUE..................................................................................S-4
TAXES.............................................................................................................S-4
PERFORMANCE DATA..................................................................................................S-4
FINANCIAL INFORMATION.............................................................................................S-4
</Table>
Appendix I - Statement of Additional Information of the Trust
Appendix II - Audited Financial Statements of AIM Mid Cap Growth Fund
(10/31/04)
Appendix III - Unaudited Financial Statements of AIM Mid Cap Growth Fund
(4/30/05)
S-2
THE TRUST
This Statement of Additional Information relates to AIM Stock Funds (the
"Trust") and its investment portfolio, AIM Dynamics Fund (the "Fund"). The Trust
is registered as an open-end management investment company under the Investment
Company Act of 1940, as amended (the "1940 Act"). The Fund is a separate series
of shares of beneficial interest of the Trust. For additional information about
the Trust, see heading "General Information About the Trust" in the Trust's
Statement of Additional Information attached hereto as Appendix I.
DESCRIPTION OF PERMITTED INVESTMENTS
For a discussion of the fundamental and nonfundamental investment policies of
the Fund adopted by the Trust's Board of Trustees, see heading "Investments,
Policies and Risks" in the Trust's Statement of Additional Information attached
hereto as Appendix I.
TRUSTEES AND OFFICERS OF THE TRUST
For a disclosure of the names and a brief occupational biography of each of the
Trust's trustees and executive officers identifying those who are interested
persons of the Trust as well as stating their aggregate remuneration, see
heading "Management of the Funds" in the Trust's Statement of Additional
Information attached hereto as Appendix I.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
For a disclosure of the control persons of the Fund, the principal holders of
shares of the Fund and the ownership by officers and trustees of the Fund, see
heading "Control Persons and Principal Holders of Securities" in the Trust's
Statement of Additional Information attached hereto as Appendix I.
ADVISORY AND MANAGEMENT RELATED SERVICES AGREEMENTS AND PLANS OF DISTRIBUTION
For a discussion of the Trust's advisory and management-related services
agreements and plans of distribution, see headings "Management of the Funds" and
"Distribution of Securities" in the Trust's Statement of Additional Information
attached hereto as Appendix I.
PORTFOLIO TRANSACTIONS
For a discussion of the Trust's brokerage policy, see heading "Brokerage
Allocation and Other Practices" in the Trust's Statement of Additional
Information attached hereto as Appendix I.
DESCRIPTION OF SHARES
For a discussion of the Trust's authorized securities and the characteristics of
the Trust's shares of beneficial interest, see heading "General Information
About the Trust" in the Trust's Statement of Additional Information attached
hereto as Appendix I.
S-3
DETERMINATION OF NET ASSET VALUE
For a discussion of the Trust's valuation and pricing procedures and a
description of its purchase and redemption procedures, see heading "Purchase,
Redemption and Pricing of Shares" in the Trust's Statement of Additional
Information attached hereto as Appendix I.
TAXES
For a discussion of any tax information relating to ownership of the Trust's
shares, see heading "Dividends, Distributions and Tax Matters" in the Trust's
Statement of Additional information attached hereto as Appendix I.
PERFORMANCE DATA
For a description and quotation of certain performance data used by the Trust,
see heading "Calculation of Performance Data" in the Trust's Statement of
Additional Information attached hereto as Appendix I.
FINANCIAL INFORMATION
The audited financial statements of AIM Dynamics Fund, and the report thereon by
PricewaterhouseCoopers LLP, are set forth under the heading "Financial
Statements" in the Trust's Statement of Additional Information attached hereto
as Appendix I.
The audited financial statements of AIM Mid Cap Growth Fund, and the report
thereon by Ernst & Young LLP, are set forth as Appendix II.
The unaudited financial statements of AIM Mid Cap Growth Fund are set forth as
Appendix III.
S-4
APPENDIX I
AIM STOCK FUNDS
AIM DYNAMICS FUND
AIM SMALL COMPANY GROWTH FUND
AIM S&P 500 INDEX FUND
Supplement dated October 25, 2005
to the Statement of Additional Information dated October 25, 2005
For the period of time determined pursuant to the Order for Exemptive Relief,
clients of Edward D. Jones & Co., L.P. that are Eligible Customers for a Free
Switch, each as defined in Edward D. Jones & Co., L.P.'s Amendment No. 1 to
Application Pursuant to Section 6(c) of the Investment Company Act of 1940 for
an Order of Exemption from the provisions of Section 22(d) of such act and
certain disclosure requirements of Items 7(a)(2) and 18(a) of Form N1-A adopted
under such act and the Securities Act of 1933, which was granted on May 25, 2005
by the Securities and Exchange Commission, may purchase Class A Shares of the
Funds at net asset value.
STATEMENT OF
ADDITIONAL INFORMATION
AIM STOCK FUNDS
11 Greenway Plaza
Suite 100
Houston, Texas 77046-1173
(713) 626-1919
---------------
This Statement of Additional Information relates to the Investor Class,
Class A, Class B, Class C, Class R and Institutional Class shares, as
applicable, of each portfolio (each a "Fund," collectively the "Funds") of AIM
Stock Funds listed below. This Statement of Additional Information is not a
Prospectus, and it should be read in conjunction with the Prospectuses for the
Investor Class, Class A, Class B, Class C, Class R and Institutional Class
shares, as applicable, of the Funds listed below. You may obtain a copy of any
Prospectus for any Fund listed below from an authorized dealer or by writing to:
AIM Investment Services, Inc.
P.O. Box 4739
Houston, Texas 77210-4739
or by calling (800) 959-4246
This Statement of Additional Information dated October 25, 2005, relates to the
Investor Class, Class A, Class B, Class C, Class R and Institutional Class
shares, as applicable, of the following Prospectuses:
FUND DATED
AIM Dynamics Fund October 25, 2005
AIM Small Company Growth
Fund October 25, 2005
AIM S&P 500 Index Fund October 25, 2005
TABLE OF CONTENTS
General Information About the Trust 1
Investments, Policies and Risks 4
Investment Restrictions 23
Management of the Funds 28
Trustees and Officers of the Trust 33
Code of Ethics 37
Proxy Voting Policies and Procedures 38
Control Persons and Principal Holders of Securities 38
Distribution of Securities 38
Purchase, Redemption and Pricing of Shares 44
Other Service Providers 67
Brokerage Allocation and Other Practices 68
Tax Consequences of Owning Shares of a Fund 74
Performance 77
Pending Litigation 83
APPENDICES:
Ratings of Debt Securities A-1
Examples of Persons to Whom AIM Provides Non-Public Portfolio Holdings on an Ongoing Basis B-1
Portfolio Managers C-1
Trustees and Officers D-1
Trustee Compensation Table E-1
Proxy Policies and Procedures F-1
Control Persons and Principal Holders of Securities G-1
Regulatory Inquiries and Pending Litigation H-1
Financial Statements FS
i
GENERAL INFORMATION ABOUT THE TRUST
AIM Stock Funds (the "Trust") was organized as a Delaware statutory trust on
July 29, 2003. Pursuant to shareholder approval obtained at a shareholder
meeting held on October 21, 2003, each series portfolio of AIM Stock Funds,
Inc. ("the Company") was redomesticated as a new series of the Trust on
November 25, 2003. The Company was incorporated under the laws of Maryland as
INVESCO Dynamics Fund, Inc. on April 2, 1993. On July 1, 1993, the Company
assumed all of the assets and liabilities of Financial Dynamics Fund, Inc.
("FDF"), which was incorporated in Colorado on February 17, 1967. All financial
and other information about the Company for period prior to July 1, 1993
related to FDF. On June 26, 1997, the Company changed its name to INVESCO
Capital Appreciation Funds, Inc. and designated two series of shares of common
stock of the Trust as the INVESCO Dynamics Fund and the INVESCO Growth & Income
Fund. On August 28, 1998, the Company changed its name to INVESCO Equity Funds,
Inc. On October 29, 1998 the Company changed its name to INVESCO Stock Funds,
Inc. On July 15, 1999, the Company assumed all of the assets and liabilities of
INVESCO Growth Fund, a series of INVESCO Growth Fund, Inc.; INVESCO Small
Company Growth Fund, a series of INVESCO Emerging Opportunity Funds, Inc.;
INVESCO S&P 500 Index Fund, a series of INVESCO Specialty Funds, Inc.; and
INVESCO Value Equity Fund, a series of INVESCO Value Trust. On November 30,
2002, the Company assumed all of the assets and liabilities of the INVESCO Mid
Cap Growth Fund, a series of INVESCO Counselor Series Funds, Inc. On October 1,
2003, the Company changed its name to AIM Stock Funds, Inc. On October 15, 2004
INVESCO Dynamics Fund, INVESCO Small Company Growth Fund and INVESCO S&P 500
Index Fund changed their names to AIM Dynamics Fund, AIM Small Company Growth
Fund and AIM S&P 500 Index Fund, respectively.
The Trust is an open-end, diversified, management investment company currently
consisting of three portfolios of investments: AIM Dynamics Fund, AIM Small
Company Growth Fund and AIM S&P 500 Index Fund. Under the Amended and Restated
Agreement and Declaration of Trust, dated September 14, 2005 (the "Trust
Agreement"), the Board of Trustees of the Trust (the "Board") is authorized to
create new series of shares without the necessity of a vote of shareholders of
the Trust.
"Open-end" means that each Fund issues an indefinite number of shares which it
continuously offers to redeem at net asset value per share ("NAV"). A
"management" investment company actively buys and sells securities for the
portfolio of each Fund at the direction of a professional manager. Open-end
management investment companies (or one or more series of such companies, such
as the Funds) are commonly referred to as mutual funds.
Standard & Poor's, a division of The McGraw-Hill Companies ("S&P") has no
obligation to take the needs of the Funds' investment advisor, A I M Advisors,
Inc. ("AIM" or the "Advisor") or the owners of the AIM S&P 500 Index Fund into
consideration in determining, composing, or calculating the Standard & Poor's
Composite Stock Price Index ("Index"). S&P is not responsible for and has not
participated in the determination of the prices and amount of AIM S&P 500 Index
Fund or the timing of the issuance or sale of AIM S&P 500 Index Fund or in the
determination or calculation of the equation by which AIM S&P 500 Index Fund is
to be converted into cash. S&P has no obligation or liability in connection
with the administration, marketing, or trading of AIM S&P 500 Index Fund.
S&P does not guarantee the accuracy and/or the completeness of the Index or any
data included therein and S&P shall have no liability for any errors, omissions
or interruptions therein. S&P makes no warranty, express or implied, as to
results to be obtained by the Trust, shareholders of the Index Fund or any
other person or entity from the use of the Index or any data included therein.
S&P makes no express or implied warranty, and expressly disclaims all
warranties of merchantability or fitness for a particular purpose or use with
respect to the Index or any data included therein. Without limiting any of the
foregoing, in no event shall S&P have any liability for any special, punitive,
indirect or consequential damages (including lost profits), even if notified of
the possibility of such damages.
1
"Standard & Poor's," "S&P," "S&P 500," "Standard & Poor's 500," and "500" are
trademarks of The McGraw-Hill Companies, Inc. and have been licensed for use by
the Advisor and A I M Distributors, Inc. ("AIM Distributors"). AIM S&P 500
Index Fund is not sponsored, endorsed, sold or promoted by S&P and it makes no
representation regarding the advisability of investing in AIM S&P 500 Index
Fund.
SHARES OF BENEFICIAL INTEREST
The Trust is authorized to issue an unlimited number of shares of beneficial
interest of each class of shares of each Fund.
Shares of beneficial interest of the Trust are redeemable at their net asset
value (subject, in certain circumstances, to a contingent deferred sales charge
or redemption fee) at the option of the shareholder or at the option of the
Trust in certain circumstances.
Each Fund offers separate classes of shares as follows:
Investor Institutional
FUND Class Class A Class B Class C Class R Class
- ---- --------------------------------------------
AIM Dynamics Fund* X X X X X X
AIM Small Company Growth Fund* X X X X X X
AIM S&P 500 Index Fund X X
- --------
* The Fund previously offered Class K shares. Class K shares were converted to
Class A shares at the close of business on October 21, 2005.
The Institutional Class shares of the Funds are intended for use by certain
eligible institutional investors, including the following:
. banks and trust companies acting in a fiduciary or similar capacity;
. bank and trust company common and collective trust funds;
. banks and trust companies investing for their own account;
. entities acting for the account of a public entity (e.g.
Taft-Hartley funds, states, cities or government agencies);
. retirement plans;
. platform sponsors with which A I M Distributors, Inc. ("AIM
Distributors") has entered into an agreement; and
. proprietary asset allocation funds.
A share of each class of a Fund represents an identical interest in that Fund's
investment portfolio and has the same rights, privileges, and preferences.
However, each class may differ with respect to sales charges, if any,
distribution and/or service fees, if any, other expenses allocable exclusively
to each class, voting rights on matters exclusively affecting that class,
conversion features, if any, and its exchange privilege, if any. The different
sales charges and other expenses applicable to the different classes of shares
of the Funds will affect the performance of those classes. Each share of a Fund
is entitled to participate equally in dividends for that class, other
distributions and the proceeds of any liquidation of a class of that Fund.
However, due to the differing expenses of the classes, dividends and
liquidation proceeds on each class of shares will differ. All shares of a Fund
will be voted together, except that only the shareholders of a particular class
of a Fund may vote on matters exclusively affecting that class, such as the
terms of a Rule 12b-1 Plan as it relates to the class. All shares issued and
outstanding are, and all
2
shares offered hereby when issued will be, fully paid and nonassessable. The
Board has the authority to designate additional classes of beneficial interest
without seeking the approval of shareholders.
Because Class B shares automatically convert to Class A shares at month-end
eight years after the date of purchase, the Funds' distribution plan adopted
pursuant to Rule 12b-1 under the Investment Company Act of 1940, as amended,
("1940 Act") requires that Class B shareholders must also approve any material
increase in distribution fees submitted to Class A shareholders of that Fund. A
pro rata portion of shares from reinvested dividends and distributions convert
along with the Class B shares.
Shares have no preemptive rights and are freely transferable on the books of
each Fund.
All shares of the Trust have equal voting rights based on one vote for each
share owned. The Trust is not generally required and does not expect to hold
regular annual meetings of shareholders. However, when requested to do so in
writing by the holders of 10% or more of the outstanding shares of the Trust or
as may be required by applicable law or the Trust's Agreement and Declaration
of Trust, the Board will call special meetings of shareholders.
Trustees may be removed by action of the holders of a majority of the
outstanding shares of the Trust. The Funds will assist shareholders in
communicating with other shareholders as required by the 1940 Act.
Fund shares have noncumulative voting rights, which means that the holders of a
majority of the shares of the Trust voting for the election of trustees of the
Trust can elect 100% of the trustees if they choose to do so. If that occurs,
the holders of the remaining shares voting for the election of trustees will
not be able to elect any person or persons to the Board.
Under Delaware law, shareholders of a Delaware statutory trust shall be
entitled to the same limitations of liability extended to shareholders of
private for-profit corporations. There is a remote possibility, however, that
shareholders could, under certain circumstances, be held liable for the
obligations of the Trust to the extent the courts of another state which does
not recognize such limited liability were to apply the laws of such state to a
controversy involving such obligations. The Trust Agreement disclaims
shareholder liability for acts or obligations of the Trust and requires that
notice of such disclaimer be given in each agreement, obligation or instrument
entered into or executed by the Trust or the trustees to all parties, and each
party thereto must expressly waive all rights of action directly against
shareholders of the Trust. The Trust Agreement provides for indemnification out
of the property of a Fund for all losses and expenses of any shareholder of
such Fund held liable on account of being or having been a shareholder. Thus,
the risk of a shareholder incurring financial loss due to shareholder liability
is limited to circumstances in which a Fund is unable to meet its obligations
and the complaining party is not held to be bound by the disclaimer.
The trustees and officers of the Trust will not be liable for any act, omission
or obligation of the Trust or any trustee or officer; however, a trustee or
officer is not protected against any liability to the Trust or to the
shareholders to which a trustee or officer would otherwise be subject by reason
of willful misfeasance, bad faith, gross negligence, or reckless disregard of
the duties involved in the conduct of his or her office with the Trust
("Disabling Conduct"). The Trust's Bylaws generally provide for indemnification
by the Trust of the trustees, the officers and employees or agents of the
Trust, provided that such persons have not engaged in Disabling Conduct.
Indemnification does not extend to judgments or amounts paid in settlement in
any actions by or in the right of the Trust. The Trust's Bylaws provide for the
advancement of payments to current and former trustees, officers and employees
or agents of the Trust, or anyone serving at their request, in connection with
the preparation and presentation of a defense to any claim, action, suit or
proceeding, expenses for which such person would be entitled to
indemnification; provided that any advancement of payments would be reimbursed
unless it is ultimately determined that such person is entitled to
indemnification for such expenses.
3
SHARE CERTIFICATES. Shareholders of the Funds do not have the right to demand
or require the Trust to issue share certificates.
INVESTMENTS, POLICIES AND RISKS
The principal investments and policies of the Funds are discussed in the
Prospectuses of the Funds. The Funds also may invest in the following
securities and engage in the following practices.
ADRs and EDRs -- American Depositary Receipts, or ADRs, are receipts typically
issued by U.S. banks. ADRs are receipts for the shares of foreign corporations
that are held by the bank issuing the receipt. An ADR entitles its holder to
all dividends and capital gains on the underlying foreign securities, less any
fees paid to the bank. Purchasing ADRs gives a Fund the ability to purchase the
functional equivalent of foreign securities without going to the foreign
securities markets to do so. ADRs are bought and sold in U.S. dollars, not
foreign currencies. An ADR that is "sponsored" means that the foreign
corporation whose shares are represented by the ADR is actively involved in the
issuance of the ADR, and generally provides material information about the
corporation to the U.S. market. An "unsponsored" ADR program means that the
foreign corporation whose shares are held by the bank is not obligated to
disclose material information in the United States, and, therefore, the market
value of the ADR may not reflect important facts known only to the foreign
company. Since they mirror their underlying foreign securities, ADRs generally
have the same risks as investing directly in the underlying foreign securities.
European Depositary Receipts, or EDRs, are similar to ADRs, except that they
are typically issued by European banks or trust companies.
CERTIFICATES OF DEPOSIT IN FOREIGN BANKS AND U.S. BRANCHES OF FOREIGN BANKS --
The Funds may maintain time deposits in and invest in U.S. dollar denominated
certificates of deposit ("CDs") issued by foreign banks and U.S. branches of
foreign banks. The Funds limit investments in foreign bank obligations to U.S.
dollar denominated obligations of foreign banks which have more than $10
billion in assets, have branches or agencies in the U.S., and meet other
criteria established by the Board. Investments in foreign securities involve
special considerations. There is generally less publicly available information
about foreign issuers since many foreign countries do not have the same
disclosure and reporting requirements as are imposed by the U.S. securities
laws. Moreover, foreign issuers are generally not bound by uniform accounting
and auditing and financial reporting requirements and standards of practice
comparable to those applicable to domestic issuers. Such investments may also
entail the risks of possible imposition of dividend withholding or confiscatory
taxes, possible currency blockage or transfer restrictions, expropriation,
nationalization, or other adverse political or economic developments, and the
difficulty of enforcing obligations in other countries.
The Funds may also invest in bankers' acceptances, time deposits, and
certificates of deposit of U.S. branches of foreign banks and foreign branches
of U.S. banks. Investments in instruments of U.S. branches of foreign banks
will be made only with branches that are subject to the same regulations as
U.S. banks. Investments in instruments issued by a foreign branch of a U.S.
bank will be made only if the investment risk associated with such investment
is the same as that involving an investment in instruments issued by the U.S.
parent, with the U.S. parent unconditionally liable in the event that the
foreign branch fails to pay on the investment for any reason.
COMMERCIAL PAPER -- Commercial paper is the term for short-term promissory
notes issued by domestic corporations to meet current working capital needs.
Commercial paper may be unsecured by the corporation's assets but may be backed
by a letter of credit from a bank or other financial institution. The letter of
credit enhances the commercial paper's creditworthiness. The issuer is directly
responsible for payment but the bank "guarantees" that if the note is not paid
at maturity by the issuer, the bank will pay the principal and interest to the
buyer. AIM will consider the creditworthiness of the institution issuing the
letter of credit, as well as the creditworthiness of the issuer of the
commercial paper, when purchasing paper enhanced by a letter of credit.
Commercial paper is sold either in an interest-bearing form or on a discounted
basis, with maturities not exceeding 270 days.
4
DEBT SECURITIES -- Debt securities include bonds, notes, and other securities
that give the holder the right to receive fixed amounts of principal, interest,
or both on a date in the future or on demand. Debt securities also are often
referred to as fixed-income securities, even if the rate of interest varies
over the life of the security.
Debt securities are generally subject to credit risk and market risk. Credit
risk is the risk that the issuer of the security may be unable to meet interest
or principal payments or both as they come due. Market risk is the risk that
the market value of the security may decline for a variety of reasons,
including changes in interest rates. An increase in interest rates tends to
reduce the market values of debt securities in which a Fund has invested. A
decline in interest rates tends to increase the market values of debt
securities in which a Fund has invested.
Moody's Investors Service, Inc. ("Moody's") and S&P ratings provide a useful
guide to the credit risk of many debt securities. The lower the rating of a
debt security, the greater the credit risk the rating service assigns to the
security. To compensate investors for accepting that greater risk, lower-rated
debt securities tend to offer higher interest rates. Small Company Growth Fund
may invest up to 25% and 5%, respectively, of their respective portfolios in
lower-rated debt securities, which are often referred to as "junk bonds."
Increasing the amount of Fund assets invested in unrated or lower-grade
straight debt securities may increase the yield produced by a Fund's debt
securities but will also increase the credit risk of those securities. A debt
security is considered lower-grade if it is rated Ba or less by Moody's or BB
or less by S&P at the time of purchase. Lower-rated and non-rated debt
securities of comparable quality are subject to wider fluctuations in yields
and market values than higher-rated debt securities and may be considered
speculative. Although a Fund may invest in debt securities assigned lower-grade
ratings by S&P or Moody's, at the time of purchase, the Funds are not permitted
to invest in bonds that are in default or are rated CCC or below by S&P or Caa
or below by Moody's or, if unrated, are judged by the Advisor to be of
equivalent quality. Debt securities rated lower than B by either S&P or Moody's
are usually considered to be speculative. At the time of purchase, the Advisor
will limit Fund investments to debt securities which the Advisor believes are
not highly speculative and which are rated at least B by S&P or Caa by Moody's.
A significant economic downturn or increase in interest rates may cause issuers
of debt securities to experience increased financial problems which could
adversely affect their ability to pay principal and interest obligations, to
meet projected business goals, and to obtain additional financing. These
conditions more severely impact issuers of lower-rated debt securities. The
market for lower-rated straight debt securities may not be as liquid as the
market for higher-rated straight debt securities. Therefore, AIM attempts to
limit purchases of lower-rated securities to securities having an established
secondary market.
Debt securities rated Caa by Moody's may be in default or may present risks of
non-payment of principal or interest. Lower-rated securities by S&P (categories
BB, B, or CCC) include those which are predominantly speculative because of the
issuer's perceived capacity to pay interest and repay principal in accordance
with their terms; BB indicates the lowest degree of speculation and CCC a high
degree of speculation. While such bonds will likely have some quality and
protective characteristics, these are usually outweighed by large uncertainties
or major risk exposures to adverse conditions.
Although bonds in the lowest investment grade debt category (those rated BBB by
S&P, Baa by Moody's, or the equivalent) are regarded as having adequate
capability to pay principal and interest, they have speculative
characteristics. Adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to make principal and interest payments
than is the case for higher-rated bonds. Lower-rated bonds by Moody's
(categories Ba, B, or Caa) are of poorer quality and also have speculative
characteristics. Bonds rated Caa may be in default or there may be present
elements of danger with respect to principal or interest. Bonds having
equivalent ratings from other rating services will have characteristics similar
to those of the corresponding S&P and Moody's ratings. For a specific
description of S&P and Moody's corporate bond rating categories, please refer
to Appendix A.
5
The Funds, except for S&P 500 Index Fund, may invest in zero coupon bonds and
step-up bonds. Zero coupon bonds do not make regular interest payments. Zero
coupon bonds are sold at a discount from face value. Principal and accrued
discount (representing interest earned but not paid) are paid at maturity in
the amount of the face value. Step-up bonds initially make no (or low) cash
interest payments but begin paying interest (or a higher rate of interest) at a
fixed time after issuance of the bond. The market values of zero coupon and
step-up bonds generally fluctuate more in response to changes in interest rates
than interest-paying securities of comparable term and quality. A Fund may be
required to distribute income recognized on these bonds, even though no cash
may be paid to the Fund until the maturity or call date of a bond, in order for
the Fund to maintain its qualification as a regulated investment company. These
required distributions could reduce the amount of cash available for investment
by a Fund.
DOMESTIC BANK OBLIGATIONS -- U.S. banks (including their foreign branches)
issue CDs and bankers' acceptances which may be purchased by the Funds if an
issuing bank has total assets in excess of $5 billion and the bank otherwise
meets the Funds' credit rating requirements. CDs are issued against deposits in
a commercial bank for a specified period and rate and are normally negotiable.
Eurodollar CDs are certificates issued by a foreign branch (usually London) of
a U.S. domestic bank, and, as such, the credit is deemed to be that of the
domestic bank. Bankers' acceptances are short-term credit instruments
evidencing the promise of the bank (by virtue of the bank's "acceptance") to
pay at maturity a draft which has been drawn on it by a customer (the
"drawer"). Bankers' acceptances are used to finance the import, export,
transfer, or storage of goods and reflect the obligation of both the bank and
the drawer to pay the face amount. Both types of securities are subject to the
ability of the issuing bank to meet its obligations, and are subject to risks
common to all debt securities. In addition, Eurodollar CDs and banker's
acceptances may be subject to foreign currency risk and certain other risks of
investment in foreign securities.
EQUITY SECURITIES -- The Funds may invest in common, preferred, and convertible
preferred stocks, and securities whose values are tied to the price of stocks,
such as rights, warrants, and convertible debt securities. Common stocks and
preferred stocks represent equity ownership in a corporation. Owners of stock,
such as the Funds, share in a corporation's earnings through dividends which
may be declared by the corporation, although the receipt of dividends is not
the principal benefit that the Funds seek when they invest in stocks and
similar instruments.
Instead, the Funds seek to invest in stocks that will increase in market value
and may be sold for more than a Fund paid to buy them. Market value is based
upon constantly changing investor perceptions of what the company is worth
compared to other companies. Although dividends are a factor in the changing
market value of stocks, many companies do not pay dividends, or pay
comparatively small dividends. The principal risk of investing in equity
securities is that their market values fluctuate constantly, often due to
factors entirely outside the control of the Funds or the company issuing the
stock. At any given time, the market value of an equity security may be
significantly higher or lower than the amount paid by a Fund to acquire it.
Owners of preferred stocks are entitled to dividends payable from the
corporation's earnings, which in some cases may be "cumulative" if prior
dividends on the preferred stock have not been paid. Dividends payable on
preferred stock have priority over distributions to holders of common stock,
and preferred stocks generally have a priority on the distribution of assets in
the event of the corporation's liquidation. Preferred stocks may be
"participating," which means that they may be entitled to dividends in excess
of the stated dividend in certain cases. The holders of a company's debt
securities generally are entitled to be paid by the company before it pays
anything to its stockholders.
Rights and warrants are securities which entitle the holder to purchase the
securities of a company (usually, its common stock) at a specified price during
a specified time period. The value of a right or warrant is affected by many of
the same factors that determine the prices of common stocks. Rights and
warrants may be purchased directly or acquired in connection with a corporate
reorganization or exchange offer.
6
The Funds also may purchase convertible securities including convertible debt
obligations and convertible preferred stock. A convertible security entitles
the holder to exchange it for a fixed number of shares of common stock (or
other equity security), usually at a fixed price within a specified period of
time. Until conversion, the owner of convertible securities usually receives
the interest paid on a convertible bond or the dividend preference of a
preferred stock.
A convertible security has an "investment value" which is a theoretical value
determined by the yield it provides in comparison with similar securities
without the conversion feature. Investment value changes are based upon
prevailing interest rates and other factors. It also has a "conversion value,"
which is the market value the convertible security would have if it were
exchanged for the underlying equity security. Convertible securities may be
purchased at varying price levels above or below their investment values or
conversion values.
Conversion value is a simple mathematical calculation that fluctuates directly
with the price of the underlying security. However, if the conversion value is
substantially below the investment value, the market value of the convertible
security is governed principally by its investment value. If the conversion
value is near or above the investment value, the market value of the
convertible security generally will rise above the investment value. In such
cases, the market value of the convertible security may be higher than its
conversion value, due to the combination of the convertible security's right to
interest (or dividend preference) and the possibility of capital appreciation
from the conversion feature. However, there is no assurance that any premium
above investment value or conversion value will be recovered because prices
change and, as a result, the ability to achieve capital appreciation through
conversion may be eliminated.
Sector Risk -- Companies with similar characteristics may be grouped together
in broad categories called sectors. Sector risk is the possibility that a
certain sector may underperform other sectors or the market as a whole. If the
portfolio managers allocate more of their respective Fund's portfolio holdings
to a particular sector, the Fund's performance will be more susceptible to the
economic, business or other developments which generally affect that sector.
EUROBONDS AND YANKEE BONDS (All Funds, except S&P 500 Index Fund) -- Bonds
issued by foreign branches of U.S. banks ("Eurobonds") and bonds issued by a
U.S. branch of a foreign bank and sold in the United States ("Yankee bonds").
These bonds are bought and sold in U.S. dollars, but generally carry with them
the same risks as investing in foreign securities.
FOREIGN SECURITIES -- The Funds, except the S&P 500 Index Fund, may invest up
to 25% of their assets in securities of non-U.S. issuers. Securities of
Canadian issuers and American Depositary Receipt are not subject to this
limitation. Investments in the securities of foreign companies, or companies
that have their principal business activities outside the United States,
involve certain risks not associated with investments in U.S. companies.
Non-U.S. companies generally are not subject to the same uniform accounting,
auditing, and financial reporting standards that apply to U.S. companies.
Therefore, financial information about foreign companies may be incomplete, or
may not be comparable to the information available on U.S. companies. There may
also be less publicly available information about a foreign company.
Although the volume of trading in foreign securities markets is growing,
securities of many non-U.S. companies may be less liquid and have greater
swings in price than securities of comparable U.S. companies. The costs of
buying and selling securities on foreign securities exchanges are generally
significantly higher than similar costs in the United States. There is
generally less government supervision and regulation of exchanges, brokers, and
issuers in foreign countries than there is in the United States. Investments in
non-U.S. securities may also be subject to other risks different from those
affecting U.S. investments, including local political or economic developments,
expropriation or nationalization of assets, confiscatory taxation, and
imposition of withholding taxes on dividends or interest payments. If it
becomes necessary, it may be more difficult for a Fund to obtain or to enforce
a judgment against a foreign issuer than against a domestic issuer.
7
Securities traded on foreign markets are usually bought and sold in local
currencies, not in U.S. dollars. Therefore, the market value of foreign
securities acquired by a Fund can be affected -- favorably or unfavorably -- by
changes in currency rates and exchange control regulations. Costs are incurred
in converting money from one currency to another. Foreign currency exchange
rates are determined by supply and demand on the foreign exchange markets.
Foreign exchange markets are affected by the international balance of payments
and other economic and financial conditions, government intervention,
speculation and other factors, all of which are outside the control of each
Fund. Generally, the Funds' foreign currency exchange transactions will be
conducted on a cash or "spot" basis at the spot rate for purchasing or selling
currency in the foreign currency exchange markets.
FUTURES, OPTIONS, AND OTHER FINANCIAL INSTRUMENTS
General. AIM and/or the sub-advisor for AIM S&P 500 Index Fund, INVESCO
Institutional (N.A.), Inc. (the "Sub-advisor") may use various types of
financial instruments, some of which are derivatives, to attempt to manage the
risk of a Fund's investments or, in certain circumstances, for investment
(e.g., as a substitute for investing in securities). These financial
instruments include options, futures contracts (sometimes referred to as
"futures"), forward contracts, swaps, caps, floors, and collars (collectively,
"Financial Instruments"). The policies in this section do not apply to other
types of instruments sometimes referred to as derivatives, such as indexed
securities, mortgage-backed and other asset-backed securities, and stripped
interest and principal of debt.
Hedging strategies can be broadly categorized as "short" hedges and "long" or
"anticipatory" hedges. A short hedge involves the use of a Financial Instrument
in order to partially or fully offset potential variations in the value of one
or more investments held in a Fund's portfolio. A long or anticipatory hedge
involves the use of a Financial Instrument in order to partially or fully
offset potential increases in the acquisition cost of one or more investments
that the Fund intends to acquire. In an anticipatory hedge transaction, the
Fund does not already own a corresponding security. Rather, the hedge relates
to a security or type of security that the Fund intends to acquire. If the Fund
does not eliminate the hedge by purchasing the security as anticipated, the
effect on the Fund's portfolio is the same as if a long position were entered
into. Financial Instruments may also be used, in certain circumstances, for
investment (e.g., as a substitute for investing in securities).
Financial Instruments on individual securities generally are used to attempt to
hedge against price movements in one or more particular securities positions
that a Fund already owns or intends to acquire. Financial Instruments on
indexes, in contrast, generally are used to attempt to hedge all or a portion
of a portfolio against price movements of the securities within a market sector
in which the Fund has invested or expects to invest.
The use of Financial Instruments is subject to applicable regulations of the
Securities and Exchange Commission ("SEC"), the several exchanges upon which
they are traded, and the Commodity Futures Trading Commission ("CFTC"). In
addition, the Funds' ability to use Financial Instruments will be limited by
tax considerations. See "Tax Consequences of Owning Shares of a Fund."
In addition to the instruments and strategies described below, AIM and/or the
Sub-advisor may use other similar or related techniques to the extent that they
are consistent with a Fund's investment objective and permitted by its
investment limitations and applicable regulatory authorities. The Funds'
Prospectuses or SAI will be supplemented to the extent that new products or
techniques become employed involving materially different risks than those
described below or in the Prospectuses.
Special Risks. Financial Instruments and their use involve special
considerations and risks, certain of which are described below.
(1) Financial Instruments may increase the volatility of a Fund. If AIM and/or
the Sub-advisor employs a Financial Instrument that correlates imperfectly with
a Fund's investments, a loss could result, regardless
8
of whether or not the intent was to manage risk. In addition, these techniques
could result in a loss if there is not a liquid market to close out a position
that a Fund has entered.
(2) There might be imperfect correlation between price movements of a Financial
Instrument and price movement of the investment(s) being hedged. For example,
if the value of a Financial Instrument used in a short hedge increased by less
than the decline in value of the hedged investment(s), the hedge would not be
fully successful. This might be caused by certain kinds of trading activity
that distorts the normal price relationship between the security being hedged
and the Financial Instrument. Similarly, the effectiveness of hedges using
Financial Instruments on indexes will depend on the degree of correlation
between price movements in the index and price movements in the securities
being hedged.
The Funds are authorized to use options and futures contracts related to
securities with issuers, maturities or other characteristics different from the
securities in which it typically invests. This involves a risk that the options
or futures position will not track the performance of a Fund's portfolio
investments.
The direction of options and futures price movements can also diverge from the
direction of the movements of the prices of their underlying instruments, even
if the underlying instruments match a Fund's investments well. Options and
futures prices are affected by such factors as current and anticipated
short-term interest rates, changes in volatility of the underlying instrument,
and the time remaining until expiration of the contract, which may not affect
security prices the same way. Imperfect correlation may also result from
differing levels of demand in the options and futures markets and the
securities markets, from structural differences in how options and futures and
securities are traded, or from imposition of daily price fluctuation limits or
trading halts. A Fund may take positions in options and futures contracts with
a greater or lesser face value than the securities it wishes to hedge or
intends to purchase in order to attempt to compensate for differences in
volatility between the contract and the securities, although this may not be
successful in all cases.
(3) If successful, the above-discussed hedging strategies can reduce risk of
loss by wholly or partially offsetting the negative effect of unfavorable price
movements of portfolio securities. However, such strategies can also reduce
opportunity for gain by offsetting the positive effect of favorable price
movements. For example, if a Fund entered into a short hedge because AIM and/or
the Sub-advisor projected a decline in the price of a security in the Fund's
portfolio, and the price of that security increased instead, the gain from that
increase would likely be wholly or partially offset by a decline in the value
of the short position in the Financial Instrument. Moreover, if the price of
the Financial Instrument declined by more than the increase in the price of the
security, the Fund could suffer a loss.
(4) A Fund's ability to close out a position in a Financial Instrument prior to
expiration or maturity depends on the degree of liquidity of the market or, in
the absence of such a market, the ability and willingness of the other party to
the transaction (the "counterparty") to enter into a transaction closing out
the position. Therefore, there is no assurance that any position can be closed
out at a time and price that is favorable to a Fund.
(5) As described below, the Funds are required to maintain assets as "cover,"
maintain segregated accounts or make margin payments when they take positions
in Financial Instruments involving obligations to third parties (i.e.,
Financial Instruments other than purchased options). If a Fund is unable to
close out its positions in such Financial Instruments, it might be required to
continue to maintain such assets or segregated accounts or make such payments
until the position expired. These requirements might impair a Fund's ability to
sell a portfolio security or make an investment at a time when it would
otherwise be favorable to do so, or require that the Fund sell a portfolio
security at a disadvantageous time.
Cover. Positions in Financial Instruments, other than purchased options, expose
the Funds to an obligation to another party. A Fund will not enter into any
such transaction unless it owns (1) an offsetting ("covered") position in
securities, currencies or other options, futures contracts or forward
contracts, or (2)
9
cash and liquid assets with a value, marked-to-market daily, sufficient to
cover its obligations to the extent not covered as provided in (1) above. The
Funds will comply with SEC guidelines regarding cover for these instruments and
will, if the guidelines so require, designate cash or liquid assets as
segregated in the prescribed amount as determined daily.
Assets used as cover or held as segregated cannot be sold while the position in
the corresponding Financial Instrument is open unless they are replaced with
other appropriate assets. As a result, the commitment of a large portion of a
Fund's assets to cover or to hold as segregated could impede portfolio
management or the Fund's ability to meet redemption requests or other current
obligations.
Options. Each Fund may engage in certain strategies involving options to
attempt to manage the risk of its investments or, in certain circumstances, for
investment (e.g., as a substitute for investing in securities). A call option
gives the purchaser the right to buy, and obligates the writer to sell the
underlying investment at the agreed-upon exercise price during the option
period. A put option gives the purchaser the right to sell, and obligates the
writer to buy the underlying investment at the agreed-upon exercise price
during the option period. Purchasers of options pay an amount, known as a
premium, to the option writer in exchange for the right under the option
contract. See "Options on Indexes" below with regard to cash settlement of
option contracts on index values.
The purchase of call options can serve as a hedge against a price rise of the
underlying security and the purchase of put options can serve as a hedge
against a price decline of the underlying security. Writing call options can
serve as a limited short hedge because declines in the value of the hedged
investment would be offset to the extent of the premium received for writing
the option. However, if the security or currency appreciates to a price higher
than the exercise price of the call option, it can be expected that the option
will be exercised and a Fund will be obligated to sell the security or currency
at less than its market value.
Writing put options can serve as a limited long or anticipatory hedge because
increases in the value of the hedged investment would be offset to the extent
of the premium received for writing the option. However, if the security or
currency depreciates to a price lower than the exercise price of the put
option, it can be expected that the put option will be exercised and a Fund
will be obligated to purchase the security or currency at more than its market
value.
The value of an option position will reflect, among other things, the current
market value of the underlying investment, the time remaining until expiration,
the relationship of the exercise price to the market price of the underlying
investment, the price volatility of the underlying investment and general
market and interest rate conditions. Options that expire unexercised have no
value.
A Fund may effectively terminate its right or obligation under an option by
entering into a closing transaction. For example, the Fund may terminate its
obligation under a call or put option that it had written by purchasing an
identical call or put option, which is known as a closing purchase transaction.
Conversely, the Fund may terminate a position in a put or call option it had
purchased by writing an identical put or call option, which is known as a
closing sale transaction. Closing transactions permit a Fund to realize profits
or limit losses on an option position prior to its exercise or expiration.
Risks of Options on Securities. Options embody the possibility of large amounts
of exposure, which will result in a Fund's net asset value being more sensitive
to changes in the value of the related investment. A Fund may purchase or write
both exchange-traded and OTC options. Exchange-traded options in the United
States are issued by a clearing organization affiliated with the exchange on
which the option is listed that, in effect, guarantees completion of every
exchange-traded option transaction. In contrast, OTC options are contracts
between a Fund and its counterparty (usually a securities dealer or a bank)
with no clearing organization guarantee. Thus, when a Fund purchases an OTC
option, it relies on the counterparty from whom it purchased the option to make
or take delivery of the underlying investment
10
upon exercise of the option. Failure by the counterparty to do so would result
in the loss of any premium paid by a Fund as well as the loss of any expected
benefit from the transaction.
The Funds' ability to establish and close out positions in options depends on
the existence of a liquid market. However, there can be no assurance that such
a market will exist at any particular time. Closing transactions can be made
for OTC options only by negotiating directly with the counterparty, or by a
transaction in the secondary market if any such market exists. There can be no
assurance that a Fund will in fact be able to close out an OTC option position
at a favorable price prior to expiration. In the event of insolvency of the
counterparty, a Fund might be unable to close out an OTC option position at any
time prior to the option's expiration. If a Fund is not able to enter into an
offsetting closing transaction on an option it has written, it will be required
to maintain the securities subject to the call or the liquid assets underlying
the put until a closing purchase transaction can be entered into or the option
expires. However, there can be no assurance that such a market will exist at
any particular time.
If a Fund were unable to effect a closing transaction for an option it had
purchased, it would have to exercise the option to realize any profit. The
inability to enter into a closing purchase transaction for a covered call
option written by a Fund could cause material losses because the Fund would be
unable to sell the investment used as cover for the written option until the
option expires or is exercised.
Options on Indexes. Puts and calls on indexes are similar to puts and calls on
securities or futures contracts except that all settlements are in cash and
changes in value depend on changes in the index in question. When a Fund writes
a call on an index, it receives a premium and agrees that, prior to the
expiration date, upon exercise of the call, the purchaser will receive from the
Fund an amount of cash equal to the positive difference between the closing
price of the index and the exercise price of the call times a specified
multiple ("multiplier"), which determines the total dollar value for each point
of such difference. When a Fund buys a call on an index, it pays a premium and
has the same rights as to such call as are indicated above. When a Fund buys a
put on an index, it pays a premium and has the right, prior to the expiration
date, to require the seller of the put to deliver to the Fund an amount of cash
equal to the positive difference between the exercise price of the put and the
closing price of the index times the multiplier. When a Fund writes a put on an
index, it receives a premium and the purchaser of the put has the right, prior
to the expiration date, to require the Fund to deliver to it an amount of cash
equal to the positive difference between the exercise price of the put and the
closing level of the index times the multiplier.
The risks of purchasing and selling options on indexes may be greater than
options on securities. Because index options are settled in cash, when a Fund
writes a call on an index it cannot fulfill its potential settlement
obligations by delivering the underlying securities. A Fund can offset some of
the risk of writing a call index option by holding a diversified portfolio of
securities similar to those on which the underlying index is based. However, a
Fund cannot, as a practical matter, acquire and hold a portfolio containing
exactly the same securities as underlie the index and, as a result, bears a
risk that the value of the securities held will vary from the value of the
index.
Even if a Fund could assemble a portfolio that exactly reproduced the
composition of the underlying index, it still would not be fully covered from a
risk standpoint because of the "timing risk" inherent in writing index options.
When an index option is exercised, the amount of cash that the holder is
entitled to receive is determined by the difference between the exercise price
and the closing index level. As with other kinds of options, a Fund as the call
writer will not learn what it has been assigned until the next business day.
The time lag between exercise and notice of assignment poses no risk for the
writer of a covered call on a specific underlying security, such as common
stock, because in that case the writer's obligation is to deliver the
underlying security, not to pay its value as of a moment in the past. In
contrast, the writer of an index call will be required to pay cash in an amount
based on the difference between the closing index value on the exercise date
and the exercise price. By the time a Fund learns what it has been assigned,
the index may have declined. This "timing risk" is an inherent limitation on
the ability of index call writers to cover their risk exposure.
11
If a Fund has purchased an index option and exercises it before the closing
index value for that day is available, it runs the risk that the level of the
underlying index may subsequently change. If such a change causes the exercised
option to fall out-of-the-money, the Fund nevertheless will be required to pay
the difference between the closing index value and the exercise price of the
option (times the applicable multiplier) to the assigned writer.
OTC Options. Unlike exchange-traded options, which are standardized with
respect to the underlying instrument, expiration date, contract size, and
strike price, the terms of OTC options (options not traded on exchanges)
generally are established through negotiation with the other party to the
option contract. While this type of arrangement allows a Fund great flexibility
to tailor the option to its needs, OTC options generally involve greater risk
than exchange-traded options, which are guaranteed by the clearing organization
of the exchange where they are traded.
Generally, OTC foreign currency options used by a Fund are European-style
options. This means that the option is only exercisable immediately prior to
its expiration. This is in contrast to American-style options, which are
exercisable at any time prior to the expiration date of the option.
Futures Contracts and Options on Futures Contracts. When a Fund purchases or
sells a futures contract, it incurs an obligation respectively to take or make
delivery of a specified amount of the obligation underlying the contract at a
specified time and price. When a Fund writes an option on a futures contract,
it becomes obligated to assume a position in the futures contract at a
specified exercise price at any time during the term of the option. If a Fund
writes a call, on exercise it assumes a short futures position. If it writes a
put, on exercise it assumes a long futures position.
The purchase of futures or call options on futures can serve as a long or an
anticipatory hedge, and the sale of futures or the purchase of put options on
futures can serve as a short hedge. Writing call options on futures contracts
can serve as a limited short hedge, using a strategy similar to that used for
writing call options on securities or indexes. Similarly, writing put options
on futures contracts can serve as a limited long or anticipatory hedge.
In addition, futures strategies can be used to manage the "duration" (a measure
of anticipated sensitivity to changes in interest rates, which is sometimes
related to the weighted average maturity of a portfolio) and associated
interest rate risk of a Fund's fixed-income portfolio. If AIM and/or the
Sub-advisor wishes to shorten the duration of a Fund's fixed-income portfolio
(i.e., reduce anticipated sensitivity), the Fund may sell an appropriate debt
futures contract or a call option thereon, or purchase a put option on that
futures contract. If AIM and/or Sub-advisor wishes to lengthen the duration of
a Fund's fixed-income portfolio (i.e., increase anticipated sensitivity), the
Fund may buy an appropriate debt futures contract or a call option thereon, or
sell a put option thereon.
At the inception of a futures contract, a Fund is required to deposit "initial
margin" in an amount generally equal to 10% or less of the contract value.
Initial margin must also be deposited when writing a call or put option on a
futures contract, in accordance with applicable exchange rules. Subsequent
"variation margin" payments are made to and received from the futures broker
daily as the value of the futures or written option position varies, a process
known as "marking-to-market." Unlike margin in securities transactions, initial
margin on futures contracts and written options on futures contracts does not
represent a borrowing on margin, but rather is in the nature of a performance
bond or good-faith deposit that is returned to the Fund at the termination of
the transaction if all contractual obligations have been satisfied. Under
certain circumstances, such as periods of high volatility, a Fund may be
required to increase the level of initial margin deposits. If the Fund has
insufficient cash to meet daily variation margin requirements, it might need to
sell securities in order to do so at a time when such sales are disadvantageous.
Purchasers and sellers of futures contracts and options on futures can enter
into offsetting closing transactions, similar to closing transactions on
options, by selling or purchasing, respectively, an
12
instrument identical to the instrument purchased or sold. However, there can be
no assurance that a liquid market will exist for a particular contract at a
particular time. In such event, it may not be possible to close a futures
contract or options position.
Under certain circumstances, futures exchanges may establish daily limits on
the amount that the price of a futures contract or an option on a futures
contract can vary from the previous day's settlement price; once that limit is
reached, no trades may be made that day at a price beyond the limit. Daily
price limits do not limit potential losses because prices could move to the
daily limit for several consecutive days with little or no trading, thereby
preventing liquidation of unfavorable positions.
If a Fund were unable to liquidate a futures contract or an option on a futures
contract position due to the absence of a liquid market or the imposition of
price limits, it could incur substantial losses. The Fund would continue to be
subject to market risk with respect to the position. In addition, except in the
case of purchased options, the Fund would continue to be required to make daily
variation margin payments and might be required to continue to maintain the
position being hedged by the futures contract or option or to continue to
maintain cash or securities in a segregated account.
To the extent that a Fund enters into futures contracts, options on futures
contracts and options on foreign currencies traded on a CFTC-regulated
exchange, in each case that is not for bona fide hedging purposes (as defined
by the CFTC), the aggregate initial margin and premiums required to establish
these positions (excluding the amount by which options are "in-the-money" at
the time of purchase) may not exceed 5% of the liquidation value of the Fund's
portfolio, after taking into account unrealized profits and unrealized losses
on any contracts the Fund has entered into. This policy does not limit to 5%
the percentage of the Fund's assets that are at risk in futures contracts,
options on futures contracts and currency options.
Risks of Futures Contracts and Options Thereon. The ordinary spreads at a given
time between prices in the cash and futures markets (including the options on
futures markets), due to differences in the natures of those markets, are
subject to the following factors. First, all participants in the futures market
are subject to margin deposit and maintenance requirements. Rather than meeting
additional margin deposit requirements, investors may close futures contracts
through offsetting transactions, which could distort the normal relationship
between the cash and futures markets. Second, the liquidity of the futures
market depends on participants entering into offsetting transactions rather
than making or taking delivery. To the extent participants decide to make or
take delivery, liquidity in the futures market could be reduced, thus producing
distortion. Due to the possibility of distortion, a hedge may not be
successful. Although stock index futures contracts do not require physical
delivery, under extraordinary market conditions, liquidity of such futures
contracts also could be reduced. Additionally, AIM and/or the Sub-advisor may
be incorrect in its expectations as to the extent of various interest rates,
currency exchange rates or stock market movements or the time span within which
the movements take place.
Index Futures. The risk of imperfect correlation between movements in the price
of index futures and movements in the price of the securities that are the
subject of a hedge increases as the composition of a Fund's portfolio diverges
from the index. The price of the index futures may move proportionately more
than or less than the price of the securities being hedged. If the price of the
index futures moves proportionately less than the price of the securities that
are the subject of the hedge, the hedge will not be fully effective. Assuming
the price of the securities being hedged has moved in an unfavorable direction,
as anticipated when the hedge was put into place, the Fund would be in a better
position than if it had not hedged at all, but not as good as if the price of
the index futures moved in full proportion to that of the hedged securities.
However, if the price of the securities being hedged has moved in a favorable
direction, this advantage will be partially offset by movement of the price of
the futures contract. If the price of the futures contract moves more than the
price of the securities, the Fund will experience either a loss or a gain on
the futures contract that will not be completely offset by movements in the
price of the securities that are the subject of the hedge.
13
Where index futures are purchased in an anticipatory hedge, it is possible that
the market may decline instead. If a Fund then decides not to invest in the
securities at that time because of concern as to possible further market
decline or for other reasons, it will realize a loss on the futures contract
that is not offset by a reduction in the price of the securities it had
anticipated purchasing.
Foreign Currency Hedging Strategies--Special Considerations. A Fund may use
options and futures contracts on foreign currencies, as mentioned previously,
and forward currency contracts, as described below, to attempt to hedge against
movements in the values of the foreign currencies in which the Fund's
securities are denominated or, in certain circumstances, for investment (e.g.,
as a substitute for investing in securities denominated in foreign currency).
Currency hedges can protect against price movements in a security that a Fund
owns or intends to acquire that are attributable to changes in the value of the
currency in which it is denominated.
A Fund might seek to hedge against changes in the value of a particular
currency when no Financial Instruments on that currency are available or such
Financial Instruments are more expensive than certain other Financial
Instruments. In such cases, a Fund may seek to hedge against price movements in
that currency by entering into transactions using Financial Instruments on
another currency or a basket of currencies, the value of which the advisor
and/or sub-advisor believes will have a high degree of positive correlation to
the value of the currency being hedged. The risk that movements in the price of
the Financial Instrument will not correlate perfectly with movements in the
price of the currency subject to the hedging transaction may be increased when
this strategy is used.
The value of Financial Instruments on foreign currencies depends on the value
of the underlying currency relative to the U.S. dollar. Because foreign
currency transactions occurring in the interbank market might involve
substantially larger amounts than those involved in the use of such Financial
Instruments, a Fund could be disadvantaged by having to deal in the odd-lot
market (generally consisting of transactions of less than $1 million) for the
underlying foreign currencies at prices that are less favorable than for round
lots.
There is no systematic reporting of last sale information for foreign
currencies or any regulatory requirement that quotations available through
dealers or other market sources be firm or revised on a timely basis. Quotation
information generally is representative of very large transactions in the
interbank market and thus might not reflect odd-lot transactions where rates
might be less favorable. The interbank market in foreign currencies is a
global, round-the-clock market. To the extent the U.S. options or futures
markets are closed while the markets for the underlying currencies remain open,
significant price and rate movements might take place in the underlying markets
that cannot be reflected in the markets for the Financial Instruments until
they reopen.
Settlement of hedging transactions involving foreign currencies might be
required to take place within the country issuing the underlying currency.
Thus, a Fund might be required to accept or make delivery of the underlying
foreign currency in accordance with any U.S. or foreign regulations regarding
the maintenance of foreign banking arrangements by U.S. residents and might be
required to pay any fees, taxes, and charges associated with such delivery
assessed in the issuing country.
Forward Currency Contracts and Foreign Currency Deposits. The Funds may enter
into forward currency contracts to purchase or sell foreign currencies for a
fixed amount of U.S. dollars or another foreign currency. A forward currency
contract involves an obligation to purchase or sell a specific currency at a
future date, which may be any fixed number of days (term) from the date of the
forward currency contract agreed upon by the parties, at a price set at the
time the forward currency contract is entered. Forward currency contracts are
negotiated directly between currency traders (usually large commercial banks)
and their customers.
Such transactions may serve as long or anticipatory hedges. For example, a Fund
may purchase a forward currency contract to lock in the U.S. dollar price of a
security denominated in a foreign currency
14
that the Fund intends to acquire. Forward currency contracts may also serve as
short hedges. For example, a Fund may sell a forward currency contract to lock
in the U.S. dollar equivalent of the proceeds from the anticipated sale of a
security or a dividend or interest payment denominated in a foreign currency.
The Funds may also use forward currency contracts to hedge against a decline in
the value of existing investments denominated in foreign currency. Such a hedge
would tend to offset both positive and negative currency fluctuations, but
would not offset changes in security values caused by other factors. A Fund
could also hedge the position by entering into a forward currency contract to
sell another currency expected to perform similarly to the currency in which
the Fund's existing investments are denominated. This type of hedge could offer
advantages in terms of cost, yield or efficiency, but may not hedge currency
exposure as effectively as a simple hedge against U.S. dollars. This type of
hedge may result in losses if the currency used to hedge does not perform
similarly to the currency in which the hedged securities are denominated.
The Funds may also use forward currency contracts in one currency or a basket
of currencies to attempt to hedge against fluctuations in the value of
securities denominated in a different currency if AIM anticipates that there
will be a positive correlation between the two currencies.
The cost to a Fund of engaging in forward currency contracts varies with
factors such as the currency involved, the length of the contract period and
the market conditions then prevailing. Because forward currency contracts are
usually entered into on a principal basis, no fees or commissions are involved.
When a Fund enters into a forward currency contract, it relies on the
counterparty to make or take delivery of the underlying currency at the
maturity of the contract. Failure by the counterparty to do so would result in
the loss of some or all of any expected benefit of the transaction.
As is the case with futures contracts, purchasers and sellers of forward
currency contracts can enter into offsetting closing transactions, similar to
closing transactions on futures contracts, by selling or purchasing,
respectively, an instrument identical to the instrument purchased or sold.
Secondary markets generally do not exist for forward currency contracts, with
the result that closing transactions generally can be made for forward currency
contracts only by negotiating directly with the counterparty. Thus, there can
be no assurance that a Fund will in fact be able to close out a forward
currency contract at a favorable price prior to maturity. In addition, in the
event of insolvency of the counterparty, the Fund might be unable to close out
a forward currency contract. In either event, the Fund would continue to be
subject to market risk with respect to the position, and would continue to be
required to maintain a position in securities denominated in the foreign
currency or to segregate cash or liquid assets.
The precise matching of forward currency contract amounts and the value of the
securities, dividends, or interest payments involved generally will not be
possible because the value of such securities, dividends or interest payments,
measured in the foreign currency, will change after the forward currency
contract has been established. Thus, a Fund might need to purchase or sell
foreign currencies in the spot (cash) market to the extent such foreign
currencies are not covered by forward currency contracts. The projection of
short-term currency market movements is extremely difficult, and the successful
execution of a short-term hedging strategy is highly uncertain.
Forward currency contracts may substantially change a Fund's investment
exposure to changes in currency exchange rates and could result in losses to
the Fund if currencies do not perform as AIM anticipates. There is no assurance
that AIM's and/or the Sub-advisor's use of forward currency contracts will be
advantageous to a Fund or that it will hedge at an appropriate time.
The Funds may also purchase and sell foreign currency and invest in foreign
currency deposits. Currency conversion involves dealer spreads and other costs,
although commissions usually are not charged.
15
Combined Positions. A Fund may purchase and write options or futures in
combination with each other, or in combination with futures or forward currency
contracts, to manage the risk and return characteristics of its overall
position. For example, a Fund may purchase a put option and write a call option
on the same underlying instrument, in order to construct a combined position
whose risk and return characteristics are similar to selling a futures
contract. Another possible combined position would involve writing a call
option at one strike price and buying a call option at a lower price, in order
to reduce the risk of the written call option in the event of a substantial
price increase. Because combined options positions involve multiple trades,
they result in higher transaction costs.
Turnover. The Funds' options and futures activities may affect their turnover
rates and brokerage commission payments. The exercise of calls or puts written
by a Fund, and the sale or purchase of futures contracts, may cause it to sell
or purchase related investments, thus increasing its turnover rate. Once a Fund
has received an exercise notice on an option it has written, it cannot effect a
closing transaction in order to terminate its obligation under the option and
must deliver or receive the underlying securities at the exercise price. The
exercise of puts purchased by a Fund may also cause the sale of related
investments, increasing turnover. Although such exercise is within the Fund's
control, holding a protective put might cause it to sell the related
investments for reasons that would not exist in the absence of the put. A Fund
will pay a brokerage commission each time it buys or sells a put or call or
purchases or sells a futures contract. Such commissions may be higher than
those that would apply to direct purchases or sales.
Swaps, Caps, Floors, and Collars. The Funds are authorized to enter into swaps,
caps, floors, and collars. Swaps involve the exchange by one party with another
party of their respective commitments to pay or receive cash flows, e.g., an
exchange of floating rate payments for fixed rate payments. The purchase of a
cap or a floor entitles the purchaser, to the extent that a specified index
exceeds in the case of a cap, or falls below in the case of a floor, a
predetermined value, to receive payments on a notional principal amount from
the party selling such instrument. A collar combines elements of buying a cap
and selling a floor.
HOLDRs -- Holding Company Depositary Receipts, or HOLDRs, are trust-issued
receipts that represent a Fund's beneficial ownership of a specific group of
stocks. HOLDRs involve risks similar to the risks of investing in common stock.
For example, a Fund's investment will decline in value if the underlying stocks
decline in value. Because HOLDRs are not subject to concentration limits, the
relative weight of an individual stock may increase substantially, causing the
HOLDRs to be less diverse and creating more risk.
ILLIQUID SECURITIES (All Funds, except S&P 500 Index Fund) -- Securities which
do not trade on stock exchanges or in the over-the-counter market, or have
restrictions on when and how they may be sold, are generally considered to be
"illiquid." An illiquid security is one that a Fund may have difficulty -- or
may even be legally precluded from -- selling at any particular time. A Fund
may invest in illiquid securities, including restricted securities and other
investments which are not readily marketable. A Fund will not purchase any such
security if the purchase would cause the Fund to invest more than 15% of its
net assets, measured at the time of purchase, in illiquid securities.
Repurchase agreements maturing in more than seven days are considered illiquid
for purposes of this restriction.
The principal risk of investing in illiquid securities is that a Fund may be
unable to dispose of them at the time desired or at a reasonable price. In
addition, in order to resell a restricted security, a Fund might have to bear
the expense and incur the delays associated with registering the security with
the SEC, and otherwise obtaining listing on a securities exchange or in the
over-the- counter market.
INITIAL PUBLIC OFFERINGS ("IPOS") -- The Funds may invest a portion of their
assets in securities of companies offering shares in IPOs. IPOs may have a
magnified performance impact on a Fund for as long as it has a small asset
base. The impact of IPOs on a Fund's performance likely will decrease as the
Fund's asset size increases, which could reduce the Fund's total returns. IPOs
may not be consistently available to a Fund for investment, particularly as the
Fund's asset base grows. Because IPO shares
16
frequently are volatile in price, a Fund may hold IPO shares for a very short
period of time. This may increase the turnover of a Fund's portfolio and may
lead to increased expenses for the Fund, such as commissions and transaction
costs. By selling shares, the Funds may realize taxable gains they will
subsequently distribute to shareholders. In addition, the market for IPO shares
can be speculative and/or inactive for extended periods of time. The limited
number of shares available for trading in some IPOs may make it more difficult
for a Fund to buy or sell significant amounts of shares without an unfavorable
impact on prevailing prices. Shareholders in IPO shares can be affected by
substantial dilution in the value of their shares, by sales of additional
shares and by concentration of control in existing management and principal
shareholders.
A Fund's investment in IPO shares may include the securities of unseasoned
companies (companies with less than three years of continuous operations),
which present risks considerably greater than common stocks of more established
companies. These companies may have limited operating histories and their
prospects for profitability may be uncertain. These companies may be involved
in new and evolving businesses and may be vulnerable to competition and changes
in technology, markets, and economic conditions. They may be more dependent on
key managers and third parties and may have limited product lines.
INTERFUND BORROWING AND LENDING PROGRAM -- Pursuant to an exemptive order
issued by the SEC dated December 21, 1999, a Fund may lend money to, and borrow
money for temporary purposes from, other funds advised by the Fund's investment
advisor, AIM (the "AIM Funds"). A Fund will borrow through the program only
when the costs are equal to or lower than the cost of bank loans. Interfund
borrowings normally extend overnight, but can have a maximum duration of seven
days. Loans may be called on one day's notice. A Fund may have to borrow from a
bank at a higher interest rate if an interfund loan is unavailable, called or
not renewed.
INVESTMENT COMPANY SECURITIES -- To manage their daily cash positions, the
Funds may invest in securities issued by other investment companies, including
investment companies advised by AIM and its affiliates (pursuant to an
exemptive order dated June 9, 1999), that invest in short-term debt securities
and seek to maintain a net asset value of $1.00 per share ("money market
funds"). The Funds also may invest in Exchange-Traded Funds ("ETFs"). ETFs are
investment companies that are registered under the 1940 Act as open-end funds
or Unit Investment Trusts ("UITs"). ETFs are based on specific domestic and
foreign indices. ETFs shares are sold and redeemed at the net asset value only
in large blocks. In addition, national securities exchanges list ETF shares for
trading, which allows investors to purchase and sell individual ETF shares
among themselves at market prices throughout the day. The 1940 Act limits
investments in securities of other investment companies. These limitations
include, among others, that, subject to certain exceptions: (i) a Fund may not
invest more than 10% of its total assets in securities issued by other
investment companies; (ii) a Fund may not invest more than 5% of its total
assets in securities issued by another investment company; and (iii) and a Fund
may not purchase more than 3% of the total outstanding voting stock of another
investment company.
MORTGAGE-BACKED SECURITIES -- Mortgage-backed securities are interests in pools
of mortgage loans that various governmental, government-related, and private
organizations assemble as securities for sale to investors. Unlike most debt
securities, which pay interest periodically and repay principal at maturity or
on specified call dates, mortgage-backed securities make monthly payments that
consist of both interest and principal payments. In effect, these payments are
a "pass-through" of the monthly payments made by the individual borrowers on
their mortgage loans, net of any fees paid to the issuer or guarantor of such
securities. Since homeowners usually have the option of paying either part or
all of the loan balance before maturity, the effective maturity of a
mortgage-backed security is often shorter than is stated.
Governmental entities, private insurers, and the mortgage poolers may insure or
guarantee the timely payment of interest and principal of these pools through
various forms of insurance or guarantees, including individual loan, title,
pool and hazard insurance, and letters of credit. AIM will consider such
insurance and guarantees and the creditworthiness of the issuers thereof in
determining whether a
17
mortgage-related security meets its investment quality standards. It is
possible that the private insurers or guarantors will not meet their
obligations under the insurance policies or guarantee arrangements.
Although the market for such securities is becoming increasingly liquid,
securities issued by certain private organizations may not be readily
marketable.
Government National Mortgage Association (GNMA). GNMA is the principal
governmental guarantor of mortgage-related securities. GNMA is a wholly-owned
corporation of the U.S. government and it falls within the Department of
Housing and Urban Development. Securities issued by GNMA are considered the
equivalent of treasury securities and are backed by the full faith and credit
of the U.S. government. GNMA guarantees the timely payment of principal and
interest on securities issued by institutions approved by GNMA and backed by
pools of FHA-insured or VA-guaranteed mortgages. GNMA does not guarantee the
market value or yield of mortgage-backed securities or the value of the Fund's
shares. To buy GNMA securities, a Fund may have to pay a premium over the
maturity value of the underlying mortgages, which the Fund may lose if
prepayment occurs.
Federal National Mortgage Association (FNMA). FNMA is a government-sponsored
corporation owned entirely by private stockholders. FNMA is regulated by the
Secretary of Housing and Urban Development. FNMA purchases conventional
mortgages from a list of approved sellers and service providers, including
state and federally-chartered savings and loan associations, mutual savings
banks, commercial banks and credit unions, and mortgage bankers. Securities
issued by FNMA are agency securities, which means FNMA, but not the U.S.
government, guarantees their timely payment of principal and interest.
Federal Home Loan Mortgage Corporation (FHLMC). FHLMC is a stockholder owned
corporation chartered by Congress in 1970 to increase the supply of funds that
mortgage lenders, such as commercial banks, mortgage bankers, savings
institutions, and credit unions, can make available to homebuyers and
multifamily investors. FHLMC issues Participation Certificates (PCs) which
represent interests in conventional mortgages. FHLMC guarantees the timely
payment of interest and ultimate collection of principal, but PCs are not
backed by the full faith and credit of the U.S. government.
Commercial Banks, Savings And Loan Institutions, Private Mortgage Insurance
Companies, Mortgage Bankers, and Other Secondary Market Issuers. Commercial
banks, savings and loan institutions, private mortgage insurance companies,
mortgage bankers, and other secondary market issuers also create pass-through
pools of conventional mortgage loans. In addition to guaranteeing the
mortgage-related security, such issuers may service and/or have originated the
underlying mortgage loans. Pools created by these issuers generally offer a
higher rate of interest than pools created by GNMA, FNMA & FHLMC because they
are not guaranteed by a government agency.
Stripped Mortgage-Backed Securities. Stripped mortgage-backed securities are
derivative multiple-class mortgage-backed securities. Stripped mortgage-backed
securities usually have two classes that receive different proportions of
interest and principal distributions on a pool of mortgage assets. Typically,
one class will receive some of the interest and most of the principal, while
the other class will receive most of the interest and the remaining principal.
In extreme cases, one class will receive all of the interest ("interest only"
or "IO" class) while the other class will receive the entire principal
("principal only" or "PO class"). The cash flow and yields on IOs and POs are
extremely sensitive to the rate of principal payments (including prepayments)
on the underlying mortgage loans or mortgage-backed securities. A rapid rate of
principal payments may adversely affect the yield to maturity of IOs. Slower
than anticipated prepayments of principal may adversely affect the yield to
maturity of a PO. The yields and market risk of interest only and principal
only stripped mortgage-backed securities, respectively, may be more volatile
than those of other fixed income securities, including traditional
mortgage-backed securities.
Collateralized Mortgage Obligations (CMOs). CMOs are hybrids between
mortgage-backed bonds and mortgage pass-through securities. Similar to a bond,
CMOs usually pay interest monthly and have a
18
more focused range of principal payment dates than pass-through securities.
While whole mortgage loans may collateralize CMOs, mortgage-backed securities
guaranteed by GNMA, FHLMC, or FNMA and their income streams more typically
collateralize them.
A Real Estate Mortgage Investment Conduit ("REMIC") is a CMO that qualifies for
special tax treatment under the Internal Revenue Code of 1986, as amended, and
is an investment in certain mortgages primarily secured by interests in real
property and other permitted investments.
CMOs are structured into multiple classes, each bearing a different stated
maturity. Each class of CMO or REMIC certificate, often referred to as a
"tranche," is issued at a specific interest rate and must be fully retired by
its final distribution date. Generally, all classes of CMOs or REMIC
certificates pay or accrue interest monthly. Investing in the lowest tranche of
CMOs and REMIC certificates involves risks similar to those associated with
investing in equity securities.
Risks of Mortgage-Backed Securities. Yield characteristics of mortgage-backed
securities differ from those of traditional debt securities in a variety of
ways. For example, payments of interest and principal are more frequent
(usually monthly) and their interest rates are sometimes adjustable. In
addition, a variety of economic, geographic, social, and other factors, such as
the sale of the underlying property, refinancing, or foreclosure, can cause
investors to repay the loans underlying a mortgage-backed security sooner than
expected. If the prepayment rates increase, a Fund may have to reinvest its
principal at a rate of interest that is lower than the rate on existing
mortgage-backed securities.
ASSET-BACKED SECURITIES. These securities are interests in pools of a broad
range of assets other than mortgages, such as automobile loans, computer
leases, and credit card receivables. Like mortgage-backed securities, these
securities are pass-through. In general, the collateral supporting these
securities is of shorter maturity than mortgage loans and is less likely to
experience substantial prepayments with interest rate fluctuations.
Asset-backed securities present certain risks that are not presented by
mortgage-backed securities. Primarily, these securities may not have the
benefit of any security interest in the related assets, which raises the
possibility that recoveries on repossessed collateral may not be available to
support payments on these securities. For example, credit card receivables are
generally unsecured and the debtors are entitled to the protection of a number
of state and federal consumer credit laws, many of which allow debtors to
reduce their balances by offsetting certain amounts owed on the credit cards.
Most issuers of asset-backed securities backed by automobile receivables permit
the servicers of such receivables to retain possession of the underlying
obligations. If the servicer were to sell these obligations to another party,
there is a risk that the purchaser would acquire an interest superior to that
of the holders of the related asset-backed securities. Due to the quantity of
vehicles involved and requirements under state laws, asset-backed securities
backed by automobile receivables may not have a proper security interest in all
of the obligations backing such receivables.
To lessen the effect of failures by obligors on underlying assets to make
payments, the entity administering the pool of assets may agree to ensure the
receipt of payments on the underlying pool in a timely fashion ("liquidity
protection"). In addition, asset-backed securities may include insurance, such
as guarantees, policies, or letters of credit obtained by the issuer or sponsor
from third parties, for some or all of the assets in the pool ("credit
support"). Delinquency or loss more than that anticipated or failure of the
credit support could adversely affect the return on an investment in such a
security.
The Funds may also invest in residual interests in asset-backed securities,
which is the excess cash flow remaining after making required payments on the
securities and paying related administrative expenses. The amount of residual
cash flow resulting from a particular issue of asset-backed securities depends
in part on the characteristics of the underlying assets, the coupon rates on
the securities, prevailing interest rates, the amount of administrative
expenses and the actual prepayment experience on the underlying assets.
19
Real Estate Investment Trusts--To the extent consistent with their investment
objectives and policies, the Funds may invest in securities issued by real
estate investment trusts ("REITs").
REITs are trusts which sell equity or debt securities to investors and use the
proceeds to invest in real estate or interests therein. A REIT may focus on
particular projects, such as apartment complexes, or geographic regions, such
as the Southeastern United States, or both.
To the extent that the Funds have the ability to invest in REITs, a Fund could
conceivably own real estate directly as a result of a default on the securities
it owns. The Funds, therefore, may be subject to certain risks associated with
the direct ownership of real estate including difficulties in valuing and
trading real estate, declines in the value of real estate, risks related to
general and local economic conditions, adverse changes in the climate for real
estate, environmental liability risks, increases in property taxes and
operating expenses, changes in zoning laws, casualty or condemnation losses,
limitations on rents, changes in neighborhood values, the appeal of properties
to tenants, and increases in interest rates.
In addition to the risks described above, REITs may be affected by any changes
in the value of the underlying property in their portfolios. REITs are
dependent upon management skill, are not diversified, and are therefore subject
to the risk of financing single or a limited number of projects. REITs are also
subject to heavy cash flow dependency, defaults by borrowers, self-liquidation,
and the possibility of failing to maintain an exemption from the 1940 Act.
Changes in interest rates may also affect the value of debt securities held by
a Fund. By investing in REITs indirectly through a Fund, a shareholder will
bear not only his/her proportionate share of the expenses of a Fund, but also,
indirectly, similar expenses of the REITs.
REPURCHASE AGREEMENTS -- A Fund may enter into repurchase agreements, or
"REPOs" on debt securities that the Fund is allowed to hold in its portfolio.
This is a way to invest money for short periods. A REPO is an agreement under
which the Fund acquires a debt security and then resells it to the seller at an
agreed-upon price and date (normally, the next business day). The repurchase
price represents an interest rate effective for the short period the debt
security is held by the Fund, and is unrelated to the interest rate on the
underlying debt security. A repurchase agreement is often considered as a loan
collateralized by securities. The collateral securities acquired by a Fund
(including accrued interest earned thereon) must have a total value in excess
of the value of the repurchase agreement. The collateral securities are held by
a Fund's custodian bank until the repurchase agreement is completed.
The Funds may enter into repurchase agreements with financial institutions that
are creditworthy under standards established by AIM. AIM and the applicable
sub-advisor must use these standards to review the creditworthiness of any
financial institution that is a party to a REPO. REPOs maturing in more than
seven days are considered illiquid securities. A Fund will not enter into
repurchase agreements maturing in more than seven days if as a result more than
15% of the Fund's net assets would be invested in these repurchase agreements
and other illiquid securities.
As noted above, the Funds use REPOs as a means of investing cash for short
periods of time. Although REPOs are considered to be highly liquid and
comparatively low-risk, the use of REPOs does involve some risks. For example,
if the other party to the agreement defaults on its obligation to repurchase
the underlying security at a time when the value of the security has declined,
the Fund may incur a loss on the sale of the collateral security. If the other
party to the agreement becomes insolvent and subject to liquidation or
reorganization under the Bankruptcy Code or other laws, a court may determine
that the underlying security is collateral for a loan by the Fund not within
the control of the Fund and therefore the realization by the Fund on such
collateral may automatically be stayed. Finally, it is possible that the Fund
may not be able to substantiate its interest in the underlying security and may
be deemed an unsecured creditor of the other party to the agreement.
RULE 144A SECURITIES (All Funds, except S&P 500 Index Fund) -- A Fund also may
invest in securities that can be resold to institutional investors pursuant to
Rule 144A under the Securities Act of 1933, as
20
amended (the "1933 Act"). In recent years, a large institutional market has
developed for many Rule 144A Securities. Institutional investors generally
cannot sell these securities to the general public but instead will often
depend on an efficient institutional market in which Rule 144A Securities can
readily be resold to other institutional investors, or on an issuer's ability
to honor a demand for repayment. Therefore, the fact that there are contractual
or legal restrictions on resale to the general public or certain institutions
does not necessarily mean that a Rule 144A Security is illiquid. Institutional
markets for Rule 144A Securities may provide both reliable market values for
Rule 144A Securities and enable a Fund to sell a Rule 144A investment when
appropriate. For this reason, the Board has concluded that if a sufficient
institutional trading market exists for a given Rule 144A security, it may be
considered "liquid," and not subject to a Fund's limitations on investment in
restricted securities. The Board has given AIM the day-to-day authority to
determine the liquidity of Rule 144A Securities, according to guidelines
approved by the Board. The principal risk of investing in Rule 144A Securities
is that there may be an insufficient number of qualified institutional buyers
interested in purchasing a Rule 144A Security held by a Fund, and the Fund
might be unable to dispose of such security promptly or at reasonable prices.
LENDING PORTFOLIO SECURITIES -- The Funds may each lend their portfolio
securities (principally to broker-dealers) where such loans are callable at any
time and are continuously secured by segregated collateral equal to no less
than the market value, determined daily, of the loaned securities. Such
collateral will be cash, letters of credit, or debt securities issued or
guaranteed by the U.S. Government or any of its agencies. Each Fund may lend
portfolio securities to the extent of one-third of its total assets.
A fund will not have the right to vote securities while they are being lent,
but it can call a loan in anticipation of an important vote. The Fund would
receive income in lieu of dividends on loaned securities and would, at the same
time, earn interest on the loan collateral or on the investment of any cash
collateral. Lending securities entails a risk of loss to the Fund if and to the
extent that the market value of the loaned securities increases and the
collateral is not increased accordingly, or in the event of a default by the
borrower. The Fund could also experience delays and cost in gaining access to
the collateral.
Any cash received as collateral for loaned securities will be invested, in
accordance with a Fund's investment guidelines, in short-term money market
instruments or Affiliated Money Market Funds. For purposes of determining
whether a Fund is complying with its investment policies, strategies and
restrictions, the Fund will consider the loaned securities as assets of the
Fund, but will not consider any collateral received as a Fund asset.
SOVEREIGN DEBT -- In certain emerging countries, the central government and its
agencies are the largest debtors to local and foreign banks and others.
Sovereign debt involves the risk that the government, as a result of political
considerations or cash flow difficulties, may fail to make scheduled payments
of interest or principal and may require holders to participate in rescheduling
of payments or even to make additional loans. If an emerging country government
defaults on its sovereign debt, there is likely to be no legal proceeding under
which the debt may be ordered repaid, in whole or in part. The ability or
willingness of a foreign sovereign debtor to make payments of principal and
interest in a timely manner may be influenced by, among other factors, its cash
flow, the magnitude of its foreign reserves, the availability of foreign
exchanges on the payment date, the debt service burden to the economy as a
whole, the debtor's then current relationship with the International Monetary
Fund and its then current political constraints. Some of the emerging countries
issuing such instruments have experienced high rates of inflation in recent
years and have extensive internal debt. Among other effects, high inflation and
internal debt service requirements may adversely affect the cost and
availability of future domestic sovereign borrowing to finance government
programs, and may have other adverse social, political, and economic
consequences, including effects on the willingness of such countries to service
their sovereign debt. An emerging country government's willingness and ability
to make timely payments on its sovereign debt also are likely to be heavily
affected by the country's balance of trade and its access to trade and other
international credits. If a country's exports are concentrated in a few
commodities, such country would be more significantly exposed to a decline in
the international prices of one or more of such commodities. A rise in
protectionism on the part of its trading partners, or unwillingness by such
partners to make
21
payment for goods in hard currency, could also adversely affect the country's
ability to export its products and repay its debts. Sovereign debtors may also
be dependent on expected receipts from such agencies and others abroad to
reduce principal and interest arrearages on their debt. However, failure by the
sovereign debtor or other entity to implement economic reforms negotiated with
multilateral agencies or others, to achieve specified levels of economic
performance, or to make other debt payments when due, may cause third parties
to terminate their commitments to provide funds to the sovereign debtor, which
may further impair such debtor's willingness or ability to service its debts.
The Funds may invest in debt securities issued under the "Brady Plan" in
connection with restructurings in emerging country debt markets or earlier
loans. These securities, often referred to as "Brady Bonds," are, in some
cases, denominated in U.S. dollars and collateralized as to principal by U.S.
Treasury zero coupon bonds having the same maturity. At least one year's
interest payments, on a rolling basis, are collateralized by cash or other
investments. Brady Bonds are actively traded on an over-the-counter basis in
the secondary market for emerging country debt securities. Brady Bonds are
lower-rated bonds and highly volatile.
UNSEASONED ISSUERS -- The Funds may purchase securities in unseasoned issuers.
Securities in such issuers may provide opportunities for long term capital
growth. Greater risks are associated with investments in securities of
unseasoned issuers than in the securities of more established companies because
unseasoned issuers have only a brief operating history and may have more
limited markets and financial resources. As a result, securities of unseasoned
issuers tend to be more volatile than securities of more established companies.
U.S. GOVERNMENT SECURITIES -- Each Fund may, from time to time, purchase debt
securities issued by the U.S. government. These securities include Treasury
bills, notes, and bonds. Treasury bills have a maturity of one year or less,
Treasury notes generally have a maturity of one to ten years, and Treasury
bonds generally have maturities of more than ten years.
U.S. government debt securities also include securities issued or guaranteed by
agencies or instrumentalities of the U.S. government. Some obligations of U.S.
government agencies, which are established under the authority of an act of
Congress, such as GNMA Participation Certificates, are supported by the full
faith and credit of the U.S. Treasury. GNMA Certificates are mortgage backed
securities representing part ownership of a pool of mortgage loans. These loans
issued by lenders such as mortgage bankers, commercial banks, and savings and
loan associations are either insured by the Federal Housing Administration or
guaranteed by the Veterans Administration. A "pool" or group of such mortgages
is assembled and, after being approved by GNMA, is offered to investors through
securities dealers. Once approved by GNMA, the timely payment of interest and
principal on each mortgage is guaranteed by GNMA and backed by the full faith
and credit of the U.S. government. The market value of GNMA Certificates is not
guaranteed. GNMA Certificates are different from bonds because principal is
paid back monthly by the borrower over the term of the loan rather than
returned in a lump sum at maturity, as is the case with a bond. GNMA
Certificates are called "pass-through" securities because both interest and
principal payments (including prepayments) are passed through to the holder of
the GNMA Certificate.
Other United States government debt securities, such as securities of the
Federal Home Loan Banks, are supported by the right of the issuer to borrow
from the Treasury. Others, such as bonds issued by Fannie Mae, a federally
chartered private corporation, are supported only by the credit of the
corporation. In the case of securities not backed by the full faith and credit
of the United States, a Fund must look principally to the agency issuing or
guaranteeing the obligation in the event the agency or instrumentality does not
meet its commitments. The U.S. government may choose not to provide financial
support to U.S. government-sponsored agencies or instrumentalities if it is not
legally obligated to do so. A Fund will invest in securities of such
instrumentalities only when the Advisor and the applicable sub-advisors are
satisfied that the credit risk with respect to any such instrumentality is
comparatively minimal.
22
WHEN-ISSUED/DELAYED DELIVERY -- The Funds normally buy and sell securities on
an ordinary settlement basis. That means that the buy or sell order is sent,
and a Fund actually takes delivery or gives up physical possession of the
security on the "settlement date," which is three business days later. However,
the Funds also may purchase and sell securities on a when-issued or delayed
delivery basis.
When-issued or delayed delivery transactions occur when securities are
purchased or sold by a Fund and payment and delivery take place at an
agreed-upon time in the future. The Funds may engage in this practice in an
effort to secure an advantageous price and yield. However, the yield on a
comparable security available when delivery actually takes place may vary from
the yield on the security at the time the when-issued or delayed delivery
transaction was entered into. When a Fund engages in when-issued and delayed
delivery transactions, it relies on the seller or buyer to consummate the sale
at the future date. If the seller or buyer fails to act as promised, that
failure may result in the Fund missing the opportunity of obtaining a price or
yield considered to be advantageous. No payment or delivery is made by a Fund
until it receives delivery or payment from the other party to the transaction.
However, fluctuation in the value of the security from the time of commitment
until delivery could adversely affect a Fund.
INVESTMENTS IN ENTITIES WITH RELATIONSHIPS WITH THE FUNDS/ADVISOR -- The Funds
may invest in securities issued, sponsored or guaranteed by the following types
of entities or their affiliates: (i) entities that sell shares of the AIM
Funds; (ii) entities that rate or rank the AIM Funds; (iii) exchanges on which
the AIM Funds buy or sell securities; and (iv) entities that provide services
to the AIM Funds (e.g., custodian banks). The Funds will decide whether to
invest in or sell securities issued by these entities based on the merits of
the specific investment opportunity.
INVESTMENT RESTRICTIONS
The investment restrictions set forth below have been adopted by each
respective Fund and, unless identified as non-fundamental policies, may not be
changed without the affirmative vote of a majority of the outstanding voting
securities of that Fund. As provided in the 1940 Act, a "vote of a majority of
the outstanding voting securities of the Fund" means the affirmative vote of
the lesser of (1) more than 50% of the outstanding shares of the Fund or
(2) 67% or more of the shares present at a meeting, if more than 50% of the
outstanding shares are represented at the meeting in person or by proxy. Except
with respect to borrowing, changes in values of a particular Fund's assets will
not cause a violation of the following investment restrictions so long as
percentage restrictions are observed by such Fund at the time it purchases any
security. Each Fund may not:
1. purchase the securities of any issuer (other than securities issued or
guaranteed by the U.S. government or any of its agencies or
instrumentalities or municipal securities) if, as a result, more than 25% of
the Fund's total assets would be invested in the securities of companies
whose principal business activities are in the same industry;
2. with respect to 75% of the Fund's total assets, purchase the securities
of any issuer (other than securities issued or guaranteed by the U.S.
government or any of its agencies or instrumentalities, or securities of
other investment companies) if, as a result, (i) more than 5% of the Fund's
total assets would be invested in the securities of that issuer, or (ii) the
Fund would hold more than 10% of the outstanding voting securities of that
issuer;
3. underwrite securities of other issuers, except insofar as it may be
deemed to be an underwriter under the 1933 Act in connection with the
disposition of the Fund's portfolio securities;
4. borrow money, except that the Fund may borrow money in an amount not
exceeding 33 1/3% of its total assets (including the amount borrowed) less
liabilities (other than borrowings);
23
5. issue senior securities, except as permitted under the 1940 Act;
6. lend any security or make any loan if, as a result, more than 33 1/3% of
its total assets would be lent to other parties, but this limitation does
not apply to the purchase of debt securities or to repurchase agreements;
7. purchase or sell physical commodities; however, this policy shall not
prevent the Fund from purchasing and selling foreign currency, futures
contracts, options, forward contracts, swaps, caps, floors, collars, and
other financial instruments; or
8. purchase or sell real estate unless acquired as a result of ownership of
securities or other instruments (but this shall not prevent the Fund from
investing in securities or other instruments backed by real estate or
securities of companies engaged in the real estate business).
9. each Fund may, notwithstanding any other fundamental investment policy or
limitation, invest all of its assets in the securities of a single open-end
management investment company managed by AIM or an affiliate or a successor
thereof, with substantially the same fundamental investment objective,
policies, and limitations as the Fund.
Each of AIM Dynamics Fund's and AIM Small Company Growth Fund's investment
objective is long-term capital growth. AIM S&P 500 Index Fund's investment
objective is price performance and income comparable to the Standard & Poor's
500 Composite Stock Price Index. Each Fund's investment objective is
fundamental and may not be changed without shareholder approval.
In addition, each Fund has the following non-fundamental policies, which may be
changed without shareholder approval:
A. The Fund may not sell securities short (unless it owns or has the right
to obtain securities equivalent in kind and amount to the securities sold
short) or purchase securities on margin, except that (i) this policy does
not prevent the Fund from entering into short positions in foreign currency,
futures contracts, options, forward contracts, swaps, caps, floors, collars,
and other financial instruments, (ii) the Fund may obtain such short-term
credits as are necessary for the clearance of transactions, and (iii) the
Fund may make margin payments in connection with futures contracts, options,
forward contracts, swaps, caps, floors, collars, and other financial
instruments.
B. The Fund may borrow money only from a bank or from an open-end management
investment company managed by AIM or an affiliate or a successor thereof for
temporary or emergency purposes (not for leveraging or investing) or by
engaging in reverse repurchase agreements with any party (reverse repurchase
agreements will be treated as borrowings for purposes of fundamental
limitation (4)).
C. The Fund does not currently intend to purchase any security if, as a
result, more than 15% of its net assets would be invested in securities that
are deemed to be illiquid because they are subject to legal or contractual
restrictions on resale or because they cannot be sold or disposed of in the
ordinary course of business at approximately the prices at which they are
valued.
D. The Fund may invest in securities issued by other investment companies to
the extent that such investments are consistent with the Fund's investment
objective and policies and permissible under the 1940 Act.
24
E. With respect to fundamental limitation (1), domestic and foreign banking
will be considered to be different industries.
F. A Fund may not acquire any securities of registered open-end investment
companies or registered unit investment trust in reliance on Sections
12(d)(1)(F) or 12(d)(1)(G) of the 1940 Act.
In addition, with respect to a Fund that may invest in municipal securities,
the following non-fundamental policy applies, which may be changed without
shareholder approval:
Each state (including the District of Columbia and Puerto Rico), territory
and possession of the United States, each political subdivision, agency,
instrumentality and authority thereof, and each multi-state agency of which
a state is a member is a separate "issuer." When the assets and revenues of
an agency, authority, instrumentality, or other political subdivision are
separate from the government creating the subdivision and the security is
backed only by assets and revenues of the subdivision, such subdivision
would be deemed to be the sole issuer. Similarly, in the case of an
Industrial Development Bond or Private Activity bond, if that bond is backed
only by the assets and revenues of the non-governmental user, then that
non-governmental user would be deemed to be the sole issuer. However, if the
creating government or another entity guarantees a security, then to the
extent that the value of all securities issued or guaranteed by that
government or entity and owned by a Fund exceeds 10% of the Fund's total
assets, the guarantee would be considered a separate security and would be
treated as issued by that government or entity. With respect to a Fund that
is not a money market fund, securities issued or guaranteed by a bank or
subject to financial guaranty insurance are not subject to the limitations
set forth the preceding sentence.
POLICIES AND PROCEDURES FOR DISCLOSURE OF FUND HOLDINGS
The Board has adopted policies and procedures with respect to the disclosure
of the Funds' portfolio holdings (the "Holdings Disclosure Policy"). AIM and
the Board may amend the Holdings Disclosure Policy at any time without prior
notice. Details of the Holdings Disclosure Policy and a description of the
basis on which employees of AIM and its affiliates may release information
about portfolio securities in certain contexts are provided below.
PUBLIC RELEASE OF PORTFOLIO HOLDINGS. The Funds disclose the following
portfolio holdings information on www.aiminvestments.com/1/:
APPROXIMATE DATE OF INFORMATION REMAINS
INFORMATION WEBSITE POSTING POSTED ON WEBSITE
----------- --------------- -----------------
Top ten holdings as of 15 days after month end Until replaced with the
month end following month's top
ten holdings
Select holdings included 29 days after calendar Until replaced with the
in the Fund's Quarterly quarter end following quarter's
Performance Update Quarterly Performance
Update
- --------
/1/ To locate the Fund's portfolio holdings information on
www.aiminvestments.com, click on the Products and Performance tab, then
click on the Mutual Funds link, then click on the Fund Overview link and
select the Fund from the drop down menu. Links to the Fund's portfolio
holdings are located in the upper right side of this website page.
25
Complete portfolio 30 days after calendar For one year
holdings as of calendar quarter end
quarter end
Complete portfolio 60-70 days after fiscal For one year
holdings as of fiscal quarter end
quarter end
These holdings are listed along with the percentage of the Fund's net assets
they represent. Generally, employees of AIM and its affiliates may not disclose
such portfolio holdings until one day after they have been posted on
http://www.aiminvestments.com. You may also obtain the publicly available
portfolio holdings information described above by contacting us at
1-800-959-4246.
SELECTIVE DISCLOSURE OF PORTFOLIO HOLDINGS PURSUANT TO NON-DISCLOSURE
AGREEMENT. Employees of AIM and its affiliates may disclose non-public full
portfolio holdings on a selective basis only if the Internal Compliance
Controls Committee (the "ICCC") of A I M Management Group Inc. ("AIM
Management") approves the parties to whom disclosure of non-public full
portfolio holdings will be made. The ICCC must determine that the proposed
selective disclosure will be made for legitimate business purposes of the
applicable Fund and address any perceived conflicts of interest between
shareholders of such Fund and AIM or its affiliates as part of granting its
approval.
The Board exercises continuing oversight of the disclosure of Fund portfolio
holdings by (1) overseeing the implementation and enforcement of the Holdings
Disclosure Policy and the AIM Funds Code of Ethics by the Chief Compliance
Officer (or her designee) of AIM and the AIM Funds and (2) considering reports
and recommendations by the Chief Compliance Officer concerning any material
compliance matters (as defined in Rule 38a-1 under the 1940 Act and Rule
206(4)-7 under the Investment Advisers Act of 1940, as amended) that may arise
in connection with the Holdings Disclosure Policy. Pursuant to the Holdings
Disclosure Policy, the Board reviews the types of situations in which AIM
provides selective disclosure and approves situations involving perceived
conflicts of interest between shareholders of the applicable Fund and AIM or
its affiliated brought to the Board's attention by AIM.
AIM discloses non-public full portfolio holdings information to the
following persons in connection with the day-to-day operations and management
of the AIM Funds:
. Attorneys and accountants;
. Securities lending agents;
. Lenders to the AIM Funds;
. Rating and rankings agencies;
. Persons assisting in the voting of proxies;
. AIM Funds' custodians;
. The AIM Funds' transfer agent(s) (in the event of a redemption in
kind);
. Pricing services, market makers, or other persons who provide systems
or software support in connection with AIM Funds' operations (to
determine the price of securities held by an AIM Fund);
. Financial printers;
. Brokers identified by the AIM Funds' portfolio management team who
provide execution and research services to the team; and
. Analysts hired to perform research and analysis to the AIM Funds'
portfolio management team.
In many cases, AIM will disclose current portfolio holdings on a daily basis to
these persons. In these situations, AIM has entered into non-disclosure
agreements which provide that the recipient of the portfolio holdings will
maintain the confidentiality of such portfolio holdings and will not trade on
such information ("Non-disclosure Agreements"). Please refer to Appendix B for
a list of examples of persons to whom AIM provides non-public portfolio
holdings on an ongoing basis.
AIM will also disclose non-public portfolio holdings information if such
disclosure is required by
26
applicable laws, rules or regulations, or by regulatory authorities having
jurisdiction over AIM and its affiliates or the Funds.
The Holdings Disclosure Policy provides that AIM will not request, receive
or accept any compensation (including compensation in the form of the
maintenance of assets in any Fund or other mutual fund or account managed by
AIM or one of its affiliates) for the selective disclosure of portfolio
holdings information.
DISCLOSURE OF CERTAIN PORTFOLIO HOLDINGS AND RELATED INFORMATION WITHOUT
NON-DISCLOSURE AGREEMENT. AIM and its affiliates that provide services to the
Funds, and the Funds' subadvisors, if applicable, and each of their employees
may receive or have access to portfolio holdings as part of the day to day
operations of the Funds.
From time to time, employees of AIM and its affiliates may express their
views orally or in writing on one or more of the Funds' portfolio securities or
may state that a Fund has recently purchased or sold, or continues to own, one
or more securities. The securities subject to these views and statements may be
ones that were purchased or sold since a Fund's most recent quarter-end and
therefore may not be reflected on the list of the Fund's most recent
quarter-end portfolio holdings disclosed on the website. Such views and
statements may be made to various persons, including members of the press,
brokers and other financial intermediaries that sell shares of the Funds,
shareholders in the applicable Fund, persons considering investing in the
applicable Fund or representatives of such shareholders or potential
shareholders, such as fiduciaries of a 401(k) plan or a trust and their
advisers, and other entities for which AIM or its affiliates provides or may
provide investment advisory services. The nature and content of the views and
statements provided to each of these persons may differ.
From time to time, employees of AIM and its affiliates also may provide oral
or written information ("portfolio commentary") about a Fund, including, but
not limited to, how the Fund's investments are divided among various sectors,
industries, countries, investment styles and capitalization sizes, and among
stocks, bonds, currencies and cash, security types, bond maturities, bond
coupons and bond credit quality ratings. This portfolio commentary may also
include information on how these various weightings and factors contributed to
Fund performance. AIM may also provide oral or written information
("statistical information") about various financial characteristics of a Fund
or its underlying portfolio securities including, but not limited to, alpha,
beta, R-squared, coefficient of determination, duration, maturity, information
ratio, sharpe ratio, earnings growth, payout ratio, price/book value, projected
earnings growth, return on equity, standard deviation, tracking error, weighted
average quality, market capitalization, percent debt to equity, price to cash
flow, dividend yield or growth, default rate, portfolio turnover, and risk and
style characteristics. This portfolio commentary and statistical information
about a Fund may be based on the Fund's portfolio as of the most recent
quarter-end or the end of some other interim period, such as month-end. The
portfolio commentary and statistical information may be provided to various
persons, including those described in the preceding paragraph. The nature and
content of the information provided to each of these persons may differ.
DISCLOSURE OF PORTFOLIO HOLDINGS BY TRADERS. Additionally, employees of AIM
and its affiliates may disclose one or more of the portfolio securities of a
Fund when purchasing and selling securities through broker-dealers, requesting
bids on securities, obtaining price quotations on securities, or in connection
with litigation involving the Funds' portfolio securities. AIM does not enter
into formal Non-disclosure Agreements in connection with these situations;
however, the Funds would not continue to conduct business with a person who AIM
believed was misusing the disclosed information.
DISCLOSURE OF PORTFOLIO HOLDINGS OF OTHER AIM-MANAGER PRODUCTS. AIM and its
affiliates manage products sponsored by companies other than AIM, including
investment companies, offshore funds, and separate accounts. In many cases,
these other products are managed in a similar fashion to certain AIM Funds (as
defined herein) and thus have similar portfolio holdings. The sponsors of these
other products managed by AIM and its affiliates may disclose the portfolio
holdings of their products at different times than AIM discloses portfolio
holdings for the AIM Funds.
27
AIM provides portfolio holdings information for portfolios of AIM Variable
Insurance Funds (the "Insurance Funds") to insurance companies whose variable
annuity and variable life insurance accounts invest in the Insurance Funds
("Insurance Companies"). AIM may disclose portfolio holdings information for
the Insurance Funds to Insurance Companies with which AIM has entered into
Non-disclosure Agreements up to five days prior to the scheduled dates for
AIM's disclosure of similar portfolio holdings information for other AIM Funds
on http://www.aiminvestments.com. AIM provides portfolio holdings information
for the Insurance Funds to such Insurance Companies to allow them to disclose
this information on their websites at approximately the same time that AIM
discloses portfolio holdings information for the other AIM Funds on its
website. AIM manages the Insurance Funds in a similar fashion to certain other
AIM Funds and thus the Insurance Funds and such other AIM Funds have similar
portfolio holdings. AIM does not disclose the portfolio holdings information
for the Insurance Funds on its website, and not all Insurance Companies
disclose this information on their websites.
MANAGEMENT OF THE FUNDS
THE INVESTMENT ADVISOR AND SUB-ADVISOR
AIM is the investment advisor for each Fund, and INVESCO Institutional (N.A.),
Inc. ("INVESCO Institutional" or "Sub-Advisor") is the sub-advisor for the S&P
500 Index Fund. Prior to November 25, 2003, INVESCO Funds Group, Inc. ("IFG")
served as the investment advisor for each series portfolio of the Company.
AIM, located at 11 Greenway Plaza, Suite 100, Houston, Texas 77046-1173, was
organized in 1976, and along with its subsidiaries, manages or advises over 200
investment portfolios, encompassing a broad range of investment objectives. AIM
is a direct wholly-owned subsidiary of AIM Management, a holding company that
has been engaged in the financial services business since 1976.
INVESCO Institutional, located at 1166 Avenue of the Americas, 27/th/ Floor,
New York City, New York 10036, is responsible for the Fund's day-to-day
management, including the Fund's investment decisions and the execution of
securities transactions with respect to the Funds.
AIM, AIM Management and INVESCO Institutional are each an indirect wholly owned
subsidiary of AMVESCAP PLC, a publicly traded holding company. Through its
subsidiaries, AMVESCAP PLC engages in the business of investment management on
an international basis. AMVESCAP PLC is one of the largest independent
investment management businesses in the world, with approximately $373 billion
in assets under management as of June 30, 2005.
INVESTMENT ADVISORY AGREEMENT
As investment advisor, AIM supervises all aspects of the Funds' operations and
provides investment advisory services to the Fund. AIM obtains and evaluates
economic, statistical and financial information to formulate and implement
investment programs for the Funds. The Master Investment Advisory Agreement
provides that, in fulfilling its responsibilities, AIM may engage the services
of other investment managers with respect to the Funds. The investment advisory
services of AIM and the investment sub-advisory services of INVESCO
Institutional are not exclusive and AIM and INVESCO Institutional are free to
render investment advisory services to others, including other investment
companies.
AIM is also responsible for furnishing to the Funds, at AIM's expense, the
services of persons believed to be competent to perform all supervisory and
administrative services required by the Funds, in the judgment of the trustees,
to conduct their respective businesses effectively, as well as the offices,
equipment and other facilities necessary for their operations. Such functions
include the maintenance of the Funds' accounts and records, and the preparation
of all requisite corporate documents such as tax returns and reports to the SEC
and shareholders.
28
The Master Investment Advisory Agreement provides that the Funds will pay or
cause to be paid all expenses of the Funds not assumed by AIM, including,
without limitation: brokerage commissions, taxes, legal, auditing or
governmental fees, custodian, transfer and shareholder service agent costs,
expenses of issue, sale, redemption, and repurchase of shares, expenses of
registering and qualifying shares for sale, expenses relating to trustees and
shareholder meetings, the cost of preparing and distributing reports and
notices to shareholders, the fees and other expenses incurred by the Trust on
behalf of each Fund in connection with membership in investment company
organizations, and the cost of printing copies of prospectuses and statements
of additional information distributed to the Funds' shareholders.
AIM, at its own expense, furnishes to the Trust office space and facilities.
AIM furnishes to the Trust all personnel for managing the affairs of the Trust
and each of its series of shares.
Pursuant to its investment advisory agreement with the Trust, AIM receives a
monthly fee from each Fund calculated at the following annual rates indicated
in the second column below, based on the average daily net assets of the Fund
during the year:
ANNUAL RATE/NET ASSET PER MAXIMUM ADVISORY FEE RATE MAXIMUM ADVISORY FEE RATES
FUND NAME ADVISORY AGREEMENT AFTER JANUARY 1, 2005 COMMITTED UNTIL DATE
--------- ----------------------------------------------------------------------------
AIM Dynamics Fund N/A N/A
0.60% of first $350 M
0.55% of next $350 M
0.50% of next $1.3 B
0.45% of next $2 B
0.40% of next $2 B
0.375% of next $2 B
0.35% of amount over $8 B
AIM Small Company Growth Fund 0.75% of first $350 M 0.745% of the first $250 M N/A
0.65% of next $350 M 0.73% of the next $250 M
0.55% of next $1.3 B 0.715% of the next $500 M
0.45% of next $2 B 0.70% of the next $1.5 B
0.40% of next $2 B 0.685% of the next $2.5 B
0.375% of next $2 B 0.67% of the next $2.5 B
0.35% of amount over $8 B 0.655% of the next $2.5B
0.64% of amount over $10
B
AIM S&P 500 Index Fund 0.25% of the first $250 M N/A
0.25% of average daily net 0.24% of the next $250 M
assets 0.23%of the next $500 M
0.22% of the next $1.5 B
0.21% of the next $2.5 B
0.20% of the next $2.5 B
0.19% of the next $2.5 B
0.18% of amount over $10
B
The management fees payable by each Fund, the amounts waived by AIM and/or IFG,
as applicable, and the net fees paid by each Fund for the fiscal years ended
July 31, 2005 and 2004 are as follows:
FUND NAME 2005 2004
--------- -------------------------------------------------------------------
MANAGEMENT MANAGEMENT NET MANAGEMENT MANAGEMENT NET
FEE FEE MANAGEMENT FEE FEE MANAGEMENT
PAYABLE WAIVERS FEE PAID PAYABLE WAIVERS FEE PAID
- -----------------------------------------------------------
AIM Dynamics Fund $12,589,288 $26,054 $12,563,234 $19,123,794 $91,277 $19,032,517
AIM Small Company
Growth Fund.... $ 3,721,889 $10,627 $ 3,711,262 $ 6,172,816 $19,069 $ 6,153,747
AIM S&P 500 Index
Fund........... $ 585,188 0 $ 585,188 $ 579,943 $56,448 $ 523,495
29
The advisory agreement will expire, unless renewed, on or before June 30, 2006.
Prior to November 25, 2003, IFG served as investment advisor to the Funds.
During the period ended July 31, 2003, each Fund paid IFG advisory fees in the
dollar amounts shown below. If applicable, the advisory fees were offset by
credits in the amounts shown below, so that a Fund's fees were not in excess of
the expense limitations shown, which were voluntarily agreed to by the Company
and IFG. The fee is allocated daily to each class based on the relative
proportion of net assets represented by such class.
ADVISORY FEE TOTAL EXPENSE TOTAL EXPENSE
DOLLARS REIMBURSEMENTS LIMITATIONS
-------------------------------------
INVESTOR CLASS
Dynamics Fund
Year Ended July 31, 2003 $17,508,225 $8,960,691 1.20%
SMALL COMPANY GROWTH FUND
Year Ended July 31, 2003 $ 5,237,882 $1,319,448 1.50%
S&P 500 INDEX FUND
Year Ended July 31, 2003 $ 384,023 $ 613,602 0.65%
INSTITUTIONAL CLASS
Dynamics Fund
Year Ended July 31, 2003 $ 133,676 $ 0 0.95%
S&P 500 INDEX FUND
Year Ended July 31, 2003 $ 3,313 $ 24,137 0.35%
CLASS A
DYNAMICS FUND
Year Ended July 31, 2003 $ 31,256 $ 0 1.30%/1/
SMALL COMPANY GROWTH FUND
Year Ended July 31, 2003 $ 24,755 $ 0 1.60%/2/
CLASS B
DYNAMICS FUND
Year Ended July 31, 2003 $ 3,953 $ 4,432 1.95%/3/
SMALL COMPANY GROWTH FUND
Year Ended July 31, 2003 $ 1,459 $ 3,770 2.25%/4/
CLASS C
DYNAMICS FUND
Year Ended July 31, 2003 $ 77,150 $ 169,045 1.95%
SMALL COMPANY GROWTH FUND
Year Ended July 31, 2003 $ 26,467 $ 49,264 2.25%
30
ADVISORY FEE TOTAL EXPENSE TOTAL EXPENSE
DOLLARS REIMBURSEMENTS LIMITATIONS
-------------------------------------
CLASS K
DYNAMICS FUND
Year Ended July 31, 2003 $203,595 $ 82,626 1.40%
SMALL COMPANY GROWTH FUND
Year Ended July 31, 2003 $483,257 $1,020,674 1.70%
- --------
/1/ Effective August 1, 2002, the Total Expense Limitation was changed to
1.30%.
/2/ Effective August 1, 2002, the Total Expense Limitation was changed to
1.60%.
/3/ Effective August 1, 2002, the Total Expense Limitation was changed to
1.95%.
/4/ Effective August 1, 2002, the Total Expense Limitation was changed to
2.25%.
AIM may from time to time waive or reduce its fee. Voluntary fee waivers or
reductions may be rescinded at any time without further notice to investors.
During periods of voluntary fee waivers or reductions, AIM will retain its
ability to be reimbursed for such fee prior to the end of each fiscal year.
Contractual fee waivers or reductions set forth in the Fee Table in a
Prospectus may not be terminated or amended to the Funds' detriment during the
period stated in the agreement between AIM and the Fund.
AIM has voluntarily agreed to waive a portion of advisory fees payable by the
Funds. The amount of the waiver will equal 25% of the advisory fee AIM receives
from the Affiliated Money Market Funds as a result of a Fund's investment of
uninvested cash in an Affiliated Money Market Fund. Termination of this
agreement requires approval by the Board. See "INVESTMENTS, POLICIES AND RISKS
- - -Investment Company Securities."
AIM has contractually agreed through July 31, 2006, to limit total annual fund
operating expenses (excluding (i) interest; (ii) taxes; (iii) dividend expense
on short sales; (iv) extraordinary items (these are expenses that are not
anticipated to arise from each Fund's day-to-day operations), or items
designated as such by each Fund's Board; (v) expenses related to a merger or
reorganization, as approved by each Fund's Board; and (vi) expenses that each
Fund has incurred but did not actually pay because of an expense offset
arrangement) for the following Funds' shares to the extent necessary to limit
the total operating expenses as follows:
FUND EXPENSE LIMITATION
---- ------------------
AIM Dynamics Fund and
AIM Small Company Growth Fund
Investor Class Shares 1.90%
Class A Shares 1.90%
Class B Shares 2.65%
Class C Shares 2.65%
Class R Shares 2.15%
Institutional Class Shares 1.65%
AIM S&P 500 Index Fund
Investor Class Shares 0.60%
Institutional Class Shares 0.35%
Such contractual fee waivers or reductions are set forth in the Fee Table to
each Fund's Prospectus and may not be terminated or amended to the Funds'
detriment during the period stated in the agreement between AIM and the Fund.
31
SECURITIES LENDING ARRANGEMENTS. If a Fund engages in securities lending, AIM
will provide the Fund investment advisory services and related administrative
services. The advisory agreement describes the administrative services to be
rendered by AIM if a Fund engages in securities lending activities, as well as
the compensation AIM may receive for such administrative services. Services to
be provided include: (a) overseeing participation in the securities lending
program to ensure compliance with all applicable regulatory and investment
guidelines; (b) assisting the securities lending agent or principal (the
"agent") in determining which specific securities are available for loan;
(c) monitoring the agent to ensure that securities loans are effected in
accordance with AIM's instructions and with procedures adopted by the Board;
(d) preparing appropriate periodic reports for, and seeking appropriate
approvals from, the Board with respect to securities lending activities;
(e) responding to agent inquiries; and (f) performing such other duties as may
be necessary.
AIM's compensation for advisory services rendered in connection with securities
lending is included in the advisory fee schedule. As compensation for the
related administrative services AIM will provide, a lending Fund will pay AIM a
fee equal to 25% of the net monthly interest or fee income retained or paid to
the Fund from such activities. AIM currently intends to waive such fee, and has
agreed to seek Board approval prior to its receipt of all or a portion of such
fee.
THE SUB-ADVISORY AGREEMENT
AIM has entered into a Master Sub-Advisory Contract with INVESCO Institutional
to provide investment sub-advisory services to the AIM S&P 500 Index Fund.
INVESCO Institutional is registered as an investment advisor under the
Investment Advisers Act of 1940, as amended (the "Advisers Act"). INVESCO
Institutional provides investment supervisory services on both discretionary
and non-discretionary bases to pension and profit sharing plans, endowments and
educational institutions, investment companies, insurance companies, and
individuals and personal holding companies.
For the services to be rendered by INVESCO Institutional under its Master
Sub-Advisory Contract, AIM will pay to INVESCO Institutional a fee which will
be computed daily and paid as of the last day of each month on the basis of the
Fund's daily net asset value, using for each daily calculation the most
recently determined net asset value of the Fund. On an annual basis, the
sub-advisory fee is equal to 40% of AIM's compensation of the sub-advised
assets per year.
PORTFOLIO MANAGERS
Appendix C contains the following information regarding the portfolio managers
identified in each Fund's prospectus:
... The dollar range of the manager's investments in each Fund.
... A description of the manager's compensation structure.
... Information regarding other accounts managed by the manager and potential
conflicts of interest that might arise from the management of multiple
accounts.
ADMINISTRATIVE SERVICES AGREEMENT
AIM and the Trust have entered into a Master Administrative Services Agreement
pursuant to which AIM may perform or arrange for the provision of certain
accounting and other administrative services to the Fund which are not required
to be performed by AIM under the advisory agreement. The Master Administrative
Services Agreement provides that it will remain in effect and continue from
year to year only if such continuance is specifically approved at least
annually by the Trust's Board, including the
32
independent trustees, by votes cast in person at a meeting called for such
purpose. Under the Master Administrative Services Agreement, AIM is entitled to
receive from the Fund reimbursement of its costs or such reasonable
compensation as may be approved by the Board. Currently, AIM is reimbursed for
the services of the Trust's principal financial officer and her staff, and any
expenses related to fund accounting services.
ADMINISTRATIVE SERVICES FEES
The Funds paid AIM and/or IFG* , as applicable, the following amounts for
administrative services for the last three fiscal years ended July 31.
FUND NAME 2005 2004 2003
--------- --------------------------
AIM Dynamics Fund $519,635 $1,698,325 $1,653,465
AIM Small Company Growth 159,834 419,774 396,494
AIM S&P 500 Index Fund 63,837 109,879 79,720
* IFG served as administrator of the Funds prior to August 12, 2003.
TRUSTEES AND OFFICERS OF THE TRUST
BOARD OF TRUSTEES
The overall management of the business and affairs of the Funds and the Trust
is vested in the Board. The Board approves all significant agreements between
the Trust, on behalf of one or more of the Funds, and persons or companies
furnishing services to the Funds. The day-to-day operations of each Fund are
delegated to the officers of the Trust and to AIM, subject always to the
objective(s), restrictions and policies of the applicable Fund and to the
general supervision of the Board. Certain trustees and officers of the Trust
are affiliated with AIM and AIM Management, the parent corporation of AIM. All
of the Trust's executive officers hold similar offices with some or all of the
other AIM Funds.
MANAGEMENT INFORMATION
The trustees and officers of the Trust, their principal occupations during the
last five years and certain other information concerning them are set forth in
Appendix D.
The standing committees of the Board are the Audit Committee, the Compliance
Committee, the Governance Committee, the Investments Committee, the Valuation
Committee and the Special Market Timing Litigation Committee.
The current members of the Audit Committee are Bob R. Baker, James T. Bunch,
Edward K. Dunn, Jr. (Chair), Lewis F. Pennock, Dr. Larry Soll, Dr. Prema
Mathai-Davis, Raymond Stickel, Jr. and Ruth H. Quigley (Vice Chair). The Audit
Committee's primary purposes are to: (i) assist the Board in oversight of the
independent auditor's qualifications, independence and performance;
(ii) appoint independent auditors for the Funds; (iii) to the extent required
by Section 10A(h) and (i) of the Exchange Act, to pre-approve all permissible
non-audit services that are provided to Funds by their independent auditors;
(iv) pre-approve, in accordance with Rule 2-01(c)(7)(ii) of Regulation S-X,
certain non-audit services provided by the Funds' independent auditors to the
Funds' investment adviser and certain other affiliated entities; (v) to oversee
the financial reporting process for the Funds; (vi) the extent required by
Regulation 14A under the Exchange Act, to prepare an audit committee report for
inclusion in any proxy statement issued by a Fund; (vii) assist the Board's
oversight of the performance of the Funds' internal audit function to the
extent an internal audit function exists; (viii) assist the Board's oversight
of the integrity of the Funds' financial statements; and (ix) assist the
Board's oversight of the Funds' compliance with legal
33
and regulatory requirements. During the fiscal year ended July 31, 2005, the
Audit Committee held eight meetings.
The members of the Compliance Committee are Frank S. Bayley, Bruce L. Crockett
(Chair), Albert R. Dowden (Vice Chair) and Mr. Dunn. The Compliance Committee
is responsible for: (i) recommending to the Board and the independent trustees
the appointment, compensation and removal of the Funds' Chief Compliance
Officer; (ii) recommending to the independent trustees the appointment,
compensation and removal of the Funds' Senior Officer appointed pursuant to the
terms of the Assurances of Discontinuance entered into by the New York Attorney
General, AIM and IFG; (iii) recommending to the independent trustees the
appointment and removal of AIM's independent Compliance Consultant (the
"Compliance Consultant") and reviewing the report prepared by the Compliance
Consultant upon its compliance review of AIM (the "Report") and any objections
made by AIM with respect to the Report; (iv) reviewing any report prepared by a
third party who is not an interested person of AIM, upon the conclusion by such
third party of a compliance review of AIM; (v) reviewing all reports on
compliance matters from the Funds' Chief Compliance Officer, (vi) reviewing all
recommendations made by the Senior Officer regarding AIM's compliance
procedures, (vii) reviewing all reports from the Senior Officer of any
violations of state and federal securities laws, the Colorado Consumer
Protection Act, or breaches of AIM's fiduciary duties to Fund shareholders and
of AIM's Code of Ethics; (viii) overseeing all of the compliance policies and
procedures of the Funds and their service providers adopted pursuant to Rule
38a-1 of the 1940 Act; (ix) from time to time, reviewing certain matters
related to redemption fee waivers and recommending to the Board whether or not
to approve such matters; (x) receiving and reviewing quarterly reports on the
activities of AIM's Internal Compliance Controls Committee; (xi) reviewing all
reports made by AIM's Chief Compliance Officer; (xii) reviewing and
recommending to the independent trustees whether to approve procedures to
investigate matters brought to the attention of AIM's ombudsman; (xiii) risk
management oversight with respect to the Funds and, in connection therewith,
receiving and overseeing risk management reports from AMVESCAP PLC that are
applicable to the Funds or their service providers; and (xiv) overseeing
potential conflicts of interest that are reported to the Compliance Committee
by the AIM, the Chief Compliance Officer, the Senior Officer and/or the
Compliance Consultant. During the fiscal year ended July 31, 2005, the
Compliance Committee met six times.
The members of the Governance Committee are Messrs. Bayley, Crockett, Dowden
(Chair), Jack M. Fields (Vice Chair) and Gerald J. Lewis. The Governance
Committee is responsible for: (i) nominating persons who will qualify as
independent trustees for (a) election as trustees in connection with meetings
of shareholders of the Funds that are called to vote on the election of
trustees, (b) appointment by the Board as trustees in connection with filling
vacancies that arise in between meetings of shareholders; (ii) reviewing the
size of the Board, and recommending to the Board whether the size of the Board
shall be increased or decreased; (iii) nominating the Chair of the Board;
(iv) monitoring the composition of the Board and each committee of the Board,
and monitoring the qualifications of all trustees; (v) recommending persons to
serve as members of each committee of the Board (other than the Compliance
Committee), as well as persons who shall serve as the chair and vice chair of
each such committee; (vi) reviewing and recommending the amount of compensation
payable to the independent trustees; (vii) overseeing the selection of
independent legal counsel to the independent trustees; (viii) reviewing and
approving the compensation paid to independent legal counsel and other
advisers, if any, to the Audit Committee of the Board; (ix) reviewing and
approving the compensation paid to counsel and other advisers, if any, to the
Audit Committee of the Board; and (x) reviewing as they deem appropriate
administrative and/or logistical matters pertaining to the operations of the
Board.
The Governance Committee will consider nominees recommended by a shareholder to
serve as trustees, provided: (i) that such person is a shareholder of record at
the time he or she submits such names and is entitled to vote at the meeting of
shareholders at which trustees will be elected; and (ii) that the Governance
Committee or the Board, as applicable, shall make the final determination of
persons to be nominated. During the fiscal year ended July 31, 2005, the
Governance Committee held eight meetings.
Notice procedures set forth in the Trust's bylaws require that any shareholder
of a Fund desiring to nominate a trustee for election at a shareholder meeting
must submit to the Trust's Secretary the
34
nomination in writing not later than the close of business on the later of the
90th day prior to such shareholder meeting or the tenth day following the day
on which public announcement is made of the shareholder meeting and not earlier
than the close of business on the 120th day prior to the shareholder meeting.
The members of the Investments Committee are Messrs. Baker (Vice Chair), Bayley
(Chair), Bunch, Crockett, Dowden, Dunn, Fields, Lewis, Pennock, Soll, Carl
Frischling, and Dr. Mathai-Davis (Vice Chair) and Miss Quigley (Vice Chair).
The Investments Committee's primary purposes are to: (i) assist the Board in
its oversight of the investment management services provided by AIM as well as
any sub-advisers; and (ii) review all proposed and existing advisory,
sub-advisory and distribution arrangements for the Funds, and to recommend what
action the Fund Boards and the independent trustees take regarding the approval
of all such proposed arrangements and the continuance of all such existing
arrangements. During the fiscal year ended July 31, 2005, the Investments
Committee held nine meetings.
The Investments Committee has established three Sub-Committees. The
Sub-Committees are responsible for: (i) reviewing the performance, fees and
expenses of the Funds that have been assigned to a particular Sub-Committee
(for each Sub-Committee, the "Designated Funds"), unless the Investments
Committee takes such action directly; (ii) reviewing with the applicable
portfolio managers from time to time the investment objective(s), policies,
strategies and limitations of the Designated Funds; (iii) evaluating the
investment advisory, sub-advisory and distribution arrangements in effect or
proposed for the Designated Funds, unless the Investments Committee takes such
action directly; (iv) being familiar with the registration statements and
periodic shareholder reports applicable to their Designated Funds; and (v) such
other investment-related matters as the Investments Committee may delegate to
the Sub-Committee from time to time.
The members of the Valuation Committee are Messrs. Bunch, Pennock (Vice Chair),
Soll, Mark Williamson (Chair) and Miss Quigley. The Valuation Committee is
responsible for: (i) developing a sufficient knowledge of the valuation process
and of AIM's procedures for Valuing Securities (Pricing Procedures) (the
"Pricing Procedures") in order to carry out their responsibilities;
(ii) periodically reviewing information provided by AIM or other advisers
regarding industry developments in connection with valuation and pricing, and
making recommendations to the Board with respect to the Pricing Procedures
based upon such review; (iii) reviewing the reports described in the Pricing
Procedures and other information from AIM regarding fair value determinations
made pursuant to the Pricing Procedures by AIM's internal valuation committee,
and reporting to and making recommendations to the Board in connection with
such reports; (iv) receiving the reports of AIM's internal valuation committee
requesting approval of any changes to pricing vendors or pricing methodologies
as required by the Pricing Procedures, receiving the annual report of AIM
evaluating the pricing vendors, and approving changes to pricing vendors and
pricing methodologies as provided in the Pricing Procedures and recommending
the pricing vendors for approval by the Board annually; (v) upon request of
AIM, assisting AIM's internal valuation committee and/or the Board in resolving
particular fair valuation issues; (vi) receiving any reports of concerns by
AIM"s internal valuation committee regarding actual or potential conflicts of
interest by investment personnel or others that could color their input or
recommendations regarding pricing issues, and receiving information from AIM
disclosing differences between valuation and pricing procedures used for the
Funds and private funds, if any, advised by AIM for which AIM Fund
Administration has exclusive accounting responsibility, and the reasons for
such differences; and (vii) in each of the foregoing areas, making regular
reports to the Board. During the fiscal year ended July 31, 2005, the Valuation
Committee met two times.
The members of the Special Market Timing Litigation Committee are Messrs.
Crockett, Dowden (Vice Chair), Dunn and Lewis (Chair). The Special Market
Timing Litigation Committee is responsible: (i) for receiving reports from time
to time from management, counsel for management, counsel for the AIM Funds and
special counsel for the independent trustees, as applicable, related to (a) the
civil lawsuits, including purported class action and shareholder derivative
suits, that have been filed against the AIM Funds concerning alleged excessive
short term trading in shares of the AIM Funds ("market timing") and (b) the
civil enforcement actions and investigations related to market timing activity
in the AIM Funds that
35
were settled with certain regulators, including without limitation the SEC, the
New York Attorney General and the Colorado Attorney General, and for
recommending to the independent trustees what actions, if any, should be taken
by the AIM Funds in light of all such reports; (ii) for overseeing the
investigation(s) on behalf of the independent trustees by special counsel for
the independent trustees and the independent trustees' financial expert of
market timing activity in the AIM Funds, and for recommending to the
independent trustees what actions, if any, should be taken by the AIM Funds in
light of the results of such investigation(s); (iii) for (a) reviewing the
methodology developed by AIM's Independent Distribution Consultant (the
"Distribution Consultant") for the monies ordered to be paid under the
settlement order with the SEC, and making recommendations to the independent
trustees as to the acceptability of such methodology and (b) recommending to
the independent trustees whether to consent to any firm with which the
Distribution Consultant is affiliated entering into any employment, consultant,
attorney-client, auditing or other professional relationship with AIM, or any
of its present or former affiliates, directors, officers, employees or agents
acting in their capacity as such for the period of the Distribution
Consultant's engagement and for a period of two years after the engagement; and
(iv) for taking reasonable steps to ensure that any AIM Fund which the Special
Market Timing Litigation Committee determines was harmed by improper market
timing activity receives what the Special Market Timing Litigation Committee
deems to be full restitution. During the fiscal year ended July 31, 2005, the
Special Market Timing Litigation Committee held three meetings.
Trustee Ownership of Fund Shares
The dollar range of equity securities beneficially owned by each trustee (i) in
the Fund's and (ii) on an aggregate basis, in all registered investment
companies overseen by the trustee within the AIM Funds complex is set forth in
Appendix D.
COMPENSATION
Each trustee who is not affiliated with AIM is compensated for his or her
services according to a fee schedule which recognizes the fact that such
trustee also serves as a trustee of other AIM Funds. Each such trustee receives
a fee, allocated among the AIM Funds for which he or she serves as a trustee,
which consists of an annual retainer component and a meeting fee component. The
Chair of the Board and Chairs and Vice Chairs of certain committees receive
additional compensation for their services.
Information regarding compensation paid or accrued for each trustee of the
Trust who was not affiliated with AIM during the year ended December 31, 2004
is found in Appendix E.
RETIREMENT PLAN FOR TRUSTEES
The trustees have adopted a retirement plan for the trustees of the Trust who
are not affiliated with AIM. The retirement plan includes a retirement policy
as well as retirement benefits for the non-AIM-affiliated trustees.
The retirement policy permits each non-AIM-affiliated trustee to serve until
December 31 of the year in which the trustee turns 72. A majority of the
trustees may extend from time to time the retirement date of a trustee.
Annual retirement benefits are available to each non-AIM-affiliated trustee of
the Trust and/or the other AIM Funds (each, a "Covered Fund") who has at least
five years of credited service as a trustee (including service to a predecessor
fund) for a Covered Fund. The retirement benefits will equal 75% of the
trustee's annual retainer paid or accrued by any Covered Fund to such trustee
during the twelve-month period prior to retirement, including the amount of any
retainer deferred under a separate deferred compensation agreement between the
Covered Fund and the trustee. Notwithstanding the foregoing, the amount of
benefits will exclude any additional compensation paid to the Chair of the
Board and the Chairs and Vice Chairs of certain committees, whether such
amounts are paid directly to the Trustee or deferred. The annual retirement
benefits are payable in quarterly installments for a number of years equal to
the
36
lesser of (i) ten or (ii) the number of such trustee's credited years of
service. A death benefit is also available under the plan that provides a
surviving spouse with a quarterly installment of 50% of a deceased trustee's
retirement benefits for the same length of time that the trustee would have
received based on his or her service. A trustee must have attained the age of
65 (55 in the event of death or disability) to receive any retirement benefit.
DEFERRED COMPENSATION AGREEMENTS
Messrs. Crockett, Dunn, Fields, Frischling, Sklar and Soll and Dr. Mathai-Davis
(for purposes of this paragraph only, the "Deferring Trustees") have each
executed a Deferred Compensation Agreement (collectively, the "Compensation
Agreements"). Pursuant to the Compensation Agreements, the Deferring Trustees
have the option to elect to defer receipt of up to 100% of their compensation
payable by the Trust, and such amounts are placed into a deferral account and
deemed to be invested in one or more AIM Funds selected by the Deferring
Trustees. Distributions from the Deferring Trustees' deferral accounts will be
paid in cash, generally in equal quarterly installments over a period of up to
ten (10) years (depending on the Compensation Agreement) beginning on the date
selected under the Compensation Agreement. The Board, in its sole discretion,
may accelerate or extend the distribution of such deferral accounts after the
Deferring Trustee's retirement benefits commence under the Plan. The Board, in
its sole discretion, also may accelerate or extend the distribution of such
deferral accounts after the Deferring Trustee's termination of service as a
trustee of the Trust. If a Deferring Trustee dies prior to the distribution of
amounts in his or her deferral account, the balance of the deferral account
will be distributed to his or her designated beneficiary. The Compensation
Agreements are not funded and, with respect to the payments of amounts held in
the deferral accounts, the Deferring Trustees have the status of unsecured
creditors of the Trust and of each other AIM Fund from which they are deferring
compensation.
Purchases of Class A Shares of the Funds at Net Asset Value
The trustees and other affiliated persons of the Trust may purchase Class A
shares of the AIM Funds without paying an initial sales charge.
AIM Distributors permits such purchases because there is a reduced sales effort
involving sales to such purchasers, thereby resulting in relatively low
expenses of distribution. For a complete description of the persons who will
not pay an initial sales charge on purchases of Class A shares of the Funds,
see "Purchase, Redemption and Pricing of Shares - Purchase and Redemption of
Shares - Purchases of Class A Shares, Class A3 Shares of Limited Maturity
Treasury Fund and AIM Tax-Free Intermediate Fund and AIM Cash Reserve Shares of
AIM Money Market Fund - Purchases of Class A Shares at Net Asset Value."
CODE OF ETHICS
AIM, the Trust, AIM Distributors and INVESCO Institutional (the sub-advisor to
AIM S&P 500 Index Fund) have each adopted a Code of Ethics governing, as
applicable, personal trading activities of all trustees, officers of the Trust,
persons who, in connection with their regular functions, play a role in the
recommendation of any purchase or sale of a security by any of the Funds or
obtain information pertaining to such purchase or sale, and certain other
employees. The Codes of Ethics are intended to prohibit conflicts of interest
with the Trust that may arise from personal trading including personal trading
in most of the funds within The AIM Family of Funds(R) ("affiliated funds").
Personal trading, including personal trading involving securities that may be
purchased or held by a Fund and in affiliated funds, is permitted by persons
covered under the relevant Codes subject to certain restrictions; however those
persons are generally required to pre-clear all security transactions with the
Compliance Officer or her designee and to report all transactions on a regular
basis.
37
PROXY VOTING POLICIES AND PROCEDURES
The Board has with respect to the AIM Dynamics Fund and AIM Small Company
Growth Fund delegated responsibility for decisions regarding proxy voting for
securities held by the AIM Dynamics Fund and AIM Small Company Growth Fund, to
the Funds' investment advisor and with respect to the AIM S&P 500 Index Fund,
to INVESCO Institutional. AIM and INVESCO Institutional will vote such proxies
in accordance with its proxy policies and procedures, which have been reviewed
and approved by the Board, and which are found in Appendix F.
Any material changes to the proxy policies and procedures will be submitted to
the Board for approval. The Board will be supplied with a summary quarterly
report of each Fund's proxy voting record.
Information regarding how the Funds voted proxies related to its portfolio
securities during the 12 months ended June 30, 2005 is available at our
website, http://www.AIMinvestments.com. This information is also available at
the SEC website, http://www.sec.gov.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
Information about the ownership of each class of the Funds' shares by
beneficial or record owners of the Funds and by trustees and officers as a
group is found in Appendix G. A shareholder who owns beneficially 25% or more
of the outstanding shares of a Fund is presumed to "control" that Fund.
DISTRIBUTION OF SECURITIES
DISTRIBUTOR
The Trust has entered into master distribution agreements, as amended, relating
to the Funds (the "Distribution Agreements") with AIM Distributors, a
registered broker-dealer and a wholly owned subsidiary of AIM, pursuant to
which AIM Distributors acts as the distributor of the shares of the Funds. AIM
Distributors became the distributor of the Funds effective July 1, 2003. The
address of AIM Distributors is P.O. Box 4739, Houston, Texas 77210-4739.
Certain trustees and offices of the Trust are affiliated with AIM Distributors.
AIM Distributors bears all expenses, including the cost of printing and
distributing prospectuses, incident to marketing of the Funds' shares, except
for such distribution expenses as are paid out of Fund assets under the Trust's
Plans of Distribution (each individually a "Plan" and collectively, the
"Plans"), which have been adopted by each Fund pursuant to Rule 12b-1 under the
1940 Act.
The Distribution Agreements provide AIM Distributors with the exclusive right
to distribute shares of the Funds on a continuous basis directly and through
other broker-dealers with whom AIM Distributors has entered into selected
dealer agreements. AIM Distributors has not undertaken to sell any specified
number of shares of any class of the Funds.
The following chart reflects the total sales charges paid in connection with
the sale of Class A shares of each Fund and the amount retained by AIM
Distributors for the last two fiscal years ended July 31:
2005 2004
-------------------------------
SALES AMOUNT SALES AMOUNT
CHARGES RETAINED CHARGES RETAINED
---------------------------
AIM Dynamics Fund $14,376 $4,005 $44,343 $8,292
AIM Small Company Growth Fund 46,471 8,395 54,797 8,726
AIM S&P 500 Index Fund N/A N/A N/A N/A
38
The following chart reflects the contingent deferred sales charges paid by
Class A, Class B, Class C, and Class K shareholders and retained by AIM
Distributors for the last two fiscal periods or years ended July 31:
2005 2004
-----------
AIM Dynamics Fund $2,962 $1,252
AIM Small Company Growth Fund 2,823 495
AIM S&P 500 Index Fund N/A N/A
INVESTOR CLASS. The Trust has adopted a reimbursement-type Amended and Restated
Master Distribution Plan - Investor Class pursuant to Rule 12b-1 under the 1940
Act relating to the Investor Class shares of AIM Dynamics Fund and AIM Small
Company Growth Fund (the "Reimbursement Investor Class Plan"). Under the
Reimbursement Investor Class Plan, Investor Class shares of these Funds pay AIM
Distributors an amount necessary to reimburse AIM Distributors for its actual
allocated share of expenses incurred pursuant to the Reimbursement Investor
Class Plan for the period, up to a maximum annual rate of 0.25% per annum of
the average daily net assets attributable to Investor Class shares. These
payments permit AIM Distributors, at its discretion, to engage in certain
activities and provide services in connection with the distribution of these
Funds' Investor Class shares to investors. Payments by a Fund under the
Reimbursement Investor Class Plan, for any month, may be made to reimburse AIM
Distributors for permissible activities engaged in and services provided.
The Trust has adopted a compensation-type Amended and Restated Master
Distribution Plan - Investor Class pursuant to Rule 12b-1 under the 1940 Act
relating to the Investor Class shares of AIM S&P 500 Index Fund (the
"Compensation Investor Class Plan"). Under the Compensation Investor Class
Plan, Investor Class shares of this Fund will make monthly payments to AIM
Distributors computed at an annual rate no greater than 0.25% of average net
assets attributable to Investor Class shares. These payments permit AIM
Distributors, at its discretion, to engage in certain activities and provide
services in connection with the distribution of AIM S&P 500 Index Fund's
Investor Class shares to investors. Payments by AIM S&P 500 Index Fund under
the Compensation Investor Class Plan, for any month, may be made to compensate
AIM Distributors for permissible activities engaged in and services provided.
CLASS A. The Trust has adopted an Amended and Restated Master Distribution Plan
- - Class A pursuant to Rule 12b-1 under the 1940 Act relating to the Class A
shares of the Funds (the "Class A Plan"). Under the Class A Plan, Class A
shares of the Funds pay compensation to AIM Distributors at an annual rate of
0.25% per annum of the average daily net assets attributable to Class A shares
for the purpose of financing any activity which is primarily intended to result
in the sale of Class A shares.
The Class A Plan is designed to compensate AIM Distributors, on a monthly
basis, for certain promotional and other sales-related costs, and to implement
a dealer incentive program which provides for periodic payments to financial
intermediaries who furnish continuing personal shareholder services to their
customers who purchase and own Class A shares of the Funds. Payment can also be
directed by AIM Distributors to financial intermediaries that have entered into
service agreements with respect to Class A shares of the Funds and that provide
continuing personal services to their customers who own Class A shares of the
Funds. The service fees payable to financial intermediaries are calculated at
the annual rate of 0.25% of the average daily net asset value of those Fund
shares that are held in such financial intermediaries' customers' accounts.
Of the aggregate amount payable under the Class A Plan, payments to financial
intermediaries that provide continuing personal shareholder services to their
customers who purchase and own Class A shares of the Funds, in amounts up to
0.25% of the average daily net assets of the Class A shares of each Fund
attributable to the customers of such financial intermediaries, are
characterized as service
39
fees. Payments to financial intermediaries in excess of such amount and
payments to AIM Distributors would be characterized as an asset-based sales
charge pursuant to the Class A Plan. The Class A Plan also imposes a cap on the
total amount of sales charges, including asset-based sales charges, that may be
paid by the Trust with respect to the Class A shares of a Fund.
CLASS B. The Trust has adopted an Amended and Restated Master Distribution Plan
- - Class B pursuant to Rule 12b-1 under the 1940 Act relating to Class B shares
of the Funds (the "Class B Plan"). Under the Class B Plan, Class B shares of
the Funds pay compensation monthly to AIM Distributors at an annual rate of
1.00% per annum of the average daily net assets attributable to Class B shares
for the purpose of financing any activity which is primarily intended to result
in the sale of Class B shares. Of such amount, each Fund pays a service fee of
0.25% of the average daily net assets attributable to Class B shares to
selected financial intermediaries that have entered into service agreements
with respect to Class B shares of the Funds, which furnish continuing personal
shareholder services to their customers who purchase and own Class B shares.
Any amount not paid as a service fee would constitute an asset-based sales
charge pursuant to the Class B Plan. The portion of the payments to AIM
Distributors under the Class B Plan which constitutes an asset-based sales
charge (0.75%) is intended in part to permit AIM Distributors to recoup a
portion of such sales commissions plus financing costs. The Class B Plan also
imposes a cap on the total amount of sales charges, including asset-based sales
charges, that may be paid by the Trust with respect to the Class B shares of a
Fund.
The Class B Plan may obligate the Class B shares to continue to make payments
to AIM Distributors following termination of the Class B Plan with respect to
Class B shares sold by or attributable to the distribution efforts of AIM
Distributors or its predecessor unless there has been a complete termination of
the Class B Plan (as defined in such Plan). Additionally, the Class B Plan
expressly authorizes AIM Distributors to assign, transfer or pledge its rights
to payments pursuant to the Class B Plan. The contingent deferred sales charge
(CDSC) on Class B shares will continue to be applicable even in the event of a
complete termination of the Class B Plan (as defined in such Plan).
CLASS C. The Trust has adopted an Amended and Restated Master Distribution Plan
- - Class C pursuant to Rule 12b-1 under the 1940 Act relating to the Class C
shares of the Funds (the "Class C Plan"). Under the Class C Plan, Class C
shares of the Funds pay compensation to AIM Distributors at an annual rate of
1.00% per annum of the average daily net assets attributable to Class C shares
for the purpose of financing any activity which is primarily intended to result
in the sale of Class C shares. The Class C Plan is designed to compensate AIM
Distributors for certain promotional and other sales-related costs, and to
implement a dealer incentive program which provides for periodic payments to
selected financial intermediaries who have entered into service agreements and
furnish continuing personal shareholder services to their customers who
purchase and own Class C shares of a Fund.
Of the aggregate amount payable under the Class C Plan, payments to financial
intermediaries that provide continuing personal shareholder services to their
customers who purchase and own Class C shares of a Fund, in amounts of up to
0.25% of the average daily net assets of the Class C shares of each Fund
attributable to the customers of such financial intermediaries, are
characterized as a service fee. Payments to financial intermediaries in excess
of such amount and payments to AIM Distributors would be characterized as an
asset-based sales charge pursuant to the Class C Plan. The Class C Plan also
imposes a cap on the total amount of sales charges, including asset-based sales
charges, that may be paid by the Trust with respect to the Class C shares of a
Fund.
AIM Distributors may pay sales commissions to financial intermediaries that
sell Class C shares of the Funds at the time of such sales. Payments with
respect to Class C shares will equal 1.00% of the purchase price of the Class C
shares sold by the financial intermediary, and will consist of an asset-based
sales charge of 0.75% of the purchase price of Class C shares sold plus an
advance of the first year's service fee of 0.25% with respect to such shares.
AIM Distributors will retain all payments received by it relating to Class C
shares for the first thirteen months after they are purchased. The portion of
the payments to AIM Distributors under the Class C Plan which constitutes an
asset-based sales charge (0.75%) is intended in part to permit AIM Distributors
to recoup a portion of on-going sales commissions
40
to dealers plus financing costs, if any. After the first thirteen months, AIM
Distributors will make such payments quarterly to financial intermediaries
based on the average net asset value of Class C shares which are attributable
to shareholders for whom the financial intermediaries are designated as dealers
of record. These commissions are not paid on sales to investors who may not be
subject to payment of the CDSC and in circumstances where AIM Distributors
grants an exemption on particular transactions. Should the financial
intermediary elect to waive the sales commission, the 12b-1 fees will begin to
be paid by AIM Distributors to the financial intermediary immediately.
CLASS K. The Trust has adopted an Amended and Restated Master Distribution Plan
- - Class K pursuant to Rule 12b-1 under the 1940 Act relating to Class K shares
(the "Class K Plan"). Under the Class K Plan, Class K shares of the Funds pay
compensation to AIM Distributors at an annual rate of 0.45% of average net
assets attributable to Class K shares for the purpose of financing any activity
which is primarily intended to result in the sale of Class K shares. The Class
K Plan is designed to compensate AIM Distributors for certain promotional and
other sales-related costs, and to implement a dealer incentive program which
provides for periodic payments to selected financial intermediaries who furnish
continuing personal shareholder services to their customers who purchase and
own Class K shares of a Fund.
Of the aggregate amount payable under the Class K Plan, payments to financial
intermediaries that provide continuing personal shareholder services to their
customers who purchase and own Class K shares of a Fund may be characterized as
a service fee.
The Board has terminated the Class K Plan effective at the close of business on
October 21, 2005.
CLASS R. The Trust has adopted an Amended and Restated Master Distribution Plan
- - Class R pursuant to Rule 12b-1 under the 1940 Act relating to Class R shares
of the Funds (the "Class R Plan"). Under the Class R Plan, Class R shares of
the Fund pay compensation monthly to AIM Distributors at an annual rate of
0.50% of average net assets attributable to Class R shares for the purpose of
financing any activity which is primarily intended to result in the sale of
Class R shares. The Class R Plan is designed to compensate AIM Distributors for
certain promotional and other sales-related costs, and to implement a financial
intermediary incentive program which provides for periodic payments to selected
financial intermediaries that have entered into service agreements and furnish
continuing personal shareholder services to their customers who purchase and
own Class R shares of the Fund.
Of the aggregate amount payable under the Class R Plan, payments to financial
intermediaries that provide continuing personal shareholder services to their
customers who purchase and own Class R shares of the Fund may be characterized
as a service fee.
ALL PLANS. Activities appropriate for financing under the Plans include, but
are not limited to, the following: printing of prospectuses and statements of
additional information and reports for other than existing shareholders;
preparation and distribution of advertising material and sales literature;
expenses of organizing and conducting sales seminars; and supplemental payments
to financial institutions such as asset-based sales charges or as payments of
service fees under shareholder service arrangements.
A significant expenditure under the Plans is compensation paid to securities
companies and other financial institutions and organizations, which may include
AIM or AIM-affiliated companies, in order to obtain various
distribution-related and/or administrative services for the Funds. Each Fund is
authorized by a Plan to use its assets to finance the payments made to obtain
those services from selected securities companies and other financial
institutions and organizations which may enter into agreements with AIM
Distributors. Payments will be made by AIM Distributors to financial
intermediaries who sell shares of a Fund and may be made to banks, savings and
loan associations, and other depository institutions ("Banks"). Although the
Glass-Steagall Act limits the ability of certain Banks to act as underwriters
of mutual fund shares, the Advisor does not believe that these limitations
would affect the ability of such Banks to enter into arrangements with AIM
Distributors, but can give no assurance in this regard. However, to the extent
it is determined otherwise in the future, arrangements with Banks might
41
have to be modified or terminated, and, in that case, the size of the Funds
possibly could decrease to the extent that the Banks would no longer invest
customer assets in the Funds. Neither the Trust nor its investment advisor will
give any preference to Banks or other depository institutions which enter into
such arrangements when selecting investments to be made by a Fund. Financial
institutions and any other person entitled to receive compensation for selling
Fund shares may receive different compensation for selling shares of one
particular class instead of another.
The Funds made payments to AIM Distributors, under the Investor Class, Class A,
Class B, Class C, and, if applicable, Class K Plans during the fiscal year
ended July 31, 2005, in the following amounts:
INVESTOR
FUND CLASS CLASS A CLASS B CLASS C CLASS K CLASS R
- ---- -----------------------------------------
AIM Dynamics Fund $6,004,216 $49,170 $26,379 $97,988 $ 77,194 N/A/1/
AIM Small Company Growth Fund $1,074,521 $41,427 $47,089 $26,101 $306,133 N/A/1/
AIM S&P 500 Index Fund/2/ $ 569,759 N/A N/A N/A N/A N/A
- --------
/1/ Commenced operations on October 25, 2005.
/2/ Classes A, B, C, K and R shares are not offered.
An estimate by category of the allocation of actual fees paid by Class A
shares of the Funds during the fiscal year ended July 31, 2005 follows:
PRINTING & UNDERWRITERS DEALERS
ADVERTISING MAILING SEMINARS COMPENSATION COMPENSATION PERSONNEL TRAVEL
-------------------------------------------------
AIM Dynamics Fund $2,120 $ 66 $364 0 $39,333 $7,287 0
AIM Small Company
Growth Fund 1,381 0 0 0 33,143 6,903 0
AIM S&P Index Fund/1/ N/A N/A N/A N/A N/A 0 N/A
An estimate by category of the allocation of actual fees paid by Class B
shares of the Funds during the fiscal year ended July 31, 2005 follows:
PRINTING & UNDERWRITERS DEALERS
ADVERTISING MAILING SEMINARS COMPENSATION COMPENSATION PERSONNEL TRAVEL
-------------------------------------------------
AIM Dynamics Fund 0 0 0 $19,784 $ 5,354 $1,241 0
AIM Small Company
Growth Fund 0 0 0 35,316 10,051 1,722 0
AIM S&P 500 Index
Fund/2/ N/A N/A N/A N/A N/A 0 N/A
An estimate by category of the allocation of actual fees paid by Class C
shares of the Funds during the fiscal year ended July 31, 2005 follows:
PRINTING & UNDERWRITERS DEALERS
ADVERTISING MAILING SEMINARS COMPENSATION COMPENSATION PERSONNEL TRAVEL
-------------------------------------------------
AIM Dynamics Fund 0 0 0 $6,119 $90,248 $1,631 0
AIM Small Company
Growth Fund 0 0 0 4,000 20,768 1,333 0
AIM S&P 500 Index
Fund/3/ N/A N/A N/A N/A N/A N/A N/A
42
An estimate by category of the allocation of actual fees paid by Class K
shares of the Funds during the fiscal year ended July 31, 2005 follows:
PRINTING & UNDERWRITERS DEALERS
ADVERTISING MAILING SEMINARS COMPENSATION COMPENSATION PERSONNEL TRAVEL
--------------------------------------------------------------
AIM Dynamics Fund $ 33 0 $ 13 $ 224 $ 76,747 $ 170 $ 7
AIM Small Company
Growth Fund.... 450 $ 38 70 2,092 301,914 1,534 35
AIM S&P 500 Index
Fund/4/........ N/A N/A N/A N/A N/A 0 N/A
An estimate by category of the allocation of actual fees paid by Investor
Class shares of the Funds during the fiscal year ended July 31, 2005 follows:
PRINTING & UNDERWRITERS DEALERS
ADVERTISING MAILING SEMINARS COMPENSATION COMPENSATION PERSONNEL TRAVEL
--------------------------------------------------------------
AIM Dynamics Fund. 0 0 0 0 $6,004,216 0 0
AIM Small Company
Growth Fund..... 0 0 0 0 1,074,521 0 0
AIM S&P Index Fund 0 0 0 0 569,759 0 0
/1/ Class A shares are not offered.
/2/ Class B shares are not offered.
/3/ Class C shares are not offered.
/4/ Class K shares are not offered.
The services which are provided by financial intermediaries may vary by
financial intermediary but include, among other things, processing new
shareholder account applications, preparing and transmitting to the Trust's
Transfer Agent computer-processable tapes of all Fund transactions by
customers, serving as the primary source of information to customers in
answering questions concerning the Funds, and assisting in other customer
transactions with the Funds.
The Plans provide that they shall continue in effect with respect to each Fund
as long as such continuance is approved at least annually by the vote of the
Board cast in person at a meeting called for the purpose of voting on such
continuance, including the vote of a majority of the Independent Trustees. A
Plan can be terminated at any time by a Fund, without penalty, if a majority of
the Independent Trustees, or shareholders of the relevant class of shares of
the Fund, vote to terminate a Plan. Unless a complete termination of the Class
B Plan (as defined in such Plan) occurs, Class B shares will continue to make
payments to AIM Distributors with respect to Class B shares sold by or
attributable to the distribution efforts of AIM Distributors or its
predecessor. The Trust may, in its absolute discretion, suspend, discontinue or
limit the offering of its shares at any time. In determining whether any such
action should be taken, the Board intends to consider all relevant factors
including, without limitation, the size of a Fund, the investment climate for a
Fund, general market conditions, and the volume of sales and redemptions of a
Fund's shares. The Plans may continue in effect and payments may be made under
a Plan following any temporary suspension or limitation of the offering of Fund
shares; however, the Trust is not contractually obligated to continue a Plan
for any particular period of time. Suspension of the offering of a Fund's
shares would not, of course, affect a shareholder's ability to redeem his or
her shares.
So long as the Plans are in effect, the selection and nomination of persons to
serve as Independent Trustees of the Trust shall be committed to the
Independent Trustees then in office at the time of such selection or
nomination. The Plans may not be amended to increase the amount of a Fund's
payments under a Plan without approval of the shareholders of that Fund's
respective class of shares, and all material amendments to a Plan must be
approved by the Board, including a majority of the Independent Trustees. Under
the agreement implementing the Plans, AIM Distributors or a Fund, the latter by
vote of a majority of the Independent Trustees, or a majority of the holders of
the relevant class of a Fund's outstanding voting securities, may terminate
such agreement without penalty upon thirty days' written notice to the other
party. No further payments will be made by the Fund under a Plan in the event
of its termination.
43
To the extent that a Plan constitutes a plan of distribution adopted pursuant
to Rule 12b-1 under the 1940 Act, it shall remain in effect as such, so as to
authorize the use of Fund assets in the amounts and for the purposes set forth
therein, notwithstanding the occurrence of an assignment, as defined by the
1940 Act, and rules thereunder. To the extent it constitutes an agreement
pursuant to a plan, a Fund's obligation to make payments to AIM Distributors
shall terminate automatically, in the event of such "assignment." In this
event, a Fund may continue to make payments pursuant to a Plan only upon the
approval of new arrangements regarding the use of the amounts authorized to be
paid by a Fund under a Plan. Such new arrangements must be approved by the
trustees, including a majority of the Independent Trustees, by a vote cast in
person at a meeting called for such purpose. These new arrangements might or
might not be with AIM Distributors. On a quarterly basis, the trustees review
information about the distribution services that have been provided to each
Fund and the 12b-1 fees paid for such services. On an annual basis, the
trustees consider whether a Plan should be continued and, if so, whether any
amendment to the Plan, including changes in the amount of 12b-1 fees paid by
each class of a Fund, should be made.
The only Trust trustees and interested persons, as that term is defined in
Section 2(a)(19) of the 1940 Act, who have a direct or indirect financial
interest in the operation of the Plans are the officers and trustees of the
Trust who are also officers either of AIM Distributors or other companies
affiliated with AIM Distributors. The benefits which the Trust believes will be
reasonably likely to flow to a Fund and its shareholders under the Plans
include the following:
. Enhanced marketing efforts, if successful, should result in an increase
in net assets through the sale of additional shares and afford greater
resources with which to pursue the investment objectives of the Funds;
. The sale of additional shares reduces the likelihood that redemption of
shares will require the liquidation of securities of the Funds in amounts
and at times that are disadvantageous for investment purposes; and
. Increased Fund assets may result in reducing each investor's share of
certain expenses through economies of scale (e.g. exceeding established
breakpoints in an advisory fee schedule and allocating fixed expenses
over a larger asset base), thereby partially offsetting the costs of a
Plan.
The positive effect which increased Fund assets will have on AIM's revenues
could allow AIM and its affiliated companies:
. To have greater resources to make the financial commitments necessary to
improve the quality and level of the Funds' shareholder services (in both
systems and personnel);
. To increase the number and type of mutual funds available to investors
from the Advisor and its affiliated companies (and support them in their
infancy), and thereby expand the investment choices available to all
shareholders; and
. To acquire and retain talented employees who desire to be associated with
a growing organization.
PURCHASE, REDEMPTION AND PRICING OF SHARES
TRANSACTIONS THROUGH FINANCIAL INTERMEDIARIES -- If you are investing
indirectly in a Fund through a financial intermediary such as a broker-dealer,
a bank (including a bank trust department), an insurance company separate
account, an investment advisor, an administrator or trustee of a retirement
plan or a qualified tuition plan or a sponsor of a fee-based program that
maintains a master account (an omnibus account) with the Fund for trading on
behalf of its customers, different guidelines, conditions and restrictions may
apply than if you held your shares of the Fund directly. These differences may
include, but are not limited to: (i) different eligibility standards to
purchase and sell shares, different eligibility
44
standards to invest in funds with limited offering status and different
eligibility standards to exchange shares by telephone; (ii) different minimum
and maximum initial and subsequent purchase amounts; (iii) system inability to
provide Letter of Intent privileges; and (iv) different annual amounts (less
than 12%) subject to withdrawal under a Systematic Redemption Plan without
being subject to a contingent deferred sales charge. The financial intermediary
through whom you are investing may also choose to adopt different exchange
and/or transfer limit guidelines and restrictions, including different trading
restrictions designed to discourage excessive or short-term trading. The
financial intermediary through whom you are investing may also choose to impose
a redemption fee that has different characteristics, which may be more or less
restrictive, than the redemption fee currently imposed on certain Funds.
If the financial intermediary is managing your account, you may also be charged
a transaction or other fee by such financial intermediary, including service
fees for handling redemption transactions. Consult with your financial
intermediary (or, in the case of a retirement plan, your plan sponsor) to
determine what fees, guidelines, conditions and restrictions, including any of
the above, may be applicable to you.
PURCHASE AND REDEMPTION OF SHARES
Purchases of Class A Shares, Class A3 Shares of AIM Limited Maturity Treasury
Fund and AIM Tax-Free Intermediate Fund and AIM Cash Reserve Shares of AIM
Money Market Fund
INITIAL SALES CHARGES. Each AIM Fund (other than AIM Tax-Exempt Cash Fund) is
grouped into one of three categories to determine the applicable initial sales
charge for its Class A Shares. Additionally, Class A shares of AIM Short Term
Bond Fund are subject to an initial sales charge of 2.50%. The sales charge is
used to compensate AIM Distributors and participating dealers for their
expenses incurred in connection with the distribution of the Funds' shares. You
may also be charged a transaction or other fee by the financial institution
managing your account.
Class A Shares of AIM Tax-Exempt Cash Fund, Class A3 Shares of AIM Limited
Maturity Treasury Fund and AIM Tax-Free Intermediate Fund and AIM Cash Reserve
Shares of AIM Money Market Fund are sold without an initial sales charge.
CATEGORY I FUNDS
AIM Advantage Health Sciences Fund AIM Large Cap Growth Fund
AIM Aggressive Growth Fund AIM Leisure Fund
AIM Asia Pacific Growth Fund AIM Mid Cap Basic Value Fund
AIM Basic Value Fund AIM Mid Cap Core Equity Fund
AIM Blue Chip Fund AIM Mid Cap Growth Fund
AIM Capital Development Fund AIM Moderate Allocation Fund
AIM Charter Fund AIM Moderate Growth Allocation Fund
AIM Conservative Allocation Fund AIM Moderately Conservative
Allocation Fund
AIM Constellation Fund AIM Multi-Sector Fund
AIM Diversified Dividend Fund AIM Opportunities I Fund
AIM Dynamics Fund AIM Opportunities II Fund
AIM Energy Fund AIM Opportunities III Fund
AIM European Growth Fund AIM Premier Equity Fund
AIM European Small Company Fund AIM Select Equity Fund
AIM Financial Services Fund AIM Small Cap Equity Fund
AIM Global Real Estate Fund AIM Small Cap Growth Fund
AIM Global Value Fund AIM Small Company Growth Fund
AIM Gold & Precious Metal Fund AIM Technology Fund
AIM Growth Allocation Fund AIM Trimark Endeavor Fund
AIM International Core Equity Fund AIM Trimark Fund
AIM International Growth Fund AIM Trimark Small Companies Fund
AIM International Small Company Fund AIM Utilities Fund
AIM Large Cap Basic Value Fund AIM Weingarten Fund
45
Dealer
Investor's Sales Charge Concession
----------------------- -------------
As a As a As a
Percentage Percentage Percentage
of the Public of the Net of the Public
Offering Amount Offering
Amount of Investment in Single Transaction Price Invested Price
- ---------------------------------------------------------------------------
Less than $ 25,000 5.50% 5.82% 4.75%
$ 25,000 but less than $ 50,000 5.25 5.54 4.50
$ 50,000 but less than $ 100,000 4.75 4.99 4.00
$100,000 but less than $ 250,000 3.75 3.90 3.00
$250,000 but less than $ 500,000 3.00 3.09 2.50
$500,000 but less than $1,000,000 2.00 2.04 1.60
CATEGORY II FUNDS
AIM Basic Balanced Fund* AIM High Income Municipal Fund
AIM Developing Markets Fund* AIM High Yield Fund
AIM Global Aggressive Growth Fund* AIM Income Fund
AIM Global Equity Fund* AIM Intermediate Government Fund
AIM Global Growth Fund* AIM Municipal Bond Fund
AIM Global Health Care Fund* AIM Real Estate Fund*
AIM Total Return Bond Fund
* Effective November 1, 2005, the fund's front-end sales charge paid on
purchases of Class A shares will be the same as the front-end sales charge
paid on purchases of Class A shares of AIM's Category I Funds.
Dealer
Investor's Sales Charge Concession
----------------------- ----------
As a
Percentage As a As a
of the Percentage Percentage
Public of the Net of the Public
Offering Amount Offering
Amount of Investment in Single Transaction Price Invested Price
--------------------------------------------------- ---------- -------------
Less than $ 50,000 4.75% 4.99% 4.00%
$ 50,000 but less than $ 100,000 4.00 4.17 3.25
$100,000 but less than $ 250,000 3.75 3.90 3.00
$250,000 but less than $ 500,000 2.50 2.56 2.00
$500,000 but less than $1,000,000 2.00 2.04 1.60
46
CATEGORY III FUNDS
AIM Limited Maturity Treasury Fund
AIM Tax-Free Intermediate Fund
Dealer
Investor's Sales Charge Concession
--------------------------------
As a
As a As a Percentage
Percentage Percentage of
ofthePublic of the Net thePublic
Offering Amount Offering
Amount of Investment in Single Transaction Price Invested Price
---------------------------------------------------- -------------------
Less than $ 100,000 1.00% 1.01% 0.75%
$100,000 but less than $ 250,000 0.75 0.76 0.50
$250,000 but less than $1,000,000 0.50 0.50 0.40
AIM SHORT TERM BOND FUND
Dealer
Investor's Sales Charge Concession
----------------------- ----------
As a As a As a
Percentage Percentage Percentage
of the Public of the Net of the Public
Offering Amount Offering
Amount of Investment in Single Transaction Price Invested Price
- ---------------------------------------------------------------------------
Less than $ 100,000 2.50 2.56 2.00
$100,000 but less than $ 250,000 2.00 2.04 1.50
$250,000 but less than $ 500,000 1.50 1.52 1.25
$500,000 but less than $1,000,000 1.25 1.27 1.00
Beginning on October 31, 2003 Class A Shares of AIM Limited Maturity Treasury
Fund and AIM Tax-Free Intermediate Fund was closed to new investors. Current
investors must maintain a share balance in order to continue to make
incremental purchases.
LARGE PURCHASES OF CLASS A SHARES. Investors who purchase $1,000,000 or more of
Class A Shares of Category I, II or III Fund and Class A shares of AIM Short
Term Bond Fund do not pay an initial sales charge. In addition, investors who
currently own Class A shares of Category I, II, or III Funds and Class A shares
of AIM Short Term Bond Fund and make additional purchases that result in
account balances of $1,000,000 or more do not pay an initial sales charge on
the additional purchases. The additional purchases, as well as initial
purchases of $1,000,000 or more, are referred to as Large Purchases. If an
investor makes a Large Purchase of Class A shares of a Category I or II Fund
and Class A shares of AIM Short Term Bond Fund, however, each share will
generally be subject to a 1.00% contingent deferred sales charge ("CDSC") if
the investor redeems those shares within 18 months after purchase. Large
Purchases of Class A shares by investors who were Class K shareholders of
record on October 21, 2005 are not subject to a CDSC.
AIM Distributors may pay a dealer concession and/or advance a service fee on
Large Purchases, as set forth below. Exchanges between the AIM Funds may affect
total compensation paid.
AIM Distributors may make the following payments to dealers of record for Large
Purchases of Class A shares of Category I or II Funds or AIM Short Term Bond
Fund by investors other than: (i) retirement plans that are maintained pursuant
to Sections 401 and 457 of the Internal Revenue Code of 1986, as amended (the
Code"), and (ii) retirement plans that are maintained pursuant to Section 403
of the Code if
47
the employer or plan sponsor is a tax-exempt organization operated pursuant to
Section 501(c)(3) of the Code:
PERCENT OF PURCHASES
1% of the first $2 million
plus 0.80% of the next $1 million
plus 0.50% of the next $17 million
plus 0.25% of amounts in excess of $20 million
If (i) the amount of any single purchase order plus (ii) the public offering
price of all other shares owned by the same customer submitting the purchase
order on the day on which the purchase order is received equals or exceeds
$1,000,000, the purchase will be considered a "jumbo accumulation purchase."
With regard to any individual jumbo accumulation purchase, AIM Distributors may
make payment to the dealer of record based on the cumulative total of jumbo
accumulation purchases made by the same customer over the life of his or her
account(s).
If an investor made a Large Purchase of Class A shares of a Category III Fund
or AIM Short Term Bond Fund on and after November 15, 2001 and through
October 30, 2002 and exchanges those shares for Class A shares of a Category I
or II Fund, AIM Distributors will pay an additional dealer concession of 0.75%
upon exchange.
If an investor makes a Large Purchase of Class A shares of a Category I or II
Fund or AIM Short Term Bond Fund on or after November 15, 2001 and through
October 31, 2002 and exchanges those shares for Class A shares of a Category
III Fund, AIM Distributors will not pay any additional dealer compensation upon
the exchange. Beginning on February 17, 2003, Class A shares of a Category I or
II Fund or AIM Short Term Bond Fund may not be exchanged for Class A shares of
a Category III Fund.
If an investor makes a Large Purchase of Class A3 shares of a Category III Fund
on and after October 31, 2002 and exchanges those shares for Class A shares of
a Category I or II Fund or AIM Short Term Bond Fund, AIM Distributors will pay
1.00% of such purchase as dealer compensation upon the exchange. The Class A
shares of the Category I or II Fund or AIM Short Term Bond Fund received in
exchange generally will be subject to a 1.00% CDSC if the investor redeems such
shares within 18 months from the date of exchange.
If an investor makes a Large Purchase of Class A shares of a Category III Fund
and exchanges those shares for Class A shares of another Category III Fund,
AIM Distributors will not pay any additional dealer concession upon the
exchange. Beginning on February 17, 2003, Class A Shares of a Category III Fund
may not be exchanged for Class A Shares of another Category III Fund.
PURCHASES OF CLASS A SHARES BY CERTAIN RETIREMENT PLANS AT NAV. For purchases
of Class A shares of Category I and II Funds and AIM Short Term Bond Fund,
AIM Distributors may make the following payments to investment dealers or other
financial service firms for sales of such shares at net asset value ("NAV") to
certain retirement plans provided that the applicable dealer of record is able
to establish that the retirement plan's purchase of Class A shares is a new
investment (as defined below):
PERCENT OF PURCHASE
0.50% of the first $20 million
plus 0.25% of amounts in excess of $20 million
48
This payment schedule will be applicable to purchases of Class A shares at NAV
by the following types of retirement plans: (i) all plans maintained pursuant
to Sections 401 and 457 of the Code, and (ii) plans maintained pursuant to
Section 403 of the Code if the employer or plan sponsor is a tax-exempt
organization operated pursuant to Section 501(c)(3) of the Code.
A "new investment" means a purchase paid for with money that does not represent
(i) the proceeds of one or more redemptions of AIM Fund shares, (ii) an
exchange of AIM Fund shares, (iii) the repayment of one or more retirement plan
loans that were funded through the redemption of AIM Fund shares, or (iv) money
returned from another fund family. If AIM Distributors pays a dealer concession
in connection with a plan's purchase of Class A shares at NAV, such shares may
be subject to a CDSC of 1.00% of net assets for 12 months, commencing on the
date the plan first invests in Class A shares of an AIM Fund. If the applicable
dealer of record is unable to establish that a plan's purchase of Class A
shares at NAV is a new investment, AIM Distributors will not pay a dealer
concession in connection with such purchase and such shares will not be subject
to a CDSC.
With regard to any individual jumbo accumulation purchase, AIM Distributors may
make payment to the dealer of record based on the cumulative total of jumbo
accumulation purchases made by the same plan over the life of the plan's
account(s).
PURCHASERS QUALIFYING FOR REDUCTIONS IN INITIAL SALES CHARGES. As shown in the
tables above, purchases of certain amounts of AIM Fund shares may reduce the
initial sales charges. These reductions are available to purchasers that meet
the qualifications listed below. We will refer to purchasers that meet these
qualifications as "Qualified Purchasers."
DEFINITIONS
As used herein, the terms below shall be defined as follows:
. "Individual" refers to a person, as well as his or her Spouse or
Domestic Partner and his or her Children;
. "Spouse" is the person to whom one is legally married under state law;
. "Domestic Partner" is an adult with whom one shares a primary
residence for at least six-months, is in a relationship as a couple
where one or each of them provides personal or financial welfare of
the other without a fee, is not related by blood and is not married;
. "Child" or "Children" include a biological, adopted or foster son or
daughter, a Step-child, a legal ward or a Child of a person standing
in loco parentis;
. "Parent" is a person's biological or adoptive mother or father;
. "Step-child" is the child of one's Spouse by a previous marriage or
relationship;
. "Step-parent" is the Spouse of a Child's Parent; and
. "Immediate Family" includes an Individual (including, as defined
above, a person, his or her Spouse or Domestic Partner and his or her
Children) as well as his or her Parents, Step-parents and the Parents
of Spouse or Domestic Partner.
49
INDIVIDUALS
. an Individual (including his or her spouse or domestic partner, and
children);
. a retirement plan established exclusively for the benefit of an
Individual, specifically including, but not limited to, a Traditional
IRA, Roth IRA, SEP IRA, SIMPLE IRA, Solo 401(k), Keogh plan, or a
tax-sheltered 403(b)(7) custodial account; and
. a qualified tuition plan account, maintained pursuant to Section 529
of the Code, or a Coverdell Education Savings Account, maintained
pursuant to Section 530 of the Code (in either case, the account must
be established by an Individual or have an Individual named as the
beneficiary thereof).
EMPLOYER-SPONSORED RETIREMENT PLANS
. a retirement plan maintained pursuant to Sections 401, 403 (only if
the employer or plan sponsor is a tax-exempt organization operated
pursuant to Section 501(c)(3) of the Code), 408 (includes SEP, SARSEP
and SIMPLE IRA plans) or 457 of the Code, if:
a. the employer or plan sponsor submits all contributions for all
participating employees in a single contribution transmittal (the
AIM Funds will not accept separate contributions submitted with
respect to individual participants);
b. each transmittal is accompanied by a single check or wire
transfer; and
c. if the AIM Funds are expected to carry separate accounts in the
names of each of the plan participants, (i) the employer or plan
sponsor notifies AIM Distributors in writing that the separate
accounts of all plan participants should be linked, and (ii) all
new participant accounts are established by submitting an
appropriate Account Application on behalf of each new participant
with the contribution transmittal.
HOW TO QUALIFY FOR REDUCTIONS IN INITIAL SALES CHARGES. The following sections
discuss different ways that a Qualified Purchaser can qualify for a reduction
in the initial sales charges for purchases of Class A shares of the AIM Funds.
LETTERS OF INTENT
A Qualified Purchaser may pay reduced initial sales charges by (i) indicating
on the Account Application that he, she or it intends to provide a Letter of
Intent ("LOI"), and (ii) subsequently fulfilling the conditions of that LOI.
Employer-sponsored retirement plans, with the exception of Solo 401(k) plans
and SEP plans, are not eligible for a LOI.
The LOI confirms the total investment in shares of the AIM Funds that the
Qualified Purchaser intends to make within the next 13 months. By marking the
LOI section on the account application and by signing the account application,
the Qualified Purchaser indicates that he, she or it understands and agrees to
the terms of the LOI and is bound by the provisions described below:
Calculating the Initial Sales Charge
. Each purchase of fund shares normally subject to an initial sales charge
made during the 13-month period will be made at the public offering price
applicable to a single transaction of the total dollar amount indicated
by the LOI (to determine what the applicable public offering price is,
look at the sales charge table in the section on "Initial Sales Charges"
above).
50
. It is the purchaser's responsibility at the time of purchase to specify
the account numbers that should be considered in determining the
appropriate sales charge.
. The offering price may be further reduced as described below under
"Rights of Accumulation" if the Transfer Agent is advised of all other
accounts at the time of the investment.
. Shares acquired through reinvestment of dividends and capital gains
distributions will not be applied to the LOI.
Calculating the Number of Shares to be Purchased
. Purchases made within 90 days before signing an LOI will be applied
toward completion of the LOI. The LOI effective date will be the date of
the first purchase within the 90-day period.
. Purchases made more than 90 days before signing an LOI will be applied
toward the completion of the LOI based on the value of the shares
purchased that is calculated at the public offering price on the
effective date of the LOI.
. If a purchaser meets the original obligation at any time during the
13-month period, he or she may revise the intended investment amount
upward by submitting a written and signed request. This revision will not
change the original expiration date.
. The Transfer Agent will process necessary adjustments upon the expiration
or completion date of the LOI.
Fulfilling the Intended Investment
. By signing an LOI, a purchaser is not making a binding commitment to
purchase additional shares, but if purchases made within the 13-month
period do not total the amount specified, the purchaser will have to pay
the increased amount of sales charge.
. To assure compliance with the provisions of the 1940 Act, the Transfer
Agent will escrow in the form of shares an appropriate dollar amount
(computed to the nearest full share) out of the initial purchase (or
subsequent purchases if necessary). All dividends and any capital gain
distributions on the escrowed shares will be credited to the purchaser.
All shares purchased, including those escrowed, will be registered in the
purchaser's name. If the total investment specified under this LOI is
completed within the 13-month period, the escrowed shares will be
promptly released.
. If the intended investment is not completed, the purchaser will pay the
Transfer Agent the difference between the sales charge on the specified
amount and the sales charge on the amount actually purchased. If the
purchaser does not pay such difference within 20 days of the expiration
date, he or she irrevocably constitutes and appoints the Transfer Agent
as his attorney to surrender for redemption any or all shares, to make up
such difference within 60 days of the expiration date.
. Shareholders of AIM Basic Balanced Fund, AIM Developing Markets Fund, AIM
Global Aggressive Growth Fund, AIM Global Equity Fund, AIM Global Growth
Fund, AIM Global Health Care Fund and AIM Real Estate Fund who have a
Letter of Intent in place as of November 1, 2005, will be able to
complete the Letter of Intent under the current pricing schedule, and
future Letters of Intent or subsequent purchases will be subject to the
Category I pricing.
51
Canceling the LOI
. If at any time before completing the LOI Program, the purchaser wishes to
cancel the agreement, he or she must give written notice to
AIM Distributors.
. If at any time before completing the LOI Program the purchaser requests
the Transfer Agent to liquidate or transfer beneficial ownership of his
total shares, the LOI will be automatically canceled. If the total amount
purchased is less than the amount specified in the LOI, the Transfer
Agent will redeem an appropriate number of escrowed shares equal to the
difference between the sales charge actually paid and the sales charge
that would have been paid if the total purchases had been made at a
single time.
Other Persons Eligible for the LOI Privilege
The LOI privilege is also available to holders of the Connecticut General
Guaranteed Account, established for tax qualified group annuities, for
contracts purchased on or before June 30, 1992.
LOIs and Contingent Deferred Sales Charges
All LOIs to purchase $1,000,000 or more of Class A Shares of Category I and II
Funds and AIM Short Term Bond Fund are subject to an 18-month, 1% CDSC.
RIGHTS OF ACCUMULATION
A Qualified Purchaser may also qualify for reduced initial sales charges based
upon his, her or its existing investment in shares of any of the AIM Funds at
the time of the proposed purchase. To determine whether or not a reduced
initial sales charge applies to a proposed purchase, AIM Distributors takes
into account not only the money which is invested upon such proposed purchase,
but also the value of all shares of the AIM Funds owned by such purchaser,
calculated at their then current public offering price.
If a purchaser qualifies for a reduced sales charge, the reduced sales charge
applies to the total amount of money being invested, even if only a portion of
that amount exceeds the breakpoint for the reduced sales charge. For example,
if a purchaser already owns qualifying shares of any AIM Fund with a value of
$20,000 and wishes to invest an additional $20,000 in a fund with a maximum
initial sales charge of 5.50%, the reduced initial sales charge of 5.25% will
apply to the full $20,000 purchase and not just to the $15,000 in excess of the
$25,000 breakpoint.
To qualify for obtaining the discount applicable to a particular purchase, the
purchaser or his dealer must furnish the Transfer Agent with a list of the
account numbers and the names in which such accounts of the purchaser are
registered at the time the purchase is made.
Rights of Accumulation are also available to holders of the Connecticut General
Guaranteed Account, established for tax-qualified group annuities, for
contracts purchased on or before June 30, 1992.
If an investor's new purchase of Class A shares of a Category I or II Fund or
AIM Short Term Bond Fund is at net asset value, the newly purchased shares will
be subject to a CDSC if the investor redeems them prior to the end of the 18
month holding period (12 months for Category III Fund shares). For new
purchases of Class A shares of Category III Funds at net asset value made on
and after November 15, 2001 and through October 30, 2002, the newly purchased
shares will be subject to a CDSC if the investor redeems them prior to the end
of the 12 month holding period.
52
OTHER REQUIREMENTS FOR REDUCTIONS IN INITIAL SALES CHARGES. As discussed above,
investors or dealers seeking to qualify orders for a reduced initial sales
charge must identify such orders and, if necessary, support their qualification
for the reduced charge. AIM Distributors reserves the right to determine
whether any purchaser is entitled to the reduced sales charge based on the
definition of a Qualified Purchaser listed above. No person or entity may
distribute shares of the AIM Funds without payment of the applicable sales
charge other than to Qualified Purchasers.
Purchases of Class A shares of AIM Tax-Exempt Cash Fund, Class A3 Shares of
AIM Limited Maturity Treasury Fund and AIM Tax-Free Intermediate Fund, AIM Cash
Reserve Shares of AIM Money Market Fund, and Class B and Class C shares of
AIM Floating Rate Fund and Investor Class shares of any Fund will not be taken
into account in determining whether a purchase qualifies for a reduction in
initial sales charges.
PURCHASES OF CLASS A SHARES AT NET ASSET VALUE. AIM Distributors permits
certain categories of persons to purchase Class A shares of AIM Funds without
paying an initial sales charge. These are typically categories of persons whose
transactions involve little expense, such as persons who have a relationship
with the funds or with AIM and certain programs for purchase.
AIM Distributors believes that it is appropriate and in the Funds' best
interests that such persons, and certain other persons whose purchases result
in relatively low expenses of distribution, be permitted to purchase shares
through AIM Distributors without payment of a sales charge.
Accordingly, the following purchasers will not pay initial sales charges on
purchases of Class A shares because there is a reduced sales effort involved in
sales to these purchasers:
. AIM Management and its affiliates, or their clients;
. Any current or retired officer, director or employee (and members of
their Immediate Family) of AIM Management, its affiliates or The
AIM Family of Funds,(R) and any foundation, trust or employee benefit
plan established exclusively for the benefit of, or by, such persons;
. Any current or retired officer, director, or employee (and members of
their Immediate Family), of DST Systems, Inc. or Personix, a division
of Fiserv Solutions, Inc.;
. Sales representatives and employees (and members of their Immediate
Family) of selling group members of financial institutions that have
arrangements with such selling group members;
. Purchases through approved fee-based programs;
. Employer-sponsored retirement plans that are Qualified Purchasers, as
defined above, provided that:
a. a plan's initial investment is at least $1 million;
b. there are at least 100 employees eligible to participate in the
plan; or
c. all plan transactions are executed through a single omnibus
account per AIM Fund and the financial institution or service
organization has entered into the appropriate agreement with the
distributor; further provided that
53
d. retirement plans maintained pursuant to Section 403(b) of the Code
are not eligible to purchase shares at NAV based on the aggregate
investment made by the plan or the number of eligible employees
unless the employer or plan sponsor is a tax-exempt organization
operated pursuant to Section 501(c)(3) of the Code; and
e. purchases of AIM Opportunities I Fund by all retirement plans are
subject to initial sales charges;
. Shareholders of record of Advisor Class shares of AIM International
Growth Fund or AIM Worldwide Growth Fund on February 12, 1999 who have
continuously owned shares of the AIM Funds;
. Shareholders of record or discretionary advised clients of any
investment advisor holding shares of AIM Weingarten Fund or
AIM Constellation Fund on September 8, 1986, or of AIM Charter Fund on
November 17, 1986, who have continuously owned shares having a market
value of at least $500 and who purchase additional shares of the same
Fund;
. Unitholders of G/SET series unit investment trusts investing proceeds
from such trusts in shares of AIM Weingarten Fund or AIM Constellation
Fund; provided, however, prior to the termination date of the trusts,
a unitholder may invest proceeds from the redemption or repurchase of
his units only when the investment in shares of AIM Weingarten Fund
and AIM Constellation Fund is effected within 30 days of the
redemption or repurchase;
. A shareholder of a fund that merges or consolidates with an AIM Fund
or that sells its assets to an AIM Fund in exchange for shares of an
AIM Fund;
. Shareholders of the former GT Global funds as of April 30, 1987 who
since that date continually have owned shares of one or more of these
funds;
. Certain former AMA Investment Advisers' shareholders who became
shareholders of the AIM Global Health Care Fund in October 1989, and
who have continuously held shares in the GT Global funds since that
time;
. Shareholders of record of Advisor Class shares of an AIM Fund on
February 11, 2000 who have continuously owned shares of that AIM Fund,
and who purchase additional shares of that AIM Fund;
. Shareholders of Investor Class shares of an AIM Fund;
. Qualified Tuition Programs created and maintained in accordance with
Section 529 of the Code;
. Insurance company separate accounts;
. Additional purchases of Class A shares by shareholders of record of
Class K shares on October 21, 2005 whose Class K shares were converted
to Class A shares.
. Retirement plan established exclusively for the benefit of an
individual (specifically including, but not limited to, a Traditional
IRA, Roth IRA, SEP IRA, SIMPLE IRA, Solo 401(k), Keogh plan, or a
tax-sheltered 403(b)(7) custodial account) if:
a. such plan is funded by a rollover of assets from an
Employer-Sponsored Retirement Plan;
54
b. the account being funded by such rollover is to be maintained by
the same trustee, custodian or administrator that maintained the
plan from which the rollover distribution funding such rollover
originated, or an affiliate thereof; and
c. the dealer of record with respect to the account being funded by
such rollover is the same as the dealer of record with respect to
the plan from which the rollover distribution funding such
rollover originated, or an affiliate thereof.
. Transfers to IRAs that are attributable to AIM Fund investments held
in 403(b)(7)s, SIMPLEs, SEPs, SARSEPs, Traditional or Roth IRAs; and
. Rollovers from AIM-held 403(b)(7)s, 401(K)s, SEPs, SIMPLEs, SARSEPs,
Money Purchase Plans, and Profit Sharing Plans if the assets are
transferred to an AIM IRA.
In addition, an investor may acquire shares of any of the AIM Funds at net
asset value in connection with:
. the reinvestment of dividends and distributions from a Fund;
. exchanges of shares of certain Funds as more fully described in the
Prospectus; or
. the purchase of shares in connection with the repayment of a
retirement plan loan administered by AIM Investment Services, Inc.
("AIS"); or
. a merger, consolidation or acquisition of assets of a Fund.
PAYMENTS TO DEALERS. AIM Distributors may elect to re-allow the entire initial
sales charge to dealers for all sales with respect to which orders are placed
with AIM Distributors during a particular period. Dealers to whom substantially
the entire sales charge is re-allowed may be deemed to be "underwriters" as
that term is defined under the 1933 Act.
The financial advisor through which you purchase your shares may receive all or
a portion of the sales charges and Rule 12b-1 distribution fees discussed
above. In addition to those payments, AIM Distributors or one or more of its
corporate affiliates (collectively, the "ADI Affiliates") may make additional
cash payments to financial advisors in connection with the promotion and sale
of shares of AIM funds. ADI Affiliates make these payments from their own
resources, from AIM Distributors' retention of underwriting concessions and
from payments to AIM Distributors under Rule 12b-1 plans. These additional cash
payments are described below. The categories described below are not mutually
exclusive. The same financial advisor may receive payments under more than one
or all categories. Most financial advisors that sell shares of AIM funds
receive one or more types of these cash payments. Financial advisors negotiate
the cash payments to be paid on an individual basis. Where services are
provided, the costs of providing the services and the overall package of
services provided may vary from one financial advisor to another. ADI
Affiliates do not make an independent assessment of the cost of providing such
services.
In this context, "financial advisors" include any broker, dealer, bank
(including bank trust departments), transfer agent, registered investment
advisor, financial planner, retirement plan administrator and any other
financial intermediary having a selling, administration or similar agreement
with ADI Affiliates.
REVENUE SHARING PAYMENTS. ADI Affiliates make revenue sharing payments as
incentives to certain financial advisors to promote and sell shares of AIM
funds. The benefits ADI Affiliates receive when they make these payments
include, among other things, placing AIM funds on the financial advisor's funds
sales system, placing AIM funds on the financial advisor's preferred or
recommended fund list, and access (in some cases on a preferential basis over
other competitors) to individual members of the financial advisor's sales force
or to the financial advisor's management. Revenue sharing payments are
sometimes referred to as "shelf space" payments because the payments compensate
the financial
55
advisor for including AIM funds in its fund sales system (on its "sales
shelf"). ADI Affiliates compensate financial advisors differently depending
typically on the level and/or type of considerations provided by the financial
advisor. In addition, payments typically apply only to retail sales, and may
not apply to other types of sales or assets (such as sales to retirement plans,
qualified tuition programs, or fee based advisor programs - some of which may
be generate certain other payments described below.)
The revenue sharing payments ADI Affiliates make may be calculated on sales of
shares of AIM funds ("Sales-Based Payments"), in which case the total amount of
such payments shall not exceed 0.25% of the public offering price of all shares
sold by the financial advisor during the particular period. Such payments also
may be calculated on the average daily net assets of the applicable AIM funds
attributable to that particular financial advisor ("Asset-Based Payments"), in
which case the total amount of such cash payments shall not exceed 0.25% per
annum of those assets during a defined period. Sales-Based Payments primarily
create incentives to make new sales of shares of AIM funds and Asset-Based
Payments primarily create incentives to retain previously sold shares of AIM
funds in investor accounts. ADI Affiliates may pay a financial advisor either
or both Sales-Based Payments and Asset-Based Payments.
ADMINISTRATIVE AND PROCESSING SUPPORT PAYMENTS. ADI Affiliates also may make
payments to certain financial advisors that sell AIM Fund shares for certain
administrative services, including record keeping and sub-accounting
shareholder accounts. Payments for these services typically do not exceed 0.25%
of average annual assets or $19 per annum per shareholder account. ADI
Affiliates also may make payments to certain financial advisors that sell AIM
Fund shares in connection with client account maintenance support, statement
preparation and transaction processing. The types of payments that ADI
Affiliates may make under this category include, among others, payment of
ticket charges per purchase or exchange order placed by a financial advisor,
payment of networking fees of up to $12 per shareholder account maintained on
certain mutual fund trading systems, or one-time payments for ancillary
services such as setting up funds on a financial advisor's mutual fund trading
systems.
OTHER CASH PAYMENTS. From time to time, ADI Affiliates, at their expense, may
provide additional compensation to financial advisors which sell or arrange for
the sale of shares of the Fund. Such compensation provided by ADI Affiliates
may include financial assistance to financial advisors that enable ADI
Affiliates to participate in and/or present at conferences or seminars, sales
or training programs for invited registered representatives and other
employees, client entertainment, client and investor events, and other
financial advisor-sponsored events, and travel expenses, including lodging
incurred by registered representatives and other employees in connection with
client prospecting, retention and due diligence trips. Other compensation may
be offered to the extent not prohibited by state laws or any self-regulatory
agency, such as the NASD, Inc. ("NASD"). ADI Affiliates make payments for
entertainment events it deems appropriate, subject to ADI Affiliates guidelines
and applicable law. These payments may vary depending upon the nature of the
event or the relationship.
ADI Affiliates are motivated to make the payments described above since they
promote the sale of AIM fund shares and the retention of those investments by
clients of financial advisors. To the extent financial advisors sell more
shares of AIM funds or retain shares of AIM funds in their clients' accounts,
ADI Affiliates benefit from the incremental management and other fees paid to
ADI Affiliates by the AIM funds with respect to those assets.
In certain cases these payments could be significant to the financial advisor.
Your financial advisor may charge you additional fees or commissions other than
those disclosed in this prospectus. You can ask your financial advisor about
any payments it receives from ADI Affiliates or the AIM funds, as well as about
fees and/or commissions it charges.
56
Purchases of Class B Shares
Class B shares are sold at net asset value, and are not subject to an initial
sales charge. Instead, investors may pay a CDSC if they redeem their shares
within six years after purchase. See the Prospectus for additional information
regarding contingent deferred sales charges. AIM Distributors may pay sales
commissions to dealers and institutions who sell Class B shares of the
AIM Funds at the time of such sales. Payments will equal 4.00% of the purchase
price and will consist of a sales commission equal to 3.75% plus an advance of
the first year service fee of 0.25%.
Purchases of Class C Shares
Class C shares are sold at net asset value, and are not subject to an initial
sales charge. Instead, investors may pay a CDSC if they redeem their shares
within the first year after purchase (no CDSC applies to Class C shares of AIM
Short Term Bond Fund unless you exchange shares of another AIM Fund that are
subject to a CDSC into AIM Short Term Bond Fund). See the Prospectus for
additional information regarding this CDSC. AIM Distributors may pay sales
commissions to dealers and institutions who sell Class C shares of the
AIM Funds (except for Class C shares of AIM Short Term Bond Fund) at the time
of such sales. Payments will equal 1.00% of the purchase price and will consist
of a sales commission of 0.75% plus an advance of the first year service fee of
0.25%. These commissions are not paid on sales to investors exempt from the
CDSC, including shareholders of record of AIM Advisor Funds, Inc. on April 30,
1995, who purchase additional shares in any of the Funds on or after May 1,
1995, and in circumstances where AIM Distributors grants an exemption on
particular transactions.
AIM Distributors may pay dealers and institutions who sell Class C shares of
AIM Short Term Bond Fund an annual fee of 0.50% of average daily net assets.
These payments will consist of an asset-based fee of 0.25% and a service fee of
0.25% and will commence immediately.
Class K Shares
Class K shares converted to Class A shares at the close of business on
October 21, 2005. If AIM Distributors paid a concession at the time of sale to
the dealer of record, the Class K shares were subject to a 0.70% CDSC at the
time of redemption if all retirement plan assets were redeemed within one year
from the date of the retirement plan's initial purchase. This CDSC will
continue to apply if all retirement plan assets are redeemed within 12 months
from the date of the retirement plan's initial purchase.
Payments With Regard to Class K Shares
For Class A shares acquired by a former Class K shareholder (i) as a result of
a fund merger; or (ii) as a result of the conversion of Class K shares into
Class A shares on October 21, 2005, AIM Distributors will pay financial
intermediaries 0.45% on such Class A shares as follows: (i) 0.25% from the
Class A shares' Rule 12b-1 plan fees; and (ii) 0.20% from AIM Distributors' own
resources provided that, on an annualized basis for 2005 as of October 21,
2005, the 0.20% exceeds $2,000 per year.
Purchases of Class R Shares
Class R shares are sold at net asset value, and are not subject to an initial
sales charge. If AIM Distributors pays a concession to the dealer of record,
however, the Class R shares are subject to a 0.75% CDSC at the time of
redemption if all retirement plan assets are redeemed within one year from the
date of the retirement plan's initial purchase. For purchases of Class R shares
of Category I or II Funds or AIM Short Term Bond Fund, AIM Distributors may
make the following payments to dealers of record provided that the applicable
dealer of record is able to establish that the purchase of Class R shares is a
new investment or a rollover from a retirement plan in which an AIM Fund was
offered as an investment option:
57
PERCENT OF CUMULATIVE PURCHASES
0.75% of the first $5 million
plus 0.50% of amounts in excess of $5 million
With regard to any individual purchase of Class R shares, AIM Distributors may
make payment to the dealer of record based on the cumulative total of purchases
made by the same plan over the life of the plan's account(s).
Purchases of Investor Class Shares
Investor Class shares are sold at net asset value, and are not subject to an
initial sales charge or to a CDSC. AIM Distributors may pay dealers and
institutions an annual service fee of 0.25% of average daily net assets and
such payments will commence immediately.
Purchases of Institutional Class Shares
Institutional Class shares are sold at net asset value, and are not subject to
an initial sales charge or to a CDSC.
Exchanges
TERMS AND CONDITIONS OF EXCHANGES. Normally, shares of an AIM Fund to be
acquired by exchange are purchased at their net asset value or applicable
offering price, as the case may be, determined on the date that such request is
received, but under unusual market conditions such purchases may be delayed for
up to five business days if it is determined that a fund would be materially
disadvantaged by an immediate transfer of the proceeds of the exchange. If a
shareholder is exchanging into a fund paying daily dividends, and the release
of the exchange proceeds is delayed for the foregoing five-day period, such
shareholder will not begin to accrue dividends until the sixth business day
after the exchange.
EXCHANGES BY TELEPHONE. AIM Distributors has made arrangements with certain
dealers and investment advisory firms to accept telephone instructions to
exchange shares between any of the AIM Funds. AIM Distributors reserves the
right to impose conditions on dealers or investment advisors who make telephone
exchanges of shares of the funds, including the condition that any such dealer
or investment advisor enter into an agreement (which contains additional
conditions with respect to exchanges of shares) with AIM Distributors. To
exchange shares by telephone, a shareholder, dealer or investment advisor who
has satisfied the foregoing conditions must call AIS at (800) 959-4246. If a
shareholder is unable to reach AIS by telephone, he may also request exchanges
by fax, telegraph or use overnight courier services to expedite exchanges by
mail, which will be effective on the business day received by AIS as long as
such request is received prior to the close of the customary trading session of
the New York Stock Exchange ("NYSE"). AIS and AIM Distributors may in certain
cases be liable for losses due to unauthorized or fraudulent transactions if
they do not follow reasonable procedures for verification of telephone
transactions. Such reasonable procedures may include recordings of telephone
transactions (maintained for six months), requests for confirmation of the
shareholder's Social Security Number and current address, and mailings of
confirmations promptly after the transaction.
Redemptions
GENERAL. Shares of the AIM Funds may be redeemed directly through
AIM Distributors or through any dealer who has entered into an agreement with
AIM Distributors. In addition to the Funds' obligation to
58
redeem shares, AIM Distributors may also repurchase shares as an accommodation
to shareholders. To effect a repurchase, those dealers who have executed
Selected Dealer Agreements with AIM Distributors must phone orders to the order
desk of the Funds at (800) 959-4246 and guarantee delivery of all required
documents in good order. A repurchase is effected at the net asset value per
share of the applicable Fund next determined after the repurchase order is
received. Such an arrangement is subject to timely receipt by AIS, the Funds'
transfer agent, of all required documents in good order. If such documents are
not received within a reasonable time after the order is placed, the order is
subject to cancellation. While there is no charge imposed by a Fund or by
AIM Distributors (other than any applicable contingent deferred sales charge)
when shares are redeemed or repurchased, dealers may charge a fair service fee
for handling the transaction.
SUSPENSION OF REDEMPTIONS. The right of redemption may be suspended or the date
of payment postponed when (a) trading on the NYSE is restricted, as determined
by applicable rules and regulations of the SEC, (b) the NYSE is closed for
other than customary weekend and holiday closings, (c) the SEC has by order
permitted such suspension, or (d) an emergency as determined by the SEC exists
making disposition of portfolio securities or the valuation of the net assets
of a Fund not reasonably practicable.
REDEMPTIONS BY TELEPHONE. By signing an account application form, an investor
appoints AIS as his true and lawful attorney-in-fact to surrender for
redemption any and all unissued shares held by AIS in the designated
account(s), present or future, with full power of substitution in the premises.
AIS and AIM Distributors are thereby authorized and directed to accept and act
upon any telephone redemptions of shares held in any of the account(s) listed,
from any person who requests the redemption. An investor acknowledges by
signing the form that he understands and agrees that AIS and AIM Distributors
may not be liable for any loss, expense or cost arising out of any telephone
redemption requests effected in accordance with the authorization set forth in
these instructions if they reasonably believe such request to be genuine, but
may in certain cases be liable for losses due to unauthorized or fraudulent
transactions. Procedures for verification of telephone transactions may include
recordings of telephone transactions (maintained for six months), requests for
confirmation of the shareholder's Social Security Number and current address,
and mailings of confirmations promptly after the transactions. AIS reserves the
right to cease to act as attorney-in-fact subject to this appointment, and
AIM Distributors reserves the right to modify or terminate the telephone
redemption privilege at any time without notice. An investor may elect not to
have this privilege by marking the appropriate box on the application. Then any
redemptions must be effected in writing by the investor.
SYSTEMATIC REDEMPTION PLAN. A Systematic Redemption Plan permits a shareholder
of an AIM Fund to withdraw on a regular basis at least $50 per withdrawal.
Under a Systematic Redemption Plan, all shares are to be held by AIS and all
dividends and distributions are reinvested in shares of the applicable AIM Fund
by AIS. To provide funds for payments made under the Systematic Redemption
Plan, AIS redeems sufficient full and fractional shares at their net asset
value in effect at the time of each such redemption.
Payments under a Systematic Redemption Plan constitute taxable events. Since
such payments are funded by the redemption of shares, they may result in a
return of capital and in capital gains or losses, rather than in ordinary
income. Because sales charges are imposed on additional purchases of Class A
shares, it is disadvantageous to effect such purchases while a Systematic
Redemption Plan is in effect.
Each AIM Fund bears its share of the cost of operating the Systematic
Redemption Plan.
Contingent Deferred Sales Charges Imposed upon Redemption of Shares
A CDSC may be imposed upon the redemption of Large Purchases of Class A shares
of Category I and II Funds and AIM Short Term Bond Fund or upon the redemption
of Class B shares or Class C shares (no CDSC applies to Class C shares of AIM
Short Term Bond Fund unless you exchange shares of another AIM Fund that are
subject to a CDSC into AIM Short Term Bond Fund) and, in certain circumstances,
59
upon the redemption of Class or Class R shares. See the Prospectus for
additional information regarding CDSCs.
CONTINGENT DEFERRED SALES CHARGE EXCEPTIONS FOR LARGE PURCHASES OF CLASS A
SHARES. An investor who has made a Large Purchase of Class A shares of a
Category I, II or III Fund, or AIM Short Term Bond Fund will not be subject to
a CDSC upon the redemption of those shares in the following situations:
. Redemptions of shares of Category I or II Funds or AIM Short Term Bond
Fund held more than 18 months;
. Redemptions of shares of Category III Funds purchased prior to
November 15, 2001 or after October 30, 2002;
. Redemptions of shares of Category III Funds purchased on or after
November 15, 2001 and through October 30, 2002 and held for more than
12 months;
. Redemptions of shares held by retirement plans in cases where (i) the
plan has remained invested in Class A shares of a Fund for at least 12
months, or (ii) the redemption is not a complete redemption of shares
held by the plan;
. Redemptions from private foundations or endowment funds;
. Redemptions of shares by the investor where the investor's dealer
waives the amounts otherwise payable to it by the distributor and
notifies the distributor prior to the time of investment;
. Redemptions of shares of Category I, II or III Funds, AIM Cash Reserve
Shares of AIM Money Market Fund or AIM Short Term Bond acquired by
exchange from Class A shares of a Category I or II Fund or AIM Short
Term Bond Fund, unless the shares acquired by exchange (on or after
November 15, 2001 and through October 30, 2002 with respect to
Category III Funds) are redeemed within 18 months of the original
purchase of the exchanges of Category I or II Fund or AIM Short Term
Bond Fund shares;
. Redemptions of shares of Category III Funds, shares of AIM Tax-Exempt
Cash Fund or AIM Cash Reserve Shares of AIM Money Market Fund acquired
by exchange from Class A shares of a Category III Fund purchased prior
to November 15, 2001;
. Redemptions of shares of Category I or II Funds or AIM Short Term Bond
Fund acquired by exchange from Class A shares of a Category III Fund
purchased on and after November 15, 2001 and through October 30, 2002,
unless the shares acquired by exchange are redeemed within 18 months
of the original purchase of the exchanged Category III Fund shares;
. Redemptions of shares of Category III Funds, shares of AIM Tax-Exempt
Cash Fund or AIM Cash Reserve Shares of AIM Money Market Fund acquired
by exchange from Class A shares of a Category III Fund purchased on
and after November 15, 2001 and through October 30, 2002, unless the
shares acquired by exchange are redeemed within 12 months of the
original purchase of the exchanged Category III Fund shares;
. Redemptions of shares of Category I or II Funds or AIM Short Term Bond
Fund acquired by exchange on and after November 15, 2001 from AIM Cash
Reserve Shares of AIM Money Market Fund if the AIM Cash Reserve Shares
were acquired by exchange from a Category I or II Fund or AIM Short
Term Bond Fund, unless the Category I or II Fund or AIM Short Term
Bond Fund shares acquired by exchange are redeemed within
60
18 months of the original purchase of the exchanged Category I or II
Funds or AIM Short Term Bond Fund shares;
. Redemptions of Category I or II Funds or AIM Short Term Bond Fund by
retirement plan participants resulting from a total redemption of the
plan assets that occurs more than one year from the date of the plan's
initial purchase; and
. Redemptions of shares of Category I or II Funds or AIM Short Term Bond
Fund held by an Investor Class shareholder.
CONTINGENT DEFERRED SALES CHARGE EXCEPTIONS FOR CLASS B AND C SHARES. Investors
who purchased former GT Global funds Class B shares before June 1, 1998 are
subject to the following waivers from the CDSC otherwise due upon redemption:
. Total or partial redemptions resulting from a distribution following
retirement in the case of a tax-qualified employer-sponsored
retirement;
. Minimum required distributions made in connection with an IRA, Keogh
Plan or custodial account under Section 403(b) of the Code or other
retirement plan following attainment of age 70 1/2;
. Redemptions pursuant to distributions from a tax-qualified
employer-sponsored retirement plan, which is invested in the former GT
Global funds, which are permitted to be made without penalty pursuant
to the Code, other than tax-free rollovers or transfers of assets, and
the proceeds of which are reinvested in the former GT Global funds;
. Redemptions made in connection with participant-directed exchanges
between options in an employer-sponsored benefit plan;
. Redemptions made for the purpose of providing cash to fund a loan to a
participant in a tax-qualified retirement plan;
. Redemptions made in connection with a distribution from any retirement
plan or account that is permitted in accordance with the provisions of
Section 72(t)(2) of the Code, and the regulations promulgated
thereunder;
. Redemptions made in connection with a distribution from a qualified
profit-sharing or stock bonus plan described in Section 401(k) of the
Code to a participant or beneficiary under Section 401(k)(2)(B)(IV) of
the Code upon hardship of the covered employee (determined pursuant to
Treasury Regulation Section 1.401(k)-1(d)(2)); and
. Redemptions made by or for the benefit of certain states, counties or
cities, or any instrumentalities, departments or authorities thereof
where such entities are prohibited or limited by applicable law from
paying a sales charge or commission.
CDSCs will not apply to the following redemptions of Class B or Class C shares,
as applicable:
. Additional purchases of Class C shares of AIM International Core
Equity Fund and AIM Real Estate Fund by shareholders of record on
April 30, 1995, of AIM International Value Fund, predecessor to AIM
International Core Equity Fund, and AIM Real Estate Fund, except that
shareholders whose broker-dealers maintain a single omnibus account
with AIS on behalf of those shareholders, perform sub-accounting
functions with respect to those shareholders, and are unable to
segregate shareholders of record prior to April 30, 1995, from
shareholders whose accounts were opened after that date will be
subject to a CDSC on all purchases made after March 1, 1996;
61
. Redemptions following the death or post-purchase disability of (1) any
registered shareholders on an account or (2) a settlor of a living
trust, of shares held in the account at the time of death or initial
determination of post-purchase disability;
. Certain distributions from individual retirement accounts,
Section 403(b) retirement plans, Section 457 deferred compensation
plans and Section 401 qualified plans, where redemptions result from
(i) required minimum distributions to plan participants or
beneficiaries who are age 70 1/2 or older, and only with respect to
that portion of such distributions that does not exceed 12% annually
of the participant's or beneficiary's account value in a particular
Fund; (ii) in kind transfers of assets where the participant or
beneficiary notifies the distributor of the transfer no later than the
time the transfer occurs; (iii) tax-free rollovers or transfers of
assets to another plan of the type described above invested in Class B
or Class C shares of one or more of the Funds; (iv) tax-free returns
of excess contributions or returns of excess deferral amounts; and
(v) distributions on the death or disability (as defined in the Code)
of the participant or beneficiary;
. Amounts from a Systematic Redemption Plan of up to an annual amount of
12% of the account value on a per fund basis, at the time the
withdrawal plan is established, provided the investor reinvests his
dividends;
. Liquidation by the Fund when the account value falls below the minimum
required account size of $500; and
. Investment account(s) of AIM.
CDSCs will not apply to the following redemptions of Class C shares:
. A total or partial redemption of shares where the investor's dealer of
record notifies the distributor prior to the time of investment that
the dealer waives the upfront payment otherwise payable to him;
. A total or partial redemption which is necessary to fund a
distribution requested by a participant in a retirement plan
maintained pursuant to Section 401, 403, or 457 of the Code;
. Redemptions of Class C shares of a Fund other than AIM Short Term Bond
Fund if you received such Class C shares by exchanging Class C shares
of AIM Short Term Bond Fund; and
. Redemptions of Class C shares of AIM Short Term Bond Fund if you
received such Class C shares by exchanging Class C shares of another
Fund and the original purchase was subject to a CDSC.
CONTINGENT DEFERRED SALES CHARGE EXCEPTIONS FOR CLASS R SHARES AND FORMER CLASS
K SHAREHOLDERS THAT ACQUIRED CLASS A SHARES
CDSCs will not apply to redemptions of Class A shares acquired as a result of
conversion of Class K shares into Class A shares where the retirement plan's
dealer of record notified the distributor prior to the time of purchase that
the dealer waived the upfront payment otherwise payable to him.
62
CDSCs will not apply to the following redemptions of Class R shares:
. A total or partial redemption of shares where the retirement plan's
dealer of record notifies the distributor prior to the time of
investment that the dealer waives the upfront payment otherwise
payable to him; and
. Redemptions of shares held by retirement plans in cases where (i) the
plan has remained invested in Class R shares of a Fund for at least 12
months, or (ii) the redemption is not a complete redemption of all
Class R shares held by the plan.
General Information Regarding Purchases, Exchanges and Redemptions
GOOD ORDER. Purchase, exchange and redemption orders must be received in good
order. To be in good order, an investor must supply AIS with all required
information an documentation, including signature guarantees when required. In
addition, if a purchase of shares is made by check, the check must be received
in good order. This means that the check must be properly completed and signed,
and legible to AIS in its sole discretion.
AUTHORIZED AGENTS. AIS and AIM Distributors may authorize agents to accept
purchase and redemption orders that are in good form on behalf of the AIM
Funds. In certain cases, these authorized agents are authorized to designate
other intermediaries to accept purchase and redemption orders on a Fund's
behalf. A Fund will be deemed to have received the purchase or redemption order
when the Fund's authorized agent or its designee accepts the order. The order
will be priced at the net asset value next determined after the order is
accepted by a Fund's authorized agent or its designee.
TIMING OF PURCHASE ORDERS. It is the responsibility of the dealer or other
financial intermediary to ensure that all orders are transmitted on a timely
basis to AIS. Any loss resulting from the failure of the dealer or financial
intermediary to submit an order within the prescribed time frame will be borne
by that dealer or financial intermediary. If a check used to purchase shares
does not clear, or if any investment order must be canceled due to nonpayment,
the investor will be responsible for any resulting loss to an AIM Fund or to
AIM Distributors.
SIGNATURE GUARANTEES. In addition to those circumstances listed in the
"Shareholder Information" section of each Fund's prospectus, signature
guarantees are required in the following situations: (1) requests to transfer
the registration of shares to another owner; (2) telephone exchange and
telephone redemption authorization forms; (3) changes in previously designated
wiring or electronic funds transfer instructions; and (4) written redemptions
or exchanges of shares previously reported as lost, whether or not the
redemption amount is under $250,000 or the proceeds are to be sent to the
address of record. AIM Funds may waive or modify any signature guarantee
requirements at any time.
Acceptable guarantors include banks, broker-dealers, credit unions, national
securities exchanges, savings associations and any other organization, provided
that such institution or organization qualifies as an "eligible guarantor
institution" as that term is defined in rules adopted by the SEC, and further
provided that such guarantor institution is listed in one of the reference
guides contained in AIS' current Signature Guarantee Standards and Procedures,
such as certain domestic banks, credit unions, securities dealers, or
securities exchanges. AIS will also accept signatures with either: (1) a
signature guaranteed with a medallion stamp of the STAMP Program, or (2) a
signature guaranteed with a medallion stamp of the NYSE Medallion Signature
Program, provided that in either event, the amount of the transaction involved
does not exceed the surety coverage amount indicated on the medallion. For
information regarding whether a particular institution or organization
qualifies as an "eligible guarantor institution," an investor should contact
the Client Services Department of AIS.
TRANSACTIONS BY TELEPHONE. By signing an account application form, an investor
appoints AIS as his true and lawful attorney-in-fact to surrender for
redemption any and all unissued shares held by AIS in the designated
account(s), or in any other account with any of the AIM Funds, present or
future, which has
63
the identical registration as the designated account(s), with full power of
substitution in the premises. AIS and AIM Distributors are thereby authorized
and directed to accept and act upon any telephone redemptions of shares held in
any of the account(s) listed, from any person who requests the redemption
proceeds to be applied to purchase shares in any one or more of the AIM Funds,
provided that such fund is available for sale and provided that the
registration and mailing address of the shares to be purchased are identical to
the registration of the shares being redeemed. An investor acknowledges by
signing the form that he understands and agrees that AIS and AIM Distributors
may not be liable for any loss, expense or cost arising out of any telephone
exchange requests effected in accordance with the authorization set forth in
these instructions if they reasonably believe such request to be genuine, but
may in certain cases be liable for losses due to unauthorized or fraudulent
transactions. Procedures for verification of telephone transactions may include
recordings of telephone transactions (maintained for six months), requests for
confirmation of the shareholder's Social Security Number and current address,
and mailings of confirmations promptly after the transactions. AIS reserves the
right to modify or terminate the telephone exchange privilege at any time
without notice. An investor may elect not to have this privilege by marking the
appropriate box on the application. Then any exchanges must be effected in
writing by the investor.
INTERNET TRANSACTIONS. An investor may effect transactions in his account
through the internet by establishing a Personal Identification Number (PIN). By
establishing a PIN the investor acknowledges and agrees that neither AIS nor
AIM Distributors will be liable for any loss, expense or cost arising out of
any internet transaction effected by them in accordance with any instructions
submitted by a user who transmits the PIN as authentication of his or her
identity. Procedures for verification of internet transactions include requests
for confirmation of the shareholder's personal identification number and
mailing of confirmations promptly after the transactions. The investor also
acknowledges that the ability to effect internet transactions may be terminated
at any time by the AIM Funds.
ABANDONED PROPERTY. It is the responsibility of the investor to ensure that AIS
maintains a correct address for his account(s). An incorrect address may cause
an investor's account statements and other mailings to be returned to AIS. Upon
receiving returned mail, AIS will attempt to locate the investor or rightful
owner of the account. If unsuccessful, AIS will retain a shareholder locator
service with a national information database to conduct periodic searches for
the investor. If the search firm is unable to locate the investor, the search
firm will determine whether the investor's account has legally been abandoned.
AIS is legally obligated to escheat (or transfer) abandoned property to the
appropriate state's unclaimed property administrator in accordance with
statutory requirements. The investor's last known address of record determines
which state has jurisdiction.
OFFERING PRICE
The following formula may be used to determine the public offering price per
Class A share of an investor's investment:
Net Asset Value / (1 - Sales Charge as % of Offering Price ) = Offering
Price.
For example, at the close of business on July 29, 2005, AIM Dynamics Fund -
Class A shares had a net asset value per share of $17.71. The offering price,
assuming an initial sales charge of 5.50%, therefore was $18.74.
Shares of the Institutional Class are offered at net asset value.
Calculation of Net Asset Value
Each Fund determines its net asset value per share once daily as of the close
of the customary trading session of the NYSE (generally 4:00 p.m. Eastern time)
on each business day of the Fund. In the event the NYSE closes early (i.e.,
before 4:00 p.m. Eastern time) on a particular day, each Fund determines its
net asset value per share as of the close of the NYSE on such day. For purposes
of determining net asset value per share, futures and option contracts
generally will be valued 15 minutes after the close of
64
the customary trading session of the NYSE. Futures contracts are valued at the
final settlement price set by an exchange on which they are principally traded.
Listed options are valued at the mean between the last bid and 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. The Funds determine net asset value per share by dividing the
value of a Fund's securities, cash and other assets (including interest accrued
but not collected) attributable to a particular class, less all its liabilities
(including accrued expenses and dividends payable) attributable to that class,
by the total number of shares outstanding of that class. Determination of a
Fund's net asset value per share is made in accordance with generally accepted
accounting principles. The net asset value for shareholder transactions may be
different than the net asset value reported in the Fund's financial statements
due to adjustments required by generally accepted accounting principles made to
the net assets of the Fund at period end.
Each equity security (excluding convertible bonds) held by a Fund is valued at
its last sales price on the exchange where the security is principally traded
or, lacking any sales on a particular day, the security is valued at the
closing bid price on that day. Each equity security traded in the
over-the-counter market (but not including securities reported on the NASDAQ
National Market System) is valued on the basis of prices furnished by
independent pricing vendors or market makers. Each equity security reported on
the NASDAQ National Market System is valued at the NASDAQ Official Closing
Price ("NOCP") or absent a NOCP, at the closing bid price on that day. Debt
securities (including convertible bonds) are fair valued using an evaluated
quote on the basis of prices provided by an independent pricing vendor.
Evaluated quotes provided by the pricing vendor may be determined without
exclusive reliance on quoted prices, and may reflect appropriate factors such
as institution-size trading in similar groups of securities, developments
related to special securities, dividend rate, yield, quality, coupon rate,
maturity, type of issue, individual trading characteristics and other market
data.
Securities for which market prices are not provided by any of the above methods
are valued based upon quotes furnished by independent sources and are valued at
the last bid price in the case of equity securities and in the case of debt
obligations, the mean between the last bid and ask prices. Securities for which
market quotations are not available, including situations where market
quotations are unreliable, are valued at fair value as determined in good faith
by or under the supervision of the Trust's officers in accordance with
procedures approved by the Board. Short-term investments are valued at
amortized cost when the security has 60 days or less to maturity.
Foreign securities are converted into U.S. dollar amounts using exchange rates
as of the close of the NYSE. Trading in certain 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
each 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. If an issuer specific event has occurred
that AIM determines, in its judgment, is likely to have affected the closing
price of a foreign security, it will price the security at fair value. Issuer
specific events may include a merger or insolvency, events which affect a
geographical area or an industry segment, such as political events or natural
disasters, or market events, such as a significant movement in the U.S. market.
AIM also relies on a screening process from a pricing vendor 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. For foreign securities where AIM believes,
at the approved degree of certainty, that the price is not reflective of
current market value, AIM will use the indication of fair value from the
pricing vendor to determine the fair value of the security. The pricing vendor,
pricing methodology or degree of certainty may change from time to time.
Multiple factors may be considered by the pricing vendor 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.
Fund securities primarily traded in foreign markets may be traded in such
markets on days that are not business days of the Fund. Because the net asset
value per share of each Fund is determined only on
65
business days of the Fund, the value of the portfolio securities of a Fund that
invests in foreign securities may change on days when an investor cannot
exchange or redeem shares of the Fund.
REDEMPTION IN KIND
Although the Funds generally intend to pay redemption proceeds solely in cash,
the Funds reserve the right to determine, in their sole discretion, whether to
satisfy redemption requests by making payment in securities or other property
(known as a redemption in kind). For instance, a Fund may make a redemption in
kind if a cash redemption would disrupt its operations or performance.
Securities that will be delivered as payment in redemptions in kind will be
valued using the same methodologies that the Fund typically utilizes in valuing
such securities. Shareholders receiving such securities are likely to incur
transaction and brokerage costs on their subsequent sales of such securities,
and the securities may increase or decrease in value until the shareholder
sells them. The Trust, on behalf of the Funds made an election under Rule 18f-1
under the 1940 Act (a "Rule 18f-1 Election"), and therefore, the Trust, on
behalf of a Fund is obligated to redeem for cash all shares presented to such
Fund for redemption by any one shareholder in an amount up to the lesser of
$250,000 or 1% of that Fund's net assets in any 90-day period. The Rule 18f-1
Election is irrevocable while Rule 18f-1 under the 1940 Act is in effect unless
the SEC by order permits withdrawal of such Rule 18f-1 Election.
BACKUP WITHHOLDING
Accounts submitted without a correct, certified taxpayer identification number
or, alternatively, a completed Internal Revenue Service ("IRS") Form W-8 (for
non-resident aliens) or Form W-9 (certifying exempt status) accompanying the
registration information will generally be subject to backup withholding.
Each AIM Fund, and other payers, generally must withhold, 28% of redemption
payments and reportable dividends (whether paid or accrued) in the case of any
shareholder who fails to provide the Fund with a taxpayer identification number
("TIN") and a certification that he is not subject to backup withholding.
An investor is subject to backup withholding if:
1. the investor fails to furnish a correct TIN to the Fund;
2. the IRS notifies the Fund that the investor furnished an incorrect
TIN;
3. the investor or the Fund is notified by the IRS that the investor
is subject to backup withholding because the investor failed to
report all of the interest and dividends on such investor's tax
return (for reportable interest and dividends only);
4. the investor fails to certify to the Fund that the investor is not
subject to backup withholding under (3) above (for reportable
interest and dividend accounts opened after 1983 only); or
5. the investor does not certify his TIN. This applies only to
non-exempt mutual fund accounts opened after 1983.
Interest and dividend payments are subject to backup withholding in all five
situations discussed above. Redemption proceeds and long-term gain
distributions are subject to backup withholding only if (1), (2) or (5) above
applies.
Certain payees and payments are exempt from backup withholding and information
reporting. AIM or AIS will not provide Form 1099 to those payees.
Investors should contact the IRS if they have any questions concerning
withholding.
IRS PENALTIES - Investors who do not supply the AIM Funds with a correct TIN
will be subject to a $50 penalty imposed by the IRS unless such failure is due
to reasonable cause and not willful neglect. If an investor falsifies
information on this form or makes any other false statement resulting in no
backup withholding on an account which should be subject to backup withholding,
such investor may be subject
66
to a $500 penalty imposed by the IRS and to certain criminal penalties
including fines and/or imprisonment.
NONRESIDENT ALIENS - Nonresident alien individuals and foreign entities are not
subject to the backup withholding previously discussed, but must certify their
foreign status by attaching IRS Form W-8 to their application. Form W-8
generally remains in effect for a period starting on the date the Form is
signed and ending on the last day of the third succeeding calendar year. Such
shareholders may, however, be subject to federal income tax withholding at a
30% rate on ordinary income dividends and other distributions. Under applicable
treaty law, residents of treaty countries may qualify for a reduced rate of
withholding or a withholding exemption.
OTHER SERVICE PROVIDERS
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Funds' independent registered public accounting firm is responsible for
auditing the financial statements of the Funds. The Audit Committee of the
Board appointed PricewaterhouseCoopers LLP, 1201 Louisiana Street, Suite 2900,
Houston, Texas, 77002 as the independent registered public accounting firm to
audit the financial statements of the Funds. Such appointment was ratified and
approved by the Board.
CUSTODIAN
State Street Bank and Trust Company (the "Custodian"), 225 Franklin Street,
Boston, Massachusetts, 02110, is the custodian of all securities and cash of
the Funds. JPMorgan Chase Bank of Texas, N.A., 712 Main, Houston, Texas 77002,
serves as sub-custodian for purchases of shares of the Funds. The Bank of New
York, 2 Hanson Place, Brooklyn, New York 11217-1431, also serves as
sub-custodian to facilitate cash management.
The Custodian is authorized to establish separate accounts in foreign countries
and to cause foreign securities owned by the Funds to be held outside the
United States in branches of U.S. banks and, to the extent permitted by
applicable regulations, in certain foreign banks and securities depositories.
AIM is responsible for selecting eligible foreign securities depositories and
for assessing the risks associated with investing in foreign countries,
including the risk of using eligible foreign securities' depositories in a
country. The Custodian is responsible for monitoring eligible foreign
securities depositories.
Under its contract with the Trust, the Custodian maintains the portfolio
securities of the Funds, administers the purchases and sales of portfolio
securities, collects interest and dividends and other distributions made on the
securities held in the portfolios of the Funds and performs other ministerial
duties. These services do not include any supervisory function over management
or provide any protection against any possible depreciation of assets.
TRANSFER AGENT
AIS, 11 Greenway Plaza, Suite 100, Houston, Texas 77046, is the Trust's
transfer agent.
The Transfer Agency and Service Agreement (the "TA Agreement") between the
Trust and AIS provides that AIS will perform certain servicesrelated to the
servicing of shareholders of the Funds. Other such services may be delegated or
sub-contracted to third party intermediaries.
For servicing accounts holding Class A, A3, B, C, P, R, AIM Cash Reserve and
Investor Class Shares, the TA Agreement provides that the Trust, on behalf of
the Funds, will pay AIS a fee at an annual rate of $21.60 per open shareholder
account plus certain out of pocket expenses. This fee is paid monthly at the
67
rate of 1/12 of the annual rate and is based upon the number of open
shareholder accounts during each month. In addition, all fees payable by AIS or
its affiliates to third party intermediaries who service accounts pursuant to
sub-transfer agency, omnibus account services and sub-accounting agreements are
charged back to the Funds, subject to certain limitations approved by the Board
of the Trust. These payments are made in consideration of services that would
otherwise be provided by AIS if the accounts serviced by such intermediaries
were serviced by AIS directly. For more information regarding such payments to
intermediaries, see the discussion under "Administrative and Processing Support
Payments" below.
For servicing accounts holding Institutional Class Shares, the TA Agreement
provides that the Trust on behalf of the Funds will pay AIS a fee equal to
$2.00 per trade executed to be billed monthly plus certain out of pocket
expenses. In addition, all fees payable by AIS or its affiliates to third party
intermediaries who service accounts pursuant to sub-transfer agency, omnibus
account services and sub-accounting agreements are charged back to the Funds,
subject to certain limitations approved by the Board of the Trust (including a
limitation on the amount of any fee payable to an intermediary of 0.10% of the
average net assets held in accounts serviced by such intermediary). These
payments are made in consideration of services that would otherwise be provided
by AIS if the accounts serviced by such intermediaries were serviced by AIS
directly. For more information regarding such payments to intermediaries, see
the discussion under, "Administrative and Processing Support Payments," below.
LEGAL COUNSEL
Legal matters for the Trust have been passed upon by Ballard Spahr Andrews &
Ingersoll, LLP, 1735 Market Street, Philadelphia, PA 19103-7599.
BROKERAGE ALLOCATION AND OTHER PRACTICES
The Sub-Advisor has adopted compliance procedures that cover, among other
items, brokerage allocation and other trading practices. Unless specifically
noted, the Sub-Advisor's procedures do not materially differ from AIM's
procedures as set forth below.
BROKERAGE TRANSACTIONS
AIM or the Sub-Advisor makes decisions to buy and sell securities for each
Fund, selects broker-dealers (each, a "Broker"), effects the Funds' investment
portfolio transactions, allocates brokerage fees in such transactions and,
where applicable, negotiates commissions and spreads on transactions. AIM's
primary consideration in effecting a security transaction is to obtain best
execution, which AIM defines as prompt and efficient execution of the
transaction at the best obtainable price with payment of commissions, mark-ups
or mark-downs which are reasonable in relation to the value of the brokerage
services provided by the Broker. While AIM seeks reasonably competitive
commission rates, the Funds may not pay the lowest commission or spread
available. See "Broker Selection" below.
Some of the securities in which the Funds invest are traded in over-the-counter
markets. Portfolio transactions placed in such markets may be effected on a
principal basis at net prices without commissions, but which include
compensation to the Broker in the form of a mark up or mark down, or on an
agency basis, which involves the payment of negotiated brokerage commissions to
the Broker, including electronic communication networks. Purchases of
underwritten issues include a commission or concession paid by the issuer (not
the Funds) to the underwriter. Purchases of money market instruments may be
made directly from issuers without the payment of commissions.
Traditionally, commission rates have not been negotiated on stock markets
outside the United States. Although in recent years many overseas stock markets
have adopted a system of negotiated rates, a number of markets maintain an
established schedule of minimum commission rates.
68
COMMISSIONS
During the last three fiscal years ended July 31, none of the Funds paid
brokerage commissions to Brokers affiliated with the Funds, AIM,
AIM Distributors, or any affiliates of such entities.
The Funds may engage in certain principal and agency transactions with banks
and their affiliates that own 5% or more of the outstanding voting securities
of an AIM Fund, provided the conditions of an exemptive order received by the
AIM Funds from the SEC are met. In addition, a Fund may purchase or sell a
security from or to certain other AIM Funds or other accounts (and may invest
in the Affiliated Money Market Funds) provided the Funds follow procedures
adopted by the Boards of the various AIM Funds, including the Trust. These
inter-fund transactions do not generate brokerage commissions but may result in
custodial fees or taxes or other related expenses.
BROKER SELECTION
AIM's primary consideration in selecting Brokers to execute portfolio
transactions for a Fund is to obtain best execution. In selecting a Broker to
execute a portfolio transaction in equity securities for a Fund, AIM considers
the full range and quality of a Broker's services, including the value of
research and/or brokerage services provided, execution capability, commission
rate, willingness to commit capital, anonymity and responsiveness. AIM's
primary consideration when selecting a Broker to execute a portfolio
transaction in fixed income securities for a Fund is the Broker's ability to
deliver or sell the relevant fixed income securities; however, AIM will also
consider the various factors listed above. In each case, the determinative
factor is not the lowest commission or spread available but whether the
transaction represents the best qualitative execution for the Fund. AIM will
not select Brokers based upon their promotion or sale of Fund shares.
In choosing Brokers to execute portfolio transactions for the Funds, AIM may
select Brokers that provide brokerage and/or research services ("Soft Dollar
Products") to the Funds and/or the other accounts over which AIM and its
affiliates have investment discretion. Section 28(e) of the Securities Exchange
Act of 1934, as amended, provides that AIM, under certain circumstances,
lawfully may cause an account to pay a higher commission than the lowest
available. Under Section 28(e)(1), AIM must make a good faith determination
that the commissions paid are "reasonable in relation to the value of the
brokerage and research services provided ... viewed in terms of either that
particular transaction or [AIM's] overall responsibilities with respect to the
accounts as to which [it] exercises investment discretion." The services
provided by the Broker also must lawfully and appropriately assist AIM in the
performance of its investment decision-making responsibilities. Accordingly, a
Fund may pay a Broker higher commissions than those available from another
Broker in recognition of such Broker's provision of Soft Dollar Products to AIM.
AIM faces a potential conflict of interest when it uses client trades to obtain
Soft Dollar Products. This conflict exists because AIM is able to use the Soft
Dollar Products to manage client accounts without paying cash for the Soft
Dollar Products, which reduces AIM's expenses to the extent that AIM would have
purchased such products had they not been provided by Brokers. Section 28(e)
permits AIM to use Soft Dollar Products for the benefit of any account it
manages. Certain AIM-managed accounts may generate soft dollars used to
purchase Soft Dollar Products that ultimately benefit other AIM-managed
accounts, effectively cross subsidizing the other AIM-managed accounts that
benefit directly from the product. AIM may not use all of the Soft Dollar
Products provided by Brokers through which a Fund effects securities
transactions in connection with managing such Fund.
AIM and certain of its affiliates presently engage in the following instances
of cross-subsidization:
1. Fixed income funds normally do not generate soft dollar commissions to
pay for Soft Dollar Products. Therefore, soft dollar commissions used to
pay for Soft Dollar Products which are used to manage the fixed income
AIM Funds are generated entirely by equity AIM Funds and other equity
client accounts managed by AIM or A I M Capital Management, Inc. ("AIM
Capital"), a subsidiary of AIM. In other words, the fixed income AIM
Funds are cross-subsidized by the
69
equity AIM Funds, in that the fixed income AIM Funds receive the benefit
of Soft Dollar Products services for which they do not pay.
2. The investment models used to manage many of the AIM Funds are also used
to manage other accounts of AIM and/or AIM Capital. The Soft Dollar
Products obtained through the use of soft dollar commissions generated
by the transactions of the AIM Funds and/or other accounts managed by
AIM and/or AIM Capital are used to maintain the investment models relied
upon by both of these advisory affiliates.
This type of cross-subsidization occurs in both directions. For example,
soft dollar commissions generated by transactions of the AIM Funds
and/or other accounts managed by AIM are used for Soft Dollar Products
which may benefit those AIM Funds and/or accounts as well as accounts
managed by AIM Capital. Additionally, soft dollar commissions generated
by transactions of accounts managed by AIM Capital are used for Soft
Dollar Products which may benefit those accounts as well as accounts
managed by AIM. In certain circumstances, AIM Capital accounts may
indicate that their transactions should not be used to generate soft
dollar commissions but may still receive the benefits of Soft Dollar
Products received by AIM or AIM Capital.
3. Some of the common investment models used to manage various Funds and
other accounts of AIM and/or AIM Capital are also used to manage
accounts of AIM Private Asset Management, Inc. ("APAM"), another AIM
subsidiary. The Soft Dollar Products obtained through the use of soft
dollar commissions generated by the transactions of the Funds and/or
other accounts managed by AIM and/or AIM Capital are used to maintain
the investment models relied upon by AIM, AIM Capital and APAM. This
cross-subsidization occurs in only one direction. Most of APAM's
accounts do not generate soft dollar commissions which can be used to
purchase Soft Dollar Products. The soft dollar commissions generated by
transactions of the Funds and/or other accounts managed by AIM and/or
AIM Capital are used for Soft Dollar Products which may benefit the
accounts managed by AIM, AIM Capital and APAM; however, APAM does not
provide any soft dollar research benefit to the Funds and/or other
accounts managed by AIM or AIM Capital.
AIM and AIM Capital attempt to reduce or eliminate the potential conflicts of
interest concerning the use of Soft Dollar Products by directing client trades
for Soft Dollar Products only if AIM and AIM Capital conclude that the Broker
supplying the product is capable of providing best execution.
Certain Soft Dollar Products may be available directly from a vendor on a hard
dollar basis; other Soft Dollar Products are available only through Brokers in
exchange for soft dollars. AIM uses soft dollars to purchase two types of Soft
Dollar Products:
. proprietary research created by the Broker executing the trade, and
. other products created by third parties that are supplied to AIM
through the Broker executing the trade.
Proprietary research consists primarily of traditional research reports,
recommendations and similar materials produced by the in-house research staffs
of broker-dealer firms. This research includes evaluations and recommendations
of specific companies or industry groups, as well as analyses of general
economic and market conditions and trends, market data, contacts and other
related information and assistance. AIM periodically rates the quality of
proprietary research produced by various Brokers. Based on the evaluation of
the quality of information that AIM receives from each Broker, AIM develops an
estimate of each Broker's share of AIM clients' commission dollars. AIM
attempts to direct trades to the firms to meet these estimates.
AIM also uses soft dollars to acquire products from third parties that are
supplied to AIM through Brokers executing the trades or other Brokers who "step
in" to a transaction and receive a portion of the brokerage commission for the
trade. AIM may from time to time instruct the executing Broker to allocate or
"step out"
70
a portion of a transaction to another Broker. The Broker to which AIM has
"stepped out" would then settle and complete the designated portion of the
transaction, and the executing Broker would settle and complete the remaining
portion of the transaction that has not been "stepped out." Each Broker may
receive a commission or brokerage fee with respect to that portion of the
transaction that it settles and completes.
Soft Dollar Products received from Brokers supplement AIM's own research (and
the research of certain of its affiliates), and may include the following types
of products and services:
. Database Services - comprehensive databases containing current and/or
historical information on companies and industries and indices. Examples
include historical securities prices, earnings estimates and financial
data. These services may include software tools that allow the user to
search the database or to prepare value-added analyses related to the
investment process (such as forecasts and models used in the portfolio
management process).
. Quotation/Trading/News Systems - products that provide real time market
data information, such as pricing of individual securities and
information on current trading, as well as a variety of news services.
. Economic Data/Forecasting Tools - various macro economic forecasting
tools, such as economic data or currency and political forecasts for
various countries or regions.
. Quantitative/Technical Analysis - software tools that assist in
quantitative and technical analysis of investment data.
. Fundamental/Industry Analysis - industry specific fundamental investment
research.
. Fixed Income Security Analysis - data and analytical tools that pertain
specifically to fixed income securities. These tools assist in creating
financial models, such as cash flow projections and interest rate
sensitivity analyses, which are relevant to fixed income securities.
. Other Specialized Tools - other specialized products, such as consulting
analyses, access to industry experts, and distinct investment expertise
such as forensic accounting or custom built investment-analysis software.
If AIM determines that any service or product has a mixed use (i.e., it also
serves functions that do not assist the investment decision-making or trading
process), AIM will allocate the costs of such service or product accordingly in
its reasonable discretion. AIM will allocate brokerage commissions to Brokers
only for the portion of the service or product that AIM determines assists it
in the investment decision-making or trading process and will pay for the
remaining value of the product or service in cash.
Outside research assistance is useful to AIM since the Brokers used by AIM tend
to provide more in-depth analysis of a broader universe of securities and other
matters than AIM's staff follows. In addition, such services provide AIM with a
diverse perspective on financial markets. Some Brokers may indicate that the
provision of research services is dependent upon the generation of certain
specified levels of commissions and underwriting concessions by AIM's clients,
including the Funds. However, the Funds are not under any obligation to deal
with any Broker in the execution of transactions in portfolio securities. In
some cases, Soft Dollar Products are available only from the Broker providing
them. In other cases, Soft Dollar Products may be obtainable from alternative
sources in return for cash payments. AIM believes that because Broker research
supplements rather than replaces AIM's research, the receipt of such research
tends to improve the quality of AIM's investment advice. The advisory fee paid
by the Funds is not reduced because AIM receives such services. To the extent
the Funds' portfolio transactions are used to obtain Soft Dollar Products, the
brokerage commissions obtained by the Funds might exceed those that might
otherwise have been paid.
71
AIM may determine target levels of brokerage business with various Brokers on
behalf of its clients (including the Funds) over a certain time period. The
target levels will be based upon the following factors, among others: (1) the
execution services provided by the Broker; and (2) the research services
provided by the Broker. Portfolio transactions may be effected through Brokers
that recommend the Funds to their clients, or that act as agent in the purchase
of a Fund's shares for their clients, provided that AIM believes such Brokers
provide best execution and such transactions are executed in compliance with
AIM's policy against using directed brokerage to compensate Brokers for
promoting or selling AIM Fund shares. AIM will not enter into a binding
commitment with Brokers to place trades with such Brokers involving brokerage
commissions in precise amounts.
DIRECTED BROKERAGE (RESEARCH SERVICES)
During the last fiscal year ended July 31, 2005, each Fund allocated the
following amount of transactions to broker-dealers that provided AIM with
certain research, statistics and other information:
RELATED
BROKERAGE
FUND TRANSACTIONS/1/ COMMISSIONS/1/
---- -------------- -------------
AIM Dynamics Fund $3,755,941,784 $12,557,597
AIM Small Company Growth Fund 1,186,023,513 4,797,835
AIM S&P 500 Index Fund -0- -0-
/1/ Amount is inclusive of commissions paid to and brokerage transactions
placed with certain brokers that provide execution, research and other
services.
REGULAR BROKERS
During the last fiscal year ended July 31, 2005, AIM Dynamics Fund and AIM S&P
500 Index Fund held securities issued by the following companies, which are
"regular" brokers or dealers of AIM Fund:
FUND/ISSUER SECURITY MARKET VALUE
----------- -----------------------
AIM Dynamics Fund
Legg Mason Common Stock $23,673,262
AIM S&P 500 Index Fund
Bear Stearns Cos. Inc. (The) Common Stock $ 238,018
Goldman Sachs Group, Inc. (The) Common Stock 973,661
Lehman Brothers Holdings Inc. Common Stock 596,508
Merrill Lynch & Co., Inc. Common Stock 1,139,921
Morgan Stanley Common Stock 1,192,299
State Street Corp. Common Stock 337,685
Neither AIM nor any affiliate of AIM receives any brokerage commissions on
portfolio transactions effected on behalf of the Funds, and there is no
affiliation between AIM or any person affiliated with AIM or the Funds and any
broker or dealer that executes transactions for the Funds.
72
ALLOCATION OF PORTFOLIO TRANSACTIONS
AIM and its affiliates manage numerous AIM Funds and other accounts. Some of
these accounts may have investment objectives similar to the Funds.
Occasionally, identical securities will be appropriate for investment by one of
the Funds and by another Fund or one or more other accounts. However, the
position of each account in the same security and the length of time that each
account may hold its investment in the same security may vary. The timing and
amount of purchase by each account will also be determined by its cash
position. If the purchase or sale of securities is consistent with the
investment policies of the Fund(s) and one or more other accounts, and is
considered at or about the same time, AIM will allocate transactions in such
securities among the Fund(s) and these accounts on a pro rata basis based on
order size or in such other manner believed by AIM to be fair and equitable.
AIM may combine such transactions, in accordance with applicable laws and
regulations, to obtain the most favorable execution. Simultaneous transactions
could, however, adversely affect a Fund's ability to obtain or dispose of the
full amount of a security which it seeks to purchase or sell.
ALLOCATION OF EQUITY INITIAL PUBLIC OFFERING ("IPO") TRANSACTIONS
Certain of the AIM Funds or other accounts managed by AIM may become interested
in participating in equity IPOs. Purchases of equity IPOs by one AIM Fund or
other account may also be considered for purchase by one or more other AIM
Funds or accounts. AIM shall combine indications of interest for equity IPOs
for all AIM Funds and accounts participating in purchase transactions for that
IPO. When the full amount of all IPO orders for such AIM Funds and accounts
cannot be filled completely, AIM shall allocate such transactions in accordance
with the following procedures:
AIM will determine the eligibility of each AIM Fund and account that seeks to
participate in a particular equity IPO by reviewing a number of factors,
including market capitalization/liquidity suitability and sector/style
suitability of the investment with the AIM Fund's or account's investment
objective, policies, strategies and current holdings. AIM will allocate equity
securities issued in IPOs to eligible AIM Funds and accounts on a pro rata
basis based on order size.
INVESCO Institutional allocates equity IPOs on a pro rata basis based on
account size or in such other manner believed by INVESCO Institutional to be
fair and equitable.
BROKERAGE COMMISSIONS
The aggregate dollar amount of brokerage commissions paid by each Fund for the
periods outlined in the table below were:
Brokerage commissions paid by each of the Funds listed below during the last
three fiscal years ended were as follows:
AIM DYNAMICS FUND
Year Ended July 31, 2005 $ 6,235,697
Year Ended July 31, 2004 $13,546,519
Year Ended July 31, 2003 $16,200,916
AIM SMALL COMPANY GROWTH FUND
Year Ended July 31, 2005 $ 4,501,385
Year Ended July 31, 2004 $ 5,782,343
Year Ended July 31, 2003 $ 9,754,435
AIM S&P 500 INDEX FUND
Year Ended July 31, 2005 $ 5,515
Year Ended July 31, 2004 $ 37
Year Ended July 31, 2003 $ 29,063
73
TAX CONSEQUENCES OF OWNING SHARES OF A FUND
Each Fund has elected to be taxed under Subchapter M of the Code as a regulated
investment company and intends to maintain its qualification as such in each of
its taxable years. As a regulated investment company, each Fund is not subject
to federal income tax on the portion of its net investment income (i.e.,
taxable interest, dividends and other taxable ordinary income, net of expenses)
and capital gain net income (i.e., the excess of capital gains over capital
losses) that it distributes to shareholders, provided that it distributes
(i) at least 90% of its investment company taxable income (i.e., net investment
income, net foreign currency ordinary gain or loss and the excess of net
short-term capital gain over net long-term capital loss) and (ii) at least 90%
of the excess of its tax-exempt interest income under Code Section 103(a) over
its deductions disallowed under Code Sections 265 and 171(a)(2) for the taxable
year (the "Distribution Requirement"), and satisfies certain other requirements
of the Code that are described below. Distributions by a Fund made during the
taxable year or, under specified circumstances, within twelve months after the
close of the taxable year, will be considered distributions of income and gain
of the taxable year and can therefore satisfy the Distribution Requirement.
In addition to satisfying the Distribution Requirement, a regulated investment
company must derive at least 90% of its gross income from dividends, interest,
certain payments with respect to securities loans, gains from the sale or other
disposition of stock or securities, other income (including, but not limited
to, gains from options, futures or forward contracts) derived from its business
of investing in such stock or securities and net income derived from certain
publicly traded partnerships (the "Income Requirement"). Under certain
circumstances, a Fund may be required to sell portfolio holdings to meet this
requirement.
Each Fund must satisfy an asset diversification test in order to qualify as a
regulated investment company (the "Asset Diversification Test"). Under this
test, at the close of each quarter of each Fund's taxable year, at least 50% of
the value of the Fund's assets must consist of cash and cash items, U.S.
Government securities, securities of other regulated investment companies, and
securities of other issuers, as to which the Fund has not invested more than 5%
of the value of the Fund's total assets in securities of such issuer and as to
which the Fund does not hold more than 10% of the outstanding voting securities
of such issuer, and no more than 25% of the value of its total assets may be
invested in the securities of any one issuer (other than U.S. Government
securities and securities of other regulated investment companies), of two or
more issuers which the Fund controls and which are engaged in the same or
similar trades or businesses, or collectively, in the securities of certain
publicly traded partnerships.
If for any taxable year a Fund does not qualify as a regulated investment
company, all of its taxable income (including its net capital gain) will be
subject to tax at regular corporate rates without any deduction for
distributions to shareholders, and such distributions will be taxable as
ordinary dividends to the extent of such Fund's current and accumulated
earnings and profits. Such distributions generally will be eligible for the
dividends-received deduction in the case of corporate shareholders and will be
eligible for treatment as qualifying dividend income in the case of individuals
and other noncorporate shareholders.
Dividends paid by a Fund from net investment income as well as distributions of
net realized short-term capital gain and net realized gain from certain foreign
currency transactions are taxable for federal income tax purposes as ordinary
income to shareholders. All dividends and other distributions, to the extent of
a Fund's earnings and profits, are taxable, whether such dividends and
distributions are reinvested in additional shares or paid in cash. Dividends
eligible for the dividends-received deduction will be limited to the aggregate
amount of qualifying dividends that a Fund derives from its portfolio
investments.
Ordinary income dividends paid by a Fund to individuals and other noncorporate
taxpayers will be treated as qualified dividend income that is subject to tax
at a maximum rate of 15% to the extent of the amount
74
of qualifying dividends received by the Fund from domestic corporations and
from foreign corporations that are either incorporated in a possession of the
United States, or are eligible for benefits under certain income tax treaties
with the United States that include an exchange of information program. In
addition, qualifying dividends include dividends paid with respect to stock of
a foreign corporation that is readily tradable on an established securities
market in the United States. However, dividends received by a Fund from foreign
personal holding companies, foreign investment companies or PFICs are not
qualifying dividends. If the qualifying dividend income received by a Fund is
equal to 95% (or a greater percentage) of a Fund's gross income (exclusive of
net capital gain) in any taxable year, all of the ordinary income dividends
paid by a Fund will be qualifying dividend income.
A Fund realizes a capital gain or loss when it sells a portfolio security for
more or less than it paid for that security. Capital gains and losses are
divided into short-term and long-term, depending on how long the Fund held the
security which gave rise to the gain or loss. If the security was held one year
or less the gain or loss is generally considered short-term, while holding a
security for more than one year will generate a long-term gain or loss. If
total long-term gains on sales exceed total short-term losses, including any
losses carried forward from previous years, a Fund will have a net capital gain.
A Fund may either retain or distribute to shareholders its net capital gain for
each taxable year. Each Fund currently intends to distribute any such amounts.
If net capital gain is distributed and designated as a capital gain dividend,
it will be taxable to shareholders as long-term capital gain (currently taxable
at a maximum rate of 15% for noncorporate shareholders) regardless of the
length of time the shareholder has held his shares or whether such gain was
recognized by the Fund prior to the date on which the shareholder acquired his
shares. Such dividends are not eligible for the dividends-received deduction.
Conversely, if a Fund elects to retain its net capital gain, the Fund will be
taxed thereon (except to the extent of any available capital loss carry
forwards) at the 35% corporate tax rate. If a Fund elects to retain its net
capital gain, it is expected that the Fund also will elect to have shareholders
treated as if each received a distribution of its pro rata share of such gain,
with the result that each shareholder will be required to report its pro rata
share of such gain on its tax return as long-term capital gain, will receive a
refundable tax credit for its pro rata share of tax paid by the Fund on the
gain, and will increase the tax basis for its shares by an amount equal to the
deemed distribution less the tax credit.
After the end of each fiscal year, each Fund sends information to shareholders
regarding the amount and character of dividends paid during the year.
If the net asset value of a Fund's shares should be reduced below a
shareholder's cost as a result of a distribution, such distribution would be
taxable to the shareholder although a portion would be a return of invested
capital. Accordingly, if shares of a Fund are purchased shortly before a
distribution, a portion of the purchase price of the shares may then be
returned to the shareholder as a taxable dividend.
A fund's daily NAV reflects ordinary income and realized capital gains that
have not yet been distributed to shareholders. As such, a fund's NAV will drop
by the amount of a distribution, net of market fluctuations, on the day the
distribution is declared. If you buy shares of a fund just before a
distribution is declared, you may wind up "buying a distribution." This means
that if the fund declares a dividend or capital gain distribution shortly after
you buy, you will receive some of your investment back as a taxable
distribution. Although purchasing your shares at the resulting higher NAV may
mean a smaller capital gain or greater loss upon sale of the shares, most
shareholders want to avoid the purchase of shares immediately before the
distribution record date. However, keep in mind that your basis in the fund
will be increased to the extent such distributions are reinvested in the fund.
If you sell your shares of a fund at a loss for tax purposes and then replace
those shares with a substantially identical investment either thirty days
before or after that sale, the transaction is usually considered a "wash sale"
and you will not be able to claim a tax loss at the time of sale. Instead the
loss will be deferred to a later date.
If it invests in foreign securities, a Fund may be subject to the withholding
of foreign taxes on dividends or interest it receives on foreign securities.
Foreign taxes withheld will be treated as an expense of the Fund unless the
Fund meets the qualifications and makes the election to enable it to pass these
taxes through
75
to shareholders for use by them as a foreign tax credit or deduction. Tax
conventions between certain countries and the United States may reduce or
eliminate such taxes.
A Fund may invest in the stock of "passive foreign investment companies"
("PFICs"). A PFIC is a foreign corporation that, in general, meets either of
the following tests: (1) at least 75% of its gross income is passive or (2) an
average value of at least 50% of its assets produce, or are held for the
production of, passive income. Each Fund intends to "mark-to-market" its stock
in any PFIC. In this context, "marking-to-market" means including in ordinary
income for each taxable year the excess, if any, of the fair market value of
the PFIC stock over the Fund's adjusted basis in the PFIC stock as of the end
of the year. In certain circumstances, a Fund will also be allowed to deduct
from ordinary income the excess, if any, of its adjusted basis in PFIC stock
over the fair market value of the PFIC stock as of the end of the year. The
deduction will only be allowed to the extent of any PFIC mark-to-market gains
recognized as ordinary income in prior years. A Fund's adjusted tax basis in
each PFIC stock for which it makes this election will be adjusted to reflect
the amount of income included or deduction taken under the election.
Gains or losses (1) from the disposition of foreign currencies, (2) from the
disposition of debt securities denominated in foreign currencies that are
attributable to fluctuations in the value of the foreign currency between the
date of acquisition of each security and the date of disposition, and (3) that
are attributable to fluctuations in exchange rates that occur between the time
a Fund accrues interest, dividends or other receivables or accrues expenses or
other liabilities denominated in a foreign currency and the time the Fund
actually collects the receivables or pays the liabilities, generally will be
treated as ordinary income or loss. In certain cases, a fund may make an
election to treat such gain or loss as capital gain or loss. These gains or
losses may increase or decrease the amount of a Fund's investment company
taxable income to be distributed to its shareholders.
The transfer agent may provide Fund shareholders with information concerning
the average cost basis of their shares in order to help them prepare their tax
returns. This information is intended as a convenience to shareholders and will
not be reported to the Internal Revenue Service (the "IRS"). The IRS permits
the use of several methods to determine the cost basis of mutual fund shares.
The cost basis information provided by the transfer agent will be computed
using the single-category average cost method, although neither the transfer
agent nor the Funds recommend any particular method of determining cost basis.
Other methods may result in different tax consequences. Even if you have
reported gains or losses for a Fund in past years using another basis method,
you may be able to use the average cost method for determining gains or losses
in the current year. However, once you have elected to use the average cost
method, you must continue to use it unless you apply to the IRS for permission
to change methods. Likewise, changing to any basis method other than the
average cost method requires IRS approval.
If you sell Fund shares at a loss after holding them for six months or less,
your loss will be treated as long-term (instead of short-term) capital loss to
the extent of any capital gain distributions that you may have received on
those shares. Similarly, if you sell Fund shares at a loss after holding them
for six months or less, your loss will be disallowed to the extent of any
exempt-interest dividends that you may have received on those shares. If you
pay a sales charge to acquire shares, that sales charge is generally treated as
part of your cost basis for determining gain or loss upon disposition of those
shares. However, if you exchange your shares within ninety days of acquisition
and the sales charge was paid on the original shares, then the sales charge is
not treated as part of your cost basis on the original shares, but instead,
carries over to be included as part of your cost basis in the new or
replacement shares.
Each Fund will be subject to a nondeductible 4% excise tax to the extent it
fails to distribute by the end of any calendar year substantially all of its
ordinary income for that year and its capital gain net income for the one-year
period ending on October 31 of that year, plus certain other amounts.
You should consult your own tax adviser regarding specific questions as to
federal, state and local taxes. Dividends and capital gain distributions will
generally be subject to applicable state and local taxes. Qualification, for
income tax purposes, as a regulated investment company under the Internal
Revenue Code of 1986, as amended, does not entail government supervision of
management or investment
76
policies. The foregoing general discussion of U.S. federal income tax
consequences is based on the Code and the Regulations issued thereunder as in
effect on October 10, 2005.
PERFORMANCE
To keep shareholders and potential investors informed, AIM will occasionally
advertise the Funds' total return for one-, five-, and ten-year periods (or
since inception). Most advertisements of the Funds will disclose the maximum
front-end sales charge imposed on purchases of a Fund's Class A shares and/or
the applicable CDSC imposed on redemptions of a Fund's Class B and Class C
shares. If any advertised performance data does not reflect the maximum
front-end sales charge (if any), or the applicable CDSC, such advertisement
will disclose that the sales charge or CDSC has not been deducted in computing
the performance data, and that, if reflected, such charges would reduce the
performance quoted.
Each Fund's total return is calculated in accordance with a standardized
formula for computation of annualized total return. Standardized total return
for Class A shares reflects the deduction of the maximum front-end sales charge
at the time of purchase. Standardized total return for Class B and Class C
shares reflects the deduction of the maximum applicable CDSC on a redemption of
shares held for the period. A 1.00%--5.00% CDSC may be charged on redemptions
of Class B shares held six years or less, other than shares acquired through
reinvestment of dividends and other distributions. A 1.00% CDSC may be charged
on redemptions of Class C shares held twelve months or less, other than shares
acquired through reinvestment of dividends and other distributions. Please see
the section entitled "Distributor" for additional information on CDSCs. Total
returns quoted in advertising reflect all aspects of a Fund's return, including
the effect of reinvesting dividends and capital gain distributions, and any
change in the Fund's net asset value per share over the period. Average annual
returns are calculated by determining the growth or decline in value of a
hypothetical investment in a Fund over a stated period, and then calculating
the annually compounded percentage rate that would have produced the same
result if the rate of growth or decline in value has been constant over the
period. Because average annual returns tend to even out variations in a Fund's
returns, investors should realize that the Fund's performance is not constant
over time, but changes from year to year, and that average annual returns do
not represent the actual year-to-year performance of the Fund.
In addition to average annual returns, each Fund may quote unaveraged or
cumulative total returns reflecting the simple change in value of an investment
over a stated period. Cumulative total return shows the actual rate of return
on an investment for the period cited; average annual total return represents
the average annual percentage change in the value of an investment. Both
cumulative and average annual total returns tend to "smooth out" fluctuations
in a Fund's investment results, because they do not show the interim variations
in performance over the periods cited. Total returns may be quoted with or
without taking a Fund's maximum applicable Class A front-end sales charge or
Class B or Class C CDSC into account. Excluding sales charges from a total
return calculation produces a higher total return figure.
We may also advertise S&P 500 Index Fund's "30-day SEC yield." "30-day SEC
yield" is based on historical earnings and is not intended to indicate future
performance. The "30-day SEC yield" of a Fund refers to the income generated by
an investment in the Fund over a 30-day period (which period will be stated in
the advertisement). This income is then "annualized." That is, the amount of
income generated by the investment during that period is assumed to be
generated each 30-day period over a 52-week period and is shown as a percentage
of the investment.
The "30-day SEC yield" for S&P 500 Index Fund for the 30 days ended July 31,
2005 was:
77
INVESTOR INSTITUTIONAL
FUND CLASS CLASS
---- --------------------
AIM S&P 500 Index Fund 1.23% 1.55%
The tax equivalent yield for the AIM S&P 500 Index Fund as of July 31, 2005,
assuming a 35% tax rate, is % for Institutional Class and % for Investor Class.
More information about the Funds' recent and historical performance is
contained in each Fund's Annual Report to Shareholders. You can get a free copy
by calling or writing to AIS using the telephone number or address on the back
cover of the Funds' Prospectuses.
When we quote mutual fund rankings published by Lipper Inc., we may compare a
Fund to others in its appropriate Lipper category, as well as the broad-based
Lipper general fund groupings. These rankings allow you to compare a Fund to
its peers. Other independent financial media also produce performance- or
service-related comparisons, which you may see in our promotional materials.
Performance figures are based on historical earnings and are not intended to
suggest future performance.
Performance for the one-, five-, and ten-year periods (or since inception)
ended July 31, 2005 was:
10 YEAR OR
FUND AND CLASS 1 YEAR 5 YEAR SINCE INCEPTION
- -------------- ----------- ---------------
INVESTOR CLASS
AIM Dynamics Fund
Average Annual Total Returns (including sales load) 24.81% -8.57% 8.60%
Cumulative Return (including sales load) 24.81% -36.12% 128.26%
Average Annual Total Return...........................................
(after taxes on distributions and included sales load)................ 24.81% -8.59% 6.81%
Average Annual Total Return 16.12% -7.08% 6.40%%
(after taxes on distributions and sales of fund shares and included
sales load)
AIM Small Company Growth Fund
Average Annual Total Returns (including sales load) 26.22% -5.28% 8.61%
Cumulative Return (including sales load) 26.22% -23.77% 128.30%
Average Annual Total Return 26.22% -5.70% 6.31%
(after taxes on distributions and included sales load)
Average Annual Total Return 17.04% -4.64%% 6.07%%
(after taxes on distributions and sales of fund shares and included
sales load)
78
10 YEAR OR
FUND AND CLASS 1 YEAR 5 YEAR SINCE INCEPTION
- -------------- ----------- ---------------
AIM S&P 500 Index Fund
Average Annual Total Returns (including sales load) 13.38% -2.11% 4.80%/1/
Cumulative Return (including sales load) 13.38% -10.11% 42.80%/1/
Average Annual Total Return
(after taxes on distributions and included sales load) 12.96% -2.43% 4.41%/1/
Average Annual Total Return
(after taxes on distributions and sales of fund shares and included
sales load) 8.81% -1.93% 3.96%/1/
INSTITUTIONAL CLASS
AIM Dynamics Fund
Average Annual Total Returns (including sales load) 25.47% -8.20% -5.44%/2/
Cumulative Return (including sales load) -
25.47% 34.81% -25.20%/2/
Average Annual Total Return
(after taxes on distributions and included sales load) 25.47% -8.22% -5.46%/2/
Average Annual Total Return
(after taxes on distributions and sales of fund shares and included
sales load) 16.55% -6.78% -4.54%/2/
AIM S&P 500 Index Fund
Average Annual Total Returns (including sales load) 13.70% -2.00% 4.79%/1/
Cumulative Return (including sales load) 13.70% -9.59% 42.78%/1/
Average Annual Total Return
(after taxes on distributions and included sales load) 13.20% -2.49% 4.21%/1/
Average Annual Total Return
(after taxes on distributions and sales of fund shares and included
sales load) 9.05% -1.93% 3.84%/1/
AIM Small Company Growth Fund
Average Annual Total Returns (including sales load) N/A N/A 2.23%/3/
Cumulative Return (including sales load) N/A N/A 2.23%/3/
Average Annual Total Return
(after taxes on distributions and included sales load) N/A N/A 2.23%/3/
Average Annual Total Return
(after taxes on distributions and sales of fund shares and included
sales load) N/A N/A 1.45%/3/
79
10 YEAR OR
FUND AND CLASS 1 YEAR 5 YEAR SINCE INCEPTION
- -------------- -------------------------
CLASS A - (INCLUDING FRONT-END SALES CHARGE)
AIM Dynamics Fund
Average Annual Total Returns (including sales load) 17.75% N/A 2.72%/4/
Cumulative Return (including sales load) 17.75% N/A 9.39%/4/
Average Annual Total Return
(after taxes on distributions and included sales load) 17.75% N/A 2.72%/4/
Average Annual Total Return
(after taxes on distributions and sales of fund shares and included
sales load) 11.54% N/A 2.32%/4/
AIM Small Company Growth Fund
Average Annual Total Returns (including sales load) 19.19% N/A 3.22%/4/
Cumulative Return (including sales load) 19.19% N/A 11.18%/4/
Average Annual Total Return
(after taxes on distributions and included sales load) 19.19% N/A 3.22%/4/
Average Annual Total Return
(after taxes on distributions and sales of fund shares and included
sales load) 12.47% N/A 2.75%/4/
CLASS B--(INCLUDING CDSC)
AIM Dynamics Fund
Average Annual Total Returns (including sales load) 18.89% N/A 2.86%/4/
Cumulative Return (including sales load) 18.89% N/A 9.88%/4/
Average Annual Total Return
(after taxes on distributions and included sales load) 18.89% N/A 2.86%/4/
Average Annual Total Return
(after taxes on distributions and sales of fund shares and included
sales load) 12.28% N/A 2.44%/4/
AIM Small Company Growth Fund
Average Annual Total Returns (including sales load) 20.36% N/A 3.48%/4/
Cumulative Return (including sales load) 20.36% N/A 12.11%/4/
Average Annual Total Return
(after taxes on distributions and included sales load) 20.36% N/A 3.48%/4/
Average Annual Total Return
(after taxes on distributions and sales of fund shares and included
sales load) 13.24% N/A 2.97%/4/
80
10 YEAR OR
FUND AND CLASS 1 YEAR 5 YEAR SINCE INCEPTION
- -------------- ----------- ---------------
CLASS C - (INCLUDING CDSC)
AIM Dynamics Fund
Average Annual Total Returns (including sales load) 22.92% -9.33% -8.86%/5/
Cumulative Return (including sales load) 22.92% -38.72% -39.74%/5/
Average Annual Total Return
(after taxes on distributions and included sales load) 22.92% -9.35% -8.88%/5/
Average Annual Total Return
(after taxes on distributions and sales of fund shares and included
sales load) 14.90% -7.68% -7.27%/5/
AIM Small Company Growth Fund
Average Annual Total Returns (including sales load) 24.41% -6.39% -7.89%/5/
Cumulative Return (including sales load) 24.41% -28.11% -36.14%/5/
Average Annual Total Return
(after taxes on distributions and included sales load) 24.41% -6.81% -8.26%/5/
Average Annual Total Return
(after taxes on distributions and sales of fund shares and included
sales load) 15.86% -5.53% -6.69%/5/
CLASS R/6/ N/A N/A N/A
/1/ Since inception December 23, 1997.
/2/ Since inception May 22, 2000.
/3/ Commenced operations on July 13, 2005. Returns are cumulative.
/4/ Since inception March 28, 2002.
/5/ Since inception February 14, 2000.
/6/ Class R shares of AIM Dynamics Fund and AIM Small Company Growth Fund
commenced operations on October 25, 2005.
Average annual total return performance for each of the periods indicated was
computed by finding the average annual compounded rates of return that would
equate the initial amount invested to the ending redeemable value, according to
the following formula:
P(1 + T)(POWER OF n) = ERV
where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of initial payment
Average annual total return after taxes on distributions and after taxes on
distributions and sale of Fund shares was computed by finding the average
annual compounded rates of return that would equate the initial amount invested
to the ending value, according to the following formula:
After taxes on distributions:
81
P(1 + T)(POWER OF n) = ATV(BASE OF D)
where: P = a hypothetical initial payment of $1,000
T = average annual total return (after taxes on distributions)
n = number of years
ATV(BASE OF D) = ending value of a hypothetical $1,000 payment made at the beginning of
the 1-, 5-, or 10-year periods at the end of the 1-, 5-, or 10-year periods (or fractional portion)
after taxes on fund distributions but not after taxes on redemption.
After taxes on distributions and redemption:
P(1 + T)(POWER OF n) = ATV(BASE OF DR)
where: P = a hypothetical initial payment of $1,000
T = average annual total return (after taxes on distributions and redemption)
n = number of years
ATV(BASE OF DR) = ending value of a hypothetical $1,000 payment made at the beginning of
the 1-, 5-, or 10-year periods at the end of the 1-, 5-, or 10-year periods (or fractional portion)
after taxes on fund distributions and redemptions.
The average annual total return performance figures shown above were determined
by solving the above formula for "T" for each time period indicated.
The "30-day SEC yield" is computed by dividing the net investment income per
share earned during the period by the maximum offering price per share on the
last day of the period, according to the following formula:
Yield=2[(a-b/cd +1)(POWER OF 6)-1]
where: a = dividends and interest earned during the period
b = expenses accrued for the period (net of reimbursements)
c = the average daily number of shares outstanding during the period that were entitled to
receive dividends
d = the maximum offering price per share on the last day of the period
In conjunction with performance reports, comparative data between a Fund's
performance for a given period and other types of investment vehicles,
including certificates of deposit, may be provided to prospective investors and
shareholders.
In conjunction with performance reports and/or analyses of shareholder services
for a Fund, comparative data between that Fund's performance for a given period
and recognized indices of investment results for the same period, and/or
assessments of the quality of shareholder service, may be provided to
shareholders. Such indices include indices provided by Dow Jones & Company,
S&P, Lipper Inc., Lehman Brothers, National Association of Securities Dealers
Automated Quotations, Frank Russell Company, Value Line Investment Survey, the
American Stock Exchange, Morgan Stanley Capital International, Wilshire
Associates, the Financial Times Stock Exchange, the NYSE, the Nikkei Stock
Average and Deutcher Aktienindex, all of which are unmanaged market indicators.
In addition, rankings, ratings, and comparisons of investment performance
and/or assessments of the quality of shareholder service made by independent
sources may be used in advertisements, sales literature or shareholder reports,
including reprints of, or selections from, editorials or articles about the
Fund. These sources utilize information compiled (i) internally; (ii) by Lipper
Inc.; or (iii) by other recognized analytical services. The Lipper Inc. mutual
fund rankings and comparisons which may be used by the Funds in performance
reports will be drawn from the following mutual fund groupings, in addition to
the broad-based Lipper general fund groupings:
82
Fund Lipper Mutual Fund Category
---- ---------------------------
Dynamics Fund Multi-MidCap Growth Funds
Small Company Growth Fund Small-Cap Growth Funds
S&P 500 Index Fund S&P 500 Funds
Sources for Fund performance information and articles about the Funds include,
but are not limited to, the following:
Advertising Age Forbes Nation's Business
Barron's Fortune New York Times
Best's Review Hartford Courant Pension World
Bloomberg Inc. Pensions & Investments
Broker World Institutional Investor Personal Investor
Business Week Insurance Forum Philadelphia Inquirer
Changing Times Insurance Week The Bond Buyer
Christian Science Monitor Investor's Business Daily USA Today
Consumer Reports Journal of the American U.S. News & World Report
Economist Society of CLU & ChFC Wall Street Journal
FACS of the Week Kiplinger Letter Washington Post
Financial Planning Money CNN
Financial Product News Mutual Fund Forecaster CNBC
Financial Services Week PBS
Financial World
Each Fund may also compare its performance to performance data of similar
mutual funds as published by the following services:
Bank Rate Monitor Morningstar, Inc.
Bloomberg Standard & Poor's
FactSet Date Systems Strategic Insight
Lipper, Inc. Thompson Financial
From time to time, the Funds' sales literature and/or advertisements may
discuss generic topics pertaining to the mutual fund industry. This includes,
but is not limited to, literature addressing general information about mutual
funds, discussions regarding investment styles, such as the growth, value or
GARP (growth at a reasonable price) styles of investing, variable annuities,
dollar-cost averaging, stocks, bonds, money markets, certificates of deposit,
retirement, retirement plans, asset allocation, tax-free investing, college
planning and inflation.
PENDING LITIGATION
Regulatory Action Alleging Market Timing
On April 12, 2005, the Attorney General of the State of West Virginia ("WVAG")
filed a civil lawsuit against AIM, INVESCO Funds Group, Inc. ("IFG") (the
former investment advisor to certain AIM Funds) and ADI, as well as numerous
unrelated mutual fund complexes and financial institutions. None of the AIM
Funds has been named as a defendant in this lawsuit. The WVAG complaint, filed
in the Circuit Court of Marshall County, West Virginia [Civil Action
No. 05-C-81], alleges, in substance, that AIM, IFG and ADI
83
engaged in unfair competition and/or unfair or deceptive trade practices by
failing to disclose in the prospectuses for the AIM Funds, including those
formerly advised by IFG, that they had entered into certain arrangements
permitting market timing of such Funds. As a result of the foregoing, the WVAG
alleges violations of W. Va. Code (S) 46A-1-101, et seq. (the West Virginia
Consumer Credit and Protection Act). The WVAG complaint is seeking injunctive
relief; civil monetary penalties; a writ of quo warranto against the
defendants; pre-judgment and post-judgment interest; costs and expenses,
including counsel fees; and other relief.
If AIM is unsuccessful in its defense of the WVAG lawsuit, it could be barred
from serving as an investment advisor for any investment company registered
under the Investment Company Act of 1940, as amended (a "registered investment
company"). Such results could affect the ability of AIM or any other investment
advisor directly or indirectly owned by AMVESCAP PLC ("AMVESCAP"), from serving
as an investment advisor to any registered investment company, including your
Fund. Your Fund has been informed by AIM that, if these results occur, AIM will
seek exemptive relief from the SEC to permit it to continue to serve as your
Fund's investment advisor. There is not assurance that such exemptive relief
will be granted.
On May 31, 2005, the defendants removed this lawsuit to the U.S. District Court
for the Northern District of West Virginia at Wheeling. On June 13, 2005, the
MDL Court (as defined below) issued a Conditional Transfer Order transferring
this lawsuit to the MDL Court. On June 29, 2005 the WVAG filed a Notice of
Opposition to this Conditional Transfer Order. On July 7, 2005, the Supreme
Court of West Virginia ruled in the context of a separate lawsuit that the WVAG
does not have authority pursuant to W. Va. Code Section 46A-6-104 of the West
Virginia Consumer Credit and Protection Act to bring an action based upon
conduct that is ancillary to the purchase or sale of securities. AIM intends to
seek dismissal of the WVAG's lawsuit against it, IFG and ADI in light of this
ruling.
On August 30, 2005, the West Virginia Office of the State Auditor - Securities
Commission ("WVASC") issued a Summary Order to Cease and Desist and Notice of
Right to Hearing to AIM and ADI (Order No. 05-1318). The WVASC makes findings
of fact that essentially mirror the WVAG's allegations mentioned above and
conclusions of law to the effect that AIM and ADI violated the West Virginia
securities laws. The WVASC orders AIM and ADI to cease any further violations
and seeks to impose monetary sanctions, including restitution to affected
investors, disgorgement of fees, reimbursement of investigatory, administrative
and legal costs and an "administrative assessment," to be determined by the
Commissioner. Initial research indicates that these damages could be limited or
capped by statute. AIM and ADI have the right to challenge this action, which
they intend to do.
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, the
parent company of IFG and AIM, certain related entities, certain of their
current and former officers and/or certain unrelated third parties) based on
allegations of improper market timing and related 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. A list
identifying such lawsuits that have been served on IFG, AIM, the AIM Funds or
related entities, or for which service of process has been waived, as of
September 20, 2005 is set forth in Appendix H-1.
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, with one exception. Pursuant to an Order of the MDL
Court, plaintiffs consolidated their claims for pre-trial purposes into three
amended complaints against various AIM- and
84
IFG-related parties. A list identifying the amended complaints in the MDL Court
is included in Appendix H-1. Plaintiffs in two of the underlying lawsuits
transferred to the MDL Court continue to seek remand of their action to state
court. These lawsuits are identified in Appendix H-1.
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. A list identifying such lawsuits that have been
served on IFG, AIM, the AIM Funds or related entities, or for which service of
process has been waived, as of September 20, 2005 is set forth in Appendix H-2.
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. A list identifying such
lawsuits that have been served on IFG, AIM, the AIM Funds or related entities,
or for which service of process has been waived, as of September 20, 2005 is
set forth in Appendix H-3.
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
AIM Funds and/or specific share classes were closed generally to new investors
and/or while other share classes of the same AIM 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. A list identifying such lawsuits that
have been served on IFG, AIM, the AIM Funds or related entities, or for which
service of process has been waived, as of September 20, 2005 is set forth in
Appendix H-4.
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
85
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. A list identifying
such lawsuits that have been served on IFG, AIM, the AIM Funds or related
entities, or for which service of process has been waived, as of September 20,
2005 is set forth in Appendix H-5.
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. ("AIM Capital") 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 they 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. Such
lawsuit, which was dismissed by the court on August 12, 2005, is set forth in
Appendix H-6.
86
APPENDIX A
RATINGS OF DEBT SECURITIES
The following is a description of the factors underlying the debt ratings of
Moody's, S&P and Fitch:
MOODY'S LONG-TERM DEBT RATINGS
Moody's corporate ratings areas follows:
Aaa: Bonds and preferred stock which are rated Aaa are judged to be of the
best quality. They carry the smallest degree of investment risk and are
generally referred to as "gilt-edged." Interest payments are protected by a
large or by an exceptionally stable margin and principal is secure. While the
various protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position of
such issues.
Aa: Bonds and preferred stock which are rated Aa are judged to be of high
quality by all standards. Together with the Aaa group they comprise what are
generally known as high grade bonds. These are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there may be
other elements present which make the long-term risk in Aa rated bonds appear
somewhat larger than those securities rated Aaa.
A: Bonds and preferred stock which are rated A possess many favorable
investment attributes and are to be considered as upper-medium-grade
obligations. Factors giving security to principal and interest are considered
adequate, but elements may be present which suggest a susceptibility to
impairment sometime in the future.
Baa: Bonds and preferred stock which are rated Baa are considered as
medium-grade obligations, i.e., they are neither highly protected nor poorly
secured. Interest payments and principal security appear adequate for the
present but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and in fact have speculative
characteristics as well.
Ba: Bonds and preferred stock which are rated Ba are judged to have
speculative elements; their future cannot be considered as well assured. Often
the protection of interest and principal payments may be very moderate and
thereby not well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class.
B: Bonds and preferred stock which are rated B generally lack
characteristics of the desirable investment. Assurance of interest and
principal payments or of maintenance of other terms of the contract over any
long period of time may be small.
Caa: Bonds and preferred stock which are rated Caa are of poor standing.
Such issues may be in default or there may be present elements of danger with
respect to principal or interest.
Ca: Bonds and preferred stock which are rated Ca represent obligations which
are speculative in a high degree. Such issues are often in default or have
other marked shortcomings.
C: Bonds and preferred stock which are rated C are the lowest rated class of
bonds, and issues so rated can be regarded as having extremely poor prospects
of ever attaining any real investment standing.
A-1
Note: Moody's applies numerical modifiers 1, 2, and 3 in each generic rating
classification from Aa through Caa. The modifier 1 indicates that the
obligation ranks in the higher end of its generic rating category; the modifier
2 indicates a mid-range ranking; and the modifier 3 indicates a ranking in the
lower end of that generic rating category.
MOODY'S SHORT-TERM PRIME RATING SYSTEM
Moody's short-term ratings are opinions of the ability of issuers to honor
senior financial obligations and contracts. Such obligations generally have an
original maturity not exceeding one year, unless explicitly noted.
Moody's employs the following designations, all judged to be investment
grade , to indicate the relative repayment ability of rated issuers.
PRIME-1: Issuers (or supporting institutions) rated Prime-1 have a superior
ability for repayment of senior short-term obligations. Prime-1 repayment
ability will often be evidenced by many of the following characteristics:
leading market positions in well-established industries; high rates of return
on funds employed; conservative capitalization structure with moderate reliance
on debt and ample asset protection; broad margins in earnings coverage of fixed
financial charges and high internal cash generation; and well-established
access to a range of financial markets and assured sources of alternate
liquidity.
PRIME-2: Issuers (or supporting institutions) rated Prime-2 have a strong
ability to repay senior short-term debt obligations. This will normally be
evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
PRIME-3: Issuers (or supporting institutions) rated Prime-3 have an acceptable
ability for repayment of senior short-term debt obligations. The effect of
industry characteristics and market compositions may be more pronounced.
Variability in earnings and profitability may result in changes in the level of
debt protection measurements and may require relatively high financial
leverage. Adequate alternate liquidity is maintained.
NOT PRIME: Issuers rated Not Prime do not fall within any of the Prime rating
categories.
Note: In addition, in certain countries the prime rating may be modified by
the issuer's or guarantor's senior unsecured long-term debt rating.
Moody's municipal ratings are as follows:
Moody's U.S. Long-Term Municipal Bond Rating Definitions
Municipal Ratings are opinions of the investment quality of issuers and
issues in the US municipal and tax-exempt markets. As such, these ratings
incorporate Moody's assessment of the default probability and loss severity of
these issuers and issues.
Municipal Ratings are based upon the analysis of four primary factors relating
to municipal finance: economy, debt, finances, and administration/management
strategies. Each of the factors is evaluated individually and for its effect on
the other factors in the context of the municipality's ability to repay its
debt.
Aaa: Issuers or issues rated Aaa demonstrate the strongest creditworthiness
relative to other US municipal or tax-exempt issuers or issues.
A-2
Aa: Issuers or issues rated Aa demonstrate very strong creditworthiness
relative to other US municipal or tax-exempt issuers or issues.
A: Issuers or issues rated A present above-average creditworthiness relative
to other US municipal or tax-exempt issuers or issues.
Baa: Issuers or issues rated Baa represent average creditworthiness relative
to other US municipal or tax-exempt issuers or issues.
Ba: Issuers or issues rated Ba demonstrate below-average creditworthiness
relative to other US municipal or tax-exempt issuers or issues.
B: Issuers or issues rated B demonstrate weak creditworthiness relative to
other US municipal or tax-exempt issuers or issues.
Caa: Issuers or issues rated Caa demonstrate very weak creditworthiness
relative to other US municipal or tax-exempt issuers or issues.
Ca: Issuers or issues rated Ca demonstrate extremely weak creditworthiness
relative to other US municipal or tax-exempt issuers or issues.
C: Issuers or issues rated C demonstrate the weakest creditworthiness
relative to other US municipal or tax-exempt issuers or issues.
Note: Also, Moody's applies numerical modifiers 1, 2, and 3 in each generic
rating classification from Aa to Caa. The modifier 1 indicates that the issue
ranks in the higher end of its generic rating category; the modifier 2
indicates a mid-range ranking; and the modifier 3 indicates that the issue
ranks in the lower end of its generic category.
MOODY'S MIG/VMIG US SHORT-TERM RATINGS
In municipal debt issuance, there are three rating categories for short-term
obligations that are considered investment grade. These ratings are designated
as Moody's Investment Grade (MIG) and are divided into three levels - MIG 1
through MIG 3.
In addition, those short-term obligations that are of speculative quality
are designated SG, or speculative grade.
In the case of variable rate demand obligations (VRDOs), a two-component
rating is assigned. The first element represents Moody's evaluation of the
degree of risk associated with scheduled principal and interest payments. The
second element represents Moody's evaluation of the degree of risk associated
with the demand feature, using the MIG rating scale.
The short-term rating assigned to the demand feature of VRDOs is designated
as VMIG. When either the long- or short-term aspect of a VRDO is not rated,
that piece is designated NR, e.g., Aaa/NR or NR/VMIG 1.
MIG ratings expire at note maturity. By contrast, VMIG rating expirations
will be a function of each issue's specific structural or credit features.
Gradations of investment quality are indicated by rating symbols, with each
symbol representing a group in which the quality characteristics are broadly
the same.
A-3
MIG 1/VMIG 1: This designation denotes superior credit quality. Excellent
protection is afforded by established cash flows, highly reliable liquidity
support or demonstrated broad-based access to the market for refinancing.
MIG 2/VMIG 2: This designation denotes strong credit quality. Margins of
protection are ample although not as large as in the preceding group.
MIG 3/VMIG 3: This designation denotes acceptable credit quality. Liquidity and
cash flow protection may be narrow and market access for refinancing is likely
to be less well established.
SG: This designation denotes speculative-grade credit quality. Debt instruments
in this category may lack sufficient margins of protection.
STANDARD & POOR'S LONG-TERM CORPORATE AND MUNICIPAL RATINGS
Issue credit ratings are based in varying degrees, on the following
considerations: likelihood of payment - capacity and willingness of the obligor
to meet its financial commitment on an obligation in accordance with the terms
of the obligation; nature of and provisions of the obligation; and protection
afforded by, and relative position of, the obligation in the event of
bankruptcy, reorganization, or other arrangement under the laws of bankruptcy
and other laws affecting creditors' rights.
The issue ratings definitions are expressed in terms of default risk. As
such, they pertain to senior obligations of an entity. Junior obligations are
typically rated lower than senior obligations, to reflect the lower priority in
bankruptcy, as noted above.
S&P describes its ratings for corporate and municipal bonds as follows:
AAA: Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA: Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in a small degree.
A: Debt rated A has a strong capacity to meet its financial commitments
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB: Debt rated BBB exhibits adequate protection parameters. However, adverse
economic conditions or changing circumstances are more likely to lead to a
weakened capacity to meet its financial commitment on the obligation.
BB-B-CCC-CC-C: Debt rated BB, B, CCC, CC and C is regarded as having
significant speculative characteristics with respect to capacity to pay
interest and repay principal. BB indicates the least degree of speculation and
C the highest. While such debt will likely have some quality and protective
characteristics, these may be outweighed by large uncertainties or major
exposures to adverse conditions.
NR: Not Rated.
S&P DUAL RATINGS
S&P assigns "dual" ratings to all debt issues that have a put option or
demand feature as part of their structure.
A-4
The first rating addresses the likelihood of repayment of principal and
interest as due, and the second rating addresses only the demand feature. The
long-term debt rating symbols are used for bonds to denote the long-term
maturity and the commercial paper rating symbols for the put option (for
example, AAA/A-1+). With short-term demand debt, the note rating symbols are
used with the commercial paper rating symbols (for example, SP-1+/A-1+).
S&P COMMERCIAL PAPER RATINGS
An S&P commercial paper rating is a current assessment of the likelihood of
timely payment of debt having an original maturity of no more than 365 days.
These categories are as follows:
A-1: This highest category indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus sign (+) designation.
A-2: Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.
A-3: Issues carrying this designation have adequate capacity for timely
payment. They are, however, more vulnerable to the adverse effects of changes
in circumstances than obligations carrying the higher designations.
B: Issues rated 'B' are regarded as having only speculative capacity for timely
payment.
C: This rating is assigned to short-term debt obligations with a doubtful
capacity for payment.
D: Debt rated 'D' is in payment default. The 'D' rating category is used when
interest payments or principal payments are not made on the date due, even if
the applicable grace period has not expired, unless Standard & Poor's believes
such payments will be made during such grace period.
S&P SHORT-TERM MUNICIPAL RATINGS
An S&P note rating reflect the liquidity factors and market-access risks
unique to notes. Notes due in three years or less will likely receive a note
rating. Notes maturing beyond three years will most likely receive a long-term
debt rating. The following criteria will be used in making that assessment:
amortization schedule (the larger the final maturity relative to other
maturities, the more likely it will be treated as a note); and source of
payment (the more dependant the issue is on the market for its refinancing, the
more likely it will be treated as a note).
Note rating symbols are as follows:
SP-1: Strong capacity to pay principal and interest. An issue determined to
possess a very strong capacity to pay debt service is given a plus
(+) designation.
SP-2: Satisfactory capacity to pay principal and interest, with some
vulnerability to adverse financial and economic changes over the term of the
notes.
SP-3:Speculative capacity to pay principal and interest.
FITCH LONG-TERM CREDIT RATINGS
Fitch Ratings provides an opinion on the ability of an entity or of a
securities issue to meet financial commitments, such as interest, preferred
dividends, or repayment of principal, on a timely
A-5
basis. These credit ratings apply to a variety of entities and issues,
including but not limited to sovereigns, governments, structured financings,
and corporations; debt, preferred/preference stock, bank loans, and
counterparties; as well as the financial strength of insurance companies and
financial guarantors.
Credit ratings are used by investors as indications of the likelihood of
getting their money back in accordance with the terms on which they invested.
Thus, the use of credit ratings defines their function: "investment grade"
ratings (international Long-term 'AAA' - 'BBB' categories; Short-term 'F1' -
'F3') indicate a relatively low probability of default, while those in the
"speculative" or "non-investment grade" categories (international Long-term
'BB' - 'D'; Short-term 'B' - 'D') either signal a higher probability of default
or that a default has already occurred. Ratings imply no specific prediction of
default probability. However, for example, it is relevant to note that over the
long term, defaults on 'AAA' rated U.S. corporate bonds have averaged less than
0.10% per annum, while the equivalent rate for 'BBB' rated bonds was 0.35%, and
for 'B' rated bonds, 3.0%.
Fitch ratings do not reflect any credit enhancement that may be provided by
insurance policies or financial guaranties unless otherwise indicated.
Entities or issues carrying the same rating are of similar but not
necessarily identical credit quality since the rating categories do not fully
reflect small differences in the degrees of credit risk.
Fitch credit and research are not recommendations to buy, sell or hold any
security. Ratings do not comment on the adequacy of market price, the
suitability of any security for a particular investor, or the tax-exempt nature
of taxability of payments of any security.
The ratings are based on information obtained from issuers, other obligors,
underwriters, their experts, and other sources Fitch Ratings believes to be
reliable. Fitch Ratings does not audit or verify the truth or accuracy of such
information. Ratings may be changed or withdrawn as a result of changes in, or
the unavailability of, information or for other reasons.
Our program ratings relate only to standard issues made under the program
concerned; it should not be assumed that these ratings apply to every issue
made under the program. In particular, in the case of non-standard issues,
i.e., those that are linked to the credit of a third party or linked to the
performance of an index, ratings of these issues may deviate from the
applicable program rating.
Credit ratings do not directly address any risk other than credit risk. In
particular, these ratings do not deal with the risk of loss due to changes in
market interest rates and other market considerations.
AAA: Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong capacity for timely payment of
financial commitments, which is unlikely to be affected by foreseeable events.
AA: Bonds considered to be investment grade and of very high credit quality.
The obligor has a very strong capacity for timely payment of financial
commitments which is not significantly vulnerable to foreseeable events.
A: Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions
and circumstances than bonds with higher ratings.
BBB: Bonds considered to be investment grade and of good credit quality. The
obligor's ability to pay interest and repay principal is considered to be
adequate. Adverse changes in economic conditions and circumstances are more
likely to impair this capacity.
A-6
PLUS (+) MINUS (-): Plus and minus signs are used with a rating symbol to
indicate the relative position of a credit within the rating category. Plus and
minus signs, however, are not used in the "AAA" category.
NR: Indicates that Fitch does not rate the specific issue.
WITHDRAWN: A rating will be withdrawn when an issue matures or is called or
refinanced and at Fitch's discretion, when Fitch Ratings deems the amount of
information available to be inadequate for ratings purposes.
RATINGWATCH: Ratings are placed on RatingWatch to notify investors that there
is a reasonable possibility of a rating change and the likely direction of such
change. These are designated as "Positive," indicating a potential upgrade,
"Negative," for potential downgrade, or "Evolving," if ratings may be raised,
lowered or maintained. RatingWatch is typically resolved over a relatively
short period.
FITCH SPECULATIVE GRADE BOND RATINGS
BB: Bonds are considered speculative. There is a possibility of credit risk
developing, particularly as the result of adverse economic changes over time.
However, business and financial alternatives may be available to allow
financial commitments to be met.
B: Bonds are considered highly speculative. Significant credit risk is present
but a limited margin of safety remains. While bonds in this class are currently
meeting financial commitments, the capacity for continued payment is contingent
upon a sustained, favorable business and economic environment.
CCC: Default is a real possibility. Capacity for meeting financial commitments
is solely reliant upon sustained, favorable business or economic developments.
CC: Default of some kind appears probable.
C: Bonds are in imminent default in payment of interest or principal.
DDD, DD, and D: Bonds are in default on interest and/or principal payments.
Such bonds are extremely speculative and are valued on the basis of their
prospects for achieving partial or full recovery value in liquidation or
reorganization of the obligor. "DDD" represents the highest potential for
recovery on these bonds, and "D" represents the lowest potential for recovery.
PLUS (+) MINUS (-): Plus and minus signs are used with a rating symbol to
indicate the relative position of a credit within the rating category. Plus and
minus signs, however, are not used in categories below CCC.
Fitch Short-term Credit Ratings
The following ratings scale applies to foreign currency and local currency
ratings. A Short-term rating has a time horizon of less than 12 months for most
obligations, or up to three years for U.S. public finance securities, and thus
places greater emphasis on the liquidity necessary to meet financial
commitments in a timely manner.
F-1+: Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1: Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated
"F-1+."
F-2: Good Credit Quality. Issues assigned this rating have a satisfactory
degree of assurance for timely payment, but the margin of safety is not as
great as in the case of the higher ratings.
A-7
F-3: Fair Credit Quality. Issues assigned this rating have characteristics
suggesting that the degree of assurance for timely payment is adequate,
however, near-term adverse changes could result in a reduction to
non-investment grade.
B: Speculative. Minimal capacity for timely payment of financial commitments,
plus vulnerability to near-term adverse changes in financial and economic
conditions.
C: High default risk. Default is a real possibility. Capacity for meeting
financial commitments is solely reliant upon a sustained, favorable business
and economic environment.
D: Default. Issues assigned this rating are in actual or imminent payment
default.
A-8
APPENDIX B
EXAMPLES OF PERSONS TO WHOM AIM PROVIDES
NON-PUBLIC PORTFOLIO HOLDINGS ON AN ONGOING BASIS
(as of October 7, 2005)
SERVICE PROVIDER DISCLOSURE CATEGORY
---------------- -------------------
Ballard Spahr Andrews & Ingersoll, LLP Legal Counsel
Foley & Lardner LLP Legal Counsel (for certain AIM Funds)
Kramer, Levin Naftalis & Frankel LLP Legal Counsel
PricewaterhouseCoopers LLP Independent Registered Public Accounting Firm (for certain
AIM Funds)
Brown Brothers Harriman & Co. Securities Lender (for certain AIM Funds)
MS Securities Services, Inc. Securities Lender (for certain AIM Funds)
Morgan Stanley & Co. Securities Lender (for certain AIM Funds)
Fitch, Inc. Rating & Ranking Agency (for certain AIM Funds)
iMoneyNet Ranking Agency (for certain AIM funds)
Lipper Inc. Rating & Ranking Agency (for certain AIM Funds)
Moody's Investors Service Rating & Ranking Agency (for certain AIM Funds)
Institutional Shareholder Services, Inc. Proxy Voting Service
State Street Bank and Trust Company Custodian (for certain AIM Funds), Software Provider,
Securities Lender (for certain AIM Funds)
The Bank of New York Custodian (for certain AIM Funds)
JP Morgan Securities Inc. Line of Credit Provider (for certain AIM Funds)
Citigroup Global Markets Inc. Line of Credit Provider (for certain AIM Funds)
JPMorgan Chase Bank Line of Credit Provider (for certain AIM Funds)
AIM Investment Services, Inc. Transfer Agent
Bloomberg System Provider (for certain AIM Funds)
Reuters America Inc. Pricing Service (for certain AIM Funds)
The MacGregor Group, Inc. Software Provider
Thomson Financial, Inc. Software Provider
Xcitek Solutions Plus Software Provider
Bowne & Co., Inc. Financial Printer
CENVEO Financial Printer
Classic Printers Inc. Financial Printer
Color Dynamics Financial Printer
Earth Color Houston Financial Printer
EMCO Press Financial Printer
Grover Printing Financial Printer
Gulfstream Graphics Corp. Financial Printer
Signature Financial Printer
Southwest Precision Printers, Inc. Financial Printer
ABN Amro Financial Services, Inc. Broker (for certain AIM Funds)
B-1
SERVICE PROVIDER DISCLOSURE CATEGORY
---------------- -------------------
BB&T Capital Markets Broker (for certain AIM Funds)
Belle Haven Investments L.P. Broker (for certain AIM Funds)
BOSC, Inc. Broker (for certain AIM Funds)
Cabrera Capital Markets Broker (for certain AIM Funds)
Coastal Securities, LP Broker (for certain AIM Funds)
Duncan-Williams, Inc. Broker (for certain AIM Funds)
Fidelity Investments Broker (for certain AIM Funds)
First Albany Capital Broker (for certain AIM Funds)
First Tryon Securities Broker (for certain AIM Funds)
Anglemyer & Co. Analyst (for certain AIM Funds)
Empirical Research Partners Analyst (for certain AIM Funds)
Factset Research Systems, Inc. Analyst (for certain AIM Funds)
Global Trend Alert Analyst (for certain AIM Funds)
J.P. Morgan Chase Analyst (for certain AIM Funds)
Kevin Dann & Partners Analyst (for certain AIM Funds)
Muzea Insider Consulting Services, LLC Analyst (for certain AIM Funds)
Noah Financial, LLC Analyst (for certain AIM Funds)
Piper Jaffray Analyst (for certain AIM Funds)
RBC Capital Markets Analyst (for certain AIM Funds)
B-2
APPENDIX C
PORTFOLIO MANAGERS
As of July 31, 2005
INVESTMENTS IN EACH FUND
DOLLAR RANGE OF INVESTMENTS IN EACH
NAME OF PORTFOLIO MANAGER FUND/1/
------------------------- -----------------------------------
AIM DYNAMICS FUND
-----------------
Karl Farmer $10,001 - $50,000
Paul J. Rasplicka $100,001 - $500,000
AIM SMALL COMPANY GROWTH FUND
-----------------------------
Juliet Ellis/2/ None
Juan Hartsfield/2/ None
AIM S&P 500 INDEX FUND
----------------------
Maureen Donnellan None
Jeremy Lefkowitz None
W. Lawson McWhorter/3/ None
William Merson None
Daniel Tsai None
DESCRIPTION OF COMPENSATION STRUCTURE
A I M ADVISORS, INC.
AIM seeks to maintain a compensation program that is competitively positioned
to attract and retain high-caliber investment professionals. Portfolio managers
receive a base salary, an incentive bonus opportunity, an equity compensation
opportunity, and a benefits package. Portfolio manager compensation is reviewed
and may be modified each year as appropriate to reflect changes in the market,
as well as to adjust the factors used to determine bonuses to promote good
sustained fund performance. AIM evaluates competitive market compensation by
reviewing compensation survey results conducted by an independent third party
of investment industry compensation. Each portfolio manager's compensation
consists of the following five elements:
- --------
/1/ This column reflects in a Fund's shares owned directly by a portfolio
manager or beneficially owned by a portfolio manager (as determined in
accordance with Rule 16a-1(a)(2) under the Securities Exchange Act of
1934, as amended). A portfolio manager is presumed to be a beneficial
owner of securities that are held by his or her immediate family members
sharing the same household.
/2/ Ms. Ellis and Mr. Hartsfield each began serving as portfolio manager on
AIM Small Company Growth Fund on September 16, 2005. Ownership information
has been provided as of August 31, 2005.
/3/ Mr. McWhorter began serving as portfolio manager on AIM S&P 500 Index Fund
on September 16, 2005. Ownership information has been provided as of
August 31, 2005
C-1
... BASE SALARY. Each portfolio manager is paid a base salary. In setting the
base salary, AIM's intention is to be competitive in light of the
particular portfolio manager's experience and responsibilities.
... ANNUAL BONUS. Each portfolio manager is eligible to receive an annual cash
bonus which has quantitative and non-quantitative components. Generally,
70% of the bonus is quantitatively determined, based typically on a
four-year rolling average of pre-tax performance of all registered
investment company accounts for which a portfolio manager has day-to-day
management responsibilities versus the performance of a pre-determined peer
group. In instances where a portfolio manager has responsibility for
management of more than one fund, an asset weighted four-year rolling
average is used.
High fund performance (against applicable peer group) would deliver
compensation generally associated with top pay in the industry (determined
by reference to the third-party provided compensation survey information)
and poor fund performance (versus applicable peer group) could result in no
bonus. The amount of fund assets under management typically have an impact
on the bonus potential (for example, managing more assets increases the
bonus potential); however, this factor typically carries less weight than
relative performance. The remaining 30% portion of the bonus is
discretionary as determined by AIM and takes into account other subjective
factors.
... EQUITY-BASED COMPENSATION. Portfolio managers may be awarded options to
purchase common shares and/or granted restricted shares of AMVESCAP stock
from pools determined from time to time by the Remuneration Committee of
the AMVESCAP Board of Directors. Awards of equity-based compensation
typically vest over time, so as to create incentives to retain key talent.
... PARTICIPATION IN GROUP INSURANCE PROGRAMS. Portfolio managers are provided
life insurance coverage in the form of a group variable universal life
insurance policy, under which they may make additional contributions to
purchase additional insurance coverage or for investment purposes.
... PARTICIPATION IN DEFERRED COMPENSATION PLAN. Portfolio managers are
eligible to participate in a non-qualified deferred compensation plan,
which affords participating employees the tax benefits of deferring the
receipt of a portion of their cash compensation.
Portfolio managers also participate in benefit plans and programs available
generally to all employees.
INVESCO INSTITUTIONAL (N.A.) INC.
Each portfolio manager's compensation consists of the following five elements:
... BASE SALARY. Each portfolio manager is paid a base salary which is set at a
level determined to be appropriate based upon an individual's experience
and responsibilities through the use of independent compensation surveys of
the investment management industry.
... ANNUAL BONUS. Each portfolio manager is paid an annual cash bonus which has
a performance driven component and a discretionary component, the combined
total of which will typically range from 50 to over 100 percent of the
manager's base salary. Generally, the majority of the bonus is pre-tax
performance driven, based on the success of the team's investment results
which are measured against appropriate market benchmarks and peer groups.
The remaining portion of the bonus is discretionary and is determined by
the sub-advisor's Chief Investment Officer and Chief Executive Officer.
C-2
... EQUITY-BASED COMPENSATION. Portfolio managers may be awarded options to
purchase common shares and/or granted restricted shares or deferred shares
of AMVESCAP stock from pools determined from time to time by the
Remuneration Committee of the AMVESCAP Board of Directors. Awards of
equity-based compensation typically vest over time, so as to create
incentives to retain key talent.
... PARTICIPATION IN GROUP INSURANCE PROGRAMS. Portfolio managers are provided
life insurance coverage in the form of a group variable universal life
insurance policy, under which they may make additional contributions to
purchase additional insurance coverage or for investment purposes.
... PARTICIPATION IN DEFERRED COMPENSATION PLAN. Portfolio managers are
eligible to participate in a non-qualified deferred compensation plan,
which affords participating employees the tax benefits of deferring the
receipt of a portion of their cash compensation.
Portfolio managers also participate in benefit plans and programs available
generally to all employees.
C-3
OTHER MANAGED ACCOUNTS
As of July 31, 2005
AIM's portfolio managers develop investment models which are used in connection
with the management of certain AIM funds as well as other mutual funds for
which AIM or an affiliate acts as sub-advisor, other pooled investment vehicles
that are not registered mutual funds, and other accounts managed for
organizations and individuals. The following chart reflects information
regarding accounts other than the Fund for which each portfolio manager has
day-to-day management responsibilities. Accounts are grouped into three
categories: (i) mutual funds, (ii) other pooled investment vehicles, and
(iii) other accounts. To the extent that any of these accounts pay advisory
fees that are based on account performance ("performance-based fees"),
information on those accounts is specifically broken out.
NUMBER OF ACCOUNTS MANAGED BY EACH
PORTFOLIO MANAGER AND
NAME OF PORTFOLIO MANAGER TOTAL ASSETS BY CATEGORY
------------------------- ----------------------------------
AIM DYNAMICS FUND
-----------------
Karl Farmer 5 Registered Mutual Funds with
$647,071,454 in total assets under
management
Paul J. Rasplicka 7 Registered Mutual Funds with
$2,149,603,447 in total assets under
management
1 Other Account with $673,218 in
total assets under management
AIM SMALL COMPANY GROWTH FUND
-----------------------------
Juliet S. Ellis/4/ 5 Registered Mutual Funds with
$2,621,422,031 in total assets under
management
Juan R. Hartsfield/4/ 3 Registered Mutual Funds with
$2,154,015,628 in total assets under
management
AIM S&P 500 INDEX FUND
----------------------
Maureen Donnellan 19 Unregistered Pooled Investment
Vehicles with $1,591,709,383 in total
assets under management including 1
pooled investment vehicle that pays
performance-based fees with
$10,152,327 in total assets under
management
59 Other Accounts with $7,294,212,771
in total assets under management
including 12 pooled investment
vehicles that pay performance-based
fees with $1,825,028,708 in total
assets under management
- --------
/4/ Ms. Ellis and Mr. Hartsfield each began serving as portfolio manager on
AIM Small Company Growth Fund on September 16, 2005. Information on other
accounts they manage is provided as of August 31, 2005.
C-4
NUMBER OF ACCOUNTS MANAGED BY EACH
PORTFOLIO MANAGER AND
NAME OF PORTFOLIO MANAGER TOTAL ASSETS BY CATEGORY
------------------------- ----------------------------------
Jeremy Lefkowitz 2 Registered Mutual Funds with
$1,199,594,656
27 Unregistered Pooled Investment
Vehicles with $2,171,095,529 in total
assets under management including 1
pooled investment vehicle that pays
performance-based fees with
$10,152,327 in total assets under
management
101 Other Accounts with
$11,552,813,573 in total assets under
management including 16 pooled
investment vehicles that pay
performance-based fees with
$2,990,682,567 in total assets under
management
W. Lawson McWhorter/5/ None
William Merson 19 Unregistered Pooled Investment
Vehicles with $1,591,709,383 in total
assets under management including 1
pooled investment vehicle that pays
performance-based fees with
$10,152,327 in total assets under
management
59 Other Accounts with $7,294,212,771
in total assets under management
including 12 pooled investment
vehicles that pay performance-based
fees with $1,825,028,708 in total
assets under management
Daniel Tsai 19 Unregistered Pooled Investment
Vehicles with $1,591,709,383 in total
assets under management including 1
pooled investment vehicle that pays
performance-based fees with
$10,152,327 in total assets under
management
59 Other Accounts with $7,294,212,771
in total assets under management
including 12 pooled investment
vehicles that pay performance-based
fees with $1,825,028,708 in total
assets under management
POTENTIAL CONFLICTS OF INTEREST
Actual or apparent conflicts of interest may arise when a portfolio manager has
day-to-day management responsibilities with respect to more than one Fund or
other account. More specifically, portfolio managers who manage multiple Funds
and /or other accounts may be presented with one or more of the following
potential conflicts:
... The management of multiple Funds and/or other accounts may result in a
portfolio manager devoting unequal time and attention to the management of
each Fund and/or other account. AIM seeks to manage such competing
interests for the time and attention of portfolio managers by having
portfolio managers focus on a particular investment discipline. Most other
accounts managed by a portfolio
- --------
/5/ Mr. McWhorter began serving as a portfolio manager on AIM S&P 500 Index
Fund on September 16, 2005. Information on other accounts he manages is
provided as of August 31, 2005.
C-5
manager are managed using the same investment models that are used in
connection with the management of the Funds.
... If a portfolio manager identifies a limited investment opportunity which
may be suitable for more than one Fund or other account, a Fund may not be
able to take full advantage of that opportunity due to an allocation of
filled purchase or sale orders across all eligible Funds and other
accounts. To deal with these situations, AIM and the Funds have adopted
procedures for allocating portfolio transactions across multiple accounts.
... With respect to securities transactions for the Funds, AIM determines which
broker to use to execute each order, consistent with its duty to seek best
execution of the transaction. However, with respect to certain other
accounts (such as mutual funds for which AIM or an affiliate acts as
sub-advisor, other pooled investment vehicles that are not registered
mutual funds, and other accounts managed for organizations and
individuals), AIM may be limited by the client with respect to the
selection of brokers or may be instructed to direct trades through a
particular broker. In these cases, trades for a Fund in a particular
security may be placed separately from, rather than aggregated with, such
other accounts. Having separate transactions with respect to a security may
temporarily affect the market price of the security or the execution of the
transaction, or both, to the possible detriment of the Fund or other
account(s) involved.
... Finally, the appearance of a conflict of interest may arise where AIM has
an incentive, such as a performance-based management fee, which relates to
the management of one Fund or account but not all Funds and accounts with
respect to which a portfolio manager has day-to-day management
responsibilities.
AIM and the Funds have adopted certain compliance procedures which are designed
to address these types of conflicts. However, there is no guarantee that such
procedures will detect each and every situation in which a conflict arises.
C-6
APPENDIX D
TRUSTEES AND OFFICERS
As of September 30, 2005
- --------------------------------------------------------------------------------
The address of each trustee and officer is 11 Greenway Plaza, Suite 100,
Houston, Texas 77046. Each trustee oversees 109 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.
- --------------------------------------------------------------------------------
TRUSTEE
NAME, YEAR OF BIRTH AND AND/OR
POSITION(S) HELD WITH THE OFFICER PRINCIPAL OCCUPATION(S) DURING PAST 5 OTHER TRUSTEESHIP(S)
TRUST SINCE YEARS HELD BY TRUSTEE
------------------------- ------------------------------------------- --------------------
Interested Persons
Robert H. Graham/1/ -- 1946 2003 Director and Chairman, A I M Management None
Trustee, Vice Chair, President Group
and Principal Executive Officer Inc. (financial services holding company);
Director and Vice Chairman, AMVESCAP
PLC and Chairman, AMVESCAP PLC - AIM
Division (parent of AIM and a global investment
management firm)
Formerly: President and Chief Executive
Officer, A I M Management Group Inc.;
Director,
Chairman and President, A I M Advisors,
Inc. (registered investment advisor); Director
and Chairman, A I M Capital Management, Inc.
(registered investment advisor), A I M
Distributors, Inc. (registered broker dealer), AIM
Investment Services, Inc., (registered transfer
agent), and Fund Management Company
(registered broker dealer); and Chief Executive
Officer, AMVESCAP PLC - Managed Products
Mark H. Williamson/2/ -- 1951 1998 Director, President and Chief Executive Officer, None
Trustee and Executive Vice President A I M Management Group Inc. (financial
services holding company); Director 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; and Chairman,
A I M Advisors, Inc.
- --------
/1/ Mr. Graham is considered an interested person of the Trust because he is a
director AMVESCAP PLC, parent of the advisor to the Trust.
/2/ Mr. Williamson is considered an interested person of the Trust because he
is an officer and a director of the advisor to, and a director of the
principal underwriter of, the Trust.
D-1
TRUSTEE
NAME, YEAR OF BIRTH AND AND/OR
POSITION(S) HELD WITH THE OFFICER PRINCIPAL OCCUPATION(S) DURING OTHER TRUSTEESHIP(S)
TRUST SINCE PAST 5 YEARS HELD BY TRUSTEE
------------------------- ------- ------------------------------ --------------------
INDEPENDENT TRUSTEES
Bruce L. Crockett-- 1944 2003 Chairman, Crockett Technology ACE Limited (insurance company); and
Trustee and Chair Associates (technology consulting Captaris, Inc. (unified messaging
company) provider)
Bob R. Baker -- 1936 1983 Retired None
Trustee
Frank S. Bayley -- 1939 2003 Retired Badgley Funds, Inc. (registered
Trustee Formerly: Partner, law firm of Baker & investment company (2 portfolios)
McKenzie
James T. Bunch -- 1942 2000 Co-President and Founder, Green, None
Trustee Manning & Bunch Ltd. (investment
banking firm); and Director, Policy
Studies, Inc. and Van Gilder Insurance
Corporation
Albert R. Dowden -- 1941 2003 Director of a number of public and None
Trustee private business corporations, including
the Boss Group, Ltd. (private investment
and management); Cortland Trust, Inc.
(Chairman) (registered Investment
company (3 portfolios)); Annuity and
Life Re (Holdings), Ltd. (insurance
company); and CompuDyne Corporation
(provider of products and services to the
public security market)
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 2003 Retired None
Trustee
Jack M. Fields -- 1952 2003 Chief Executive Officer, Twenty First Administaff ; and Discovery Global
Trustee Century Group, Inc. (government affairs Education Fund (non-profit)
company) and Owner, Dos Angelos
Ranch, L.P.
Formerly: Chief Executive Officer,
Texana Timber LP (sustainable forestry
company)
Carl Frischling -- 1937 2003 Partner, law firm of Kramer Levin Cortland Trust, Inc. (registered
Trustee Naftalis and Frankel LLP investment company (3 portfolios))
Gerald J. Lewis -- 1933 2000 Chairman, Lawsuit Resolution Services General Chemical Group, Inc.
Trustee (San Diego, California)
Prema Mathai-Davis -- 1950 2003 Formerly: Chief Executive Officer, None
Trustee YWCA of the USA
Lewis F. Pennock -- 1942 2003 Partner, law firm of Pennock & Cooper None
Trustee
D-2
TRUSTEE
NAME, YEAR OF BIRTH AND AND/OR
POSITION(S) HELD WITH THE OFFICER PRINCIPAL OCCUPATION(S) DURING PAST 5 OTHER TRUSTEESHIP(S)
TRUST SINCE YEARS HELD BY TRUSTEE
------------------------- ------- ------------------------------------- --------------------
Ruth H. Quigley -- 1935 2003 Retired None
Trustee
Larry Soll -- 1942 1997 Retired None
Trustee
Raymond Stickel, Jr./3/ - 1944 2005 Retired None
Trustee Formerly: Partner, Deloitte & Touche
OTHER OFFICERS
Lisa O. Brinkley-- 1959 2004 Senior Vice President, A I M Management Group N/A
Senior Vice President and Chief Compliance Inc. (financial services holding company); Senior
Officer Vice President and Chief Compliance Officer
A I M Advisors, Inc.; Vice President and Chief
Compliance Officer, AIM Capital Management,
Inc. and Vice President, AIM Distributors, Inc.,
AIM Investment Services, Inc. and Fund
Management Company
Formerly: Senior Vice President and Compliance
Director, Delaware Investments Family of Funds;
and Chief Compliance Officer, A I M
Distributors, Inc.
Russell C. Burk- 1958 2005 Formerly: Director of Compliance and Assistant N/A
Senior Vice President and General Counsel, ICON Advisers, Inc.; Financial
Senior Officer Consultant, Merrill Lynch; General Counsel and
Director of Compliance, ALPS Mutual Funds,
Inc.
Kevin M. Carome - 1956 2003 Director, Senior Vice President, Secretary and N/A
Senior Vice President, Secretary and Chief General Counsel, A I M Management Group Inc.
Legal Officer (financial services holding company) and
A I M Advisors, Inc.; Director and Vice
President, INVESCO Distributors, Inc.; Vice
President, A I M Capital Management, Inc., AIM
Investment Services, Inc. and 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.; and Director and
General Counsel, Fund Management Company
Robert G. Alley -- 1948 2003 Managing Director, Chief Fixed Income Officer, N/A
Vice President and Senior Investment Officer, A I M Capital
Management, Inc. and Vice President,
A I M Advisors, Inc.
- --------
/3/ Mr. Stickel was elected as a trustee of the Trust effective October 1,
2005.
D-3
TRUSTEE
NAME, YEAR OF BIRTH AND AND/OR
POSITION(S) HELD WITH THE OFFICER PRINCIPAL OCCUPATION(S) OTHER TRUSTEESHIP(S)
TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- ------------------------- ------- ----------------------- --------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, N/A
Vice President , Treasurer A I M Advisors, Inc.; Formerly:
and Principal Vice President, A I M Distributors,
Financial Officer Inc.; and Senior Vice President,
AIM Investment Services, Inc.
J. Philip Ferguson- 1945 2005 Senior Vice President and Chief N/A
Vice President Investment Officer, A I M
Advisors,
Inc.; Director, Chairman, Chief
Executive Officer, President and
Chief Investment
Officer, A I M Capital
Management, Inc.; Executive Vice
President, A I M
Management Group Inc.
Formerly: Senior Vice President,
AIM
Private Asset Management, Inc.;
Chief Equity Officer, and Senior
Investment Officer, A I M Capital
Management, Inc.; and Managing
Partner,
Beutel, Goodman Capital
Management
Karen Dunn Kelley -- 1960 2003 Director of Cash Management, N/A
Vice President Managing Director and Chief Cash
Management
Officer, A I M Capital
Management, Inc.; Director and
President, Fund Management
Company; and Vice President,
A I M Advisors, Inc.
D-4
TRUSTEE OWNERSHIP OF FUND SHARES AS OF DECEMBER 31, 2004
AGGREGATE DOLLAR RANGE OF
EQUITY
SECURITIES IN ALL REGISTERED
INVESTMENT COMPANIES
OVERSEEN
BY
DOLLAR RANGE OF EQUITY SECURITIES TRUSTEE IN THE
NAME OF TRUSTEE PER FUND AIM FAMILY OF FUNDS(R)
--------------- -------------------------------------------------------------------------------
Robert H. Graham AIM Dynamics Fund Over $100,000 Over $100,000
Mark H. Williamson AIM Dynamics Fund Over $100,000 Over $100,000
Bob R. Baker -0- Over $100,000
Frank S. Bayley -0- Over $100,000
James T. Bunch AIM Dynamics Fund $10,001 - $50,000 Over $100,000/4/
AIM Small Company Growth Fund $1 - $10,000
AIM S&P 500 Index Fund 1 $1 - $10,000
Bruce L. Crockett -0- Over $100,000/4/
Albert R. Dowden -0- Over $100,000
Edward K. Dunn, Jr. -0- Over $100,000/4/
Jack M. Fields -0- Over $100,000/4/
Carl Frischling -0- Over $100,000/4/
Gerald J. Lewis AIM Dynamics Fund $10,001 - $50,000 Over $100,000/4/
AIM Small Company Growth Fund $1 - $10,000
AIM S&P 500 Index Fund $1 - $10,000
Prema Mathai-Davis -0- Over $100,000/4/
Lewis F. Pennock -0- Over $100,000
Ruth H. Quigley -0- $10,001 - $50,000
Larry Soll AIM Dynamics Fund $10,000 - $50,000 Over $100,000/4/
AIM Small Company Growth Fund $50,001 - $100,000
AIM S&P 500 Index Fund $1 - $10,000
Raymond Stickel, Jr./5/ -0- -0-
- --------
/4/ Includes the total amount of compensation deferred by the trustee at his
or her election pursuant to a deferred compensation plan. Such deferred
compensation is placed in a deferral account and deemed to be invested in
one or more of the AIM Funds.
/5/ Mr. Stickel was elected as a trustee of the Trust effective October 1,
2005.
D-5
APPENDIX E
TRUSTEE COMPENSATION TABLE
Set forth below is information regarding compensation paid or accrued for
each trustee of the Trust who was not affiliated with AIM during the year ended
December 31, 2004:
RETIREMENT ESTIMATED
AGGREGATE BENEFITS ANNUAL TOTAL
COMPENSATION ACCRUED BENEFITS COMPENSATION
FROM THE BY ALL UPON FROM ALL AIM
TRUSTEE TRUST/(1)(2)/ AIM FUNDS/(3)/ RETIREMENT/(4)/ FUNDS/(5)(6)/
------- ------------ ------------- -------------- ------------
Bob R. Baker $ 6,854 $198,871 $144,786 $189,750
Frank S. Bayley 7,248 175,241 112,500 193,500
James T. Bunch 6,459 143,455 112,500 186,000
Bruce L. Crockett 10,404 75,638 112,500 223,500
Albert R. Dowden 7,212 93,210 112,500 192,500
Edward K. Dunn, Jr. 7,248 133,390 112,500 193,500
Jack M. Fields 6,428 48,070 112,500 186,000
Carl Frischling /(7)/ 6,459 62,040 112,500 185,000
Gerald J. Lewis 6,459 143,455 112,500 186,000
Prema Mathai-Davis 6,854 55,768 112,500 189,750
Lewis F. Pennock 6,459 80,777 112,500 186,000
Ruth H. Quigley 6,854 154,767 112,500 189,750
Louis S. Sklar /(8)/ 2,990 115,160 101,250 186,000
Larry Soll 6,459 184,356 130,823 186,000
Raymond Stickel, Jr./(9)/ -0- -0- -0- -0-
(1)Amounts shown are based upon the fiscal year ended July 31, 2005. The total
amount of compensation deferred by all trustees of the Trust during the
fiscal year ended July 31, 2005 including earnings was $17,748.
(2)At the request of the trustees, AMVESCAP has agreed to reimburse the Trust
for Fund expenses related to market timing matters. AMVESCAP did not
reimburse the Trust any compensation pursuant to such agreement during the
twelve month period ended July 31, 2005.
(3)During the fiscal year ended July 31, 2005, the total amount of expenses
allocated to the Trust in respect of such retirement benefits was $90,398.
(4)These amounts represent the estimated annual benefits payable by the AIM
Funds upon the trustees' retirement and assumes each trustee serves until
his or her normal retirement date.
(5)All trustees currently serve as trustee of 19 registered investment
companies advised by AIM.
(6)At the request of the trustees, AMVESCAP has agreed to reimburse the Trust
for Fund expenses related to market timing matters. "Total Compensation From
All AIM Funds" above does not include $44,000 of trustee compensation which,
pursuant to such agreement, was reimbursed by AMVESCAP during the calendar
year ended December 31, 2004.
(7)During the fiscal year ended July 31, 2005, the Trust paid $24,850 in legal
fees to Kramer Levin Naftalis & Frankel LLP for services rendered by such
firm as counsel to the independent trustees of the Trust. Mr. Frischling is
a partner of such firm.
(8)Mr. Sklar retired effective December 31, 2004.
(9)Mr. Stickel was elected as trustee of the Trust effective October 1, 2005.
E-1
APPENDIX F
PROXY POLICIES AND PROCEDURES
(AIM Dynamics Fund & AIM Small Company Growth Fund)
(AS AMENDED OCTOBER 1, 2005)
A. PROXY POLICIES
Each of A I M Advisors, Inc., A I M Capital Management, Inc. and AIM Private
Asset Management, Inc. (each an "AIM Advisor" and collectively "AIM") has
the fiduciary obligation to, at all times, make the economic best interest
of advisory clients the sole consideration when voting proxies of companies
held in client accounts. As a general rule, each AIM Advisor shall vote
against any actions that would reduce the rights or options of shareholders,
reduce shareholder influence over the board of directors and management,
reduce the alignment of interests between management and shareholders, or
reduce the value of shareholders' investments. At the same time, AIM
believes in supporting the management of companies in which it invests, and
will accord proper weight to the positions of a company's board of
directors, and the AIM portfolio managers who chose to invest in the
companies. Therefore, on most issues, our votes have been cast in accordance
with the recommendations of the company's board of directors, and we do not
currently expect that trend to change. Although AIM's proxy voting policies
are stated below, AIM's proxy committee considers all relevant facts and
circumstances, and retains the right to vote proxies as deemed appropriate.
I. BOARDS OF DIRECTORS
A board that has at least a majority of independent directors is
integral to good corporate governance. The key board committees (e.g.,
Audit, Compensation and Nominating) should be composed of only
independent trustees.
There are some actions by directors that should result in votes being
withheld. These instances include directors who:
. Are not independent directors and (a) sit on the board's audit,
compensation or nominating committee, or (b) sit on a board where the
majority of the board is not independent;
. Attend less than 75 percent of the board and committee meetings
without a valid excuse;
. It is not clear that the director will be able to fulfill his
function;
. Implement or renew a dead-hand or modified dead-hand poison pill;
. Enacted egregious corporate governance or other policies or failed to
replace management as appropriate;
. Have failed to act on takeover offers where the majority of the
shareholders have tendered their shares; or
. Ignore a shareholder proposal that is approved by a majority of the
shares outstanding.
Votes in a contested election of directors must be evaluated on a
case-by-case basis, considering the following factors:
. Long-term financial performance of the target company relative to its
industry;
. Management's track record;
. Portfolio manager's assessment;
. Qualifications of director nominees (both slates);
. Evaluation of what each side is offering shareholders as well as the
likelihood that the proposed objectives and goals can be met; and
. Background to the proxy contest.
F-1
II. INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
A company should limit its relationship with its auditors to the audit
engagement, and certain closely related activities that do not, in the
aggregate, raise an appearance of impaired independence. We will support
the reappointment of the company's auditors unless:
. It is not clear that the auditors will be able to fulfill their
function;
. There is reason to believe the independent auditors have rendered an
opinion that is neither accurate nor indicative of the company's
financial position; or
. The auditors have a significant professional or personal relationship
with the issuer that compromises the auditors' independence.
III. COMPENSATION PROGRAMS
Appropriately designed equity-based compensation plans, approved by
shareholders, can be an effective way to align the interests of
long-term shareholders and the interests of management, employees and
directors. Plans should not substantially dilute shareholders' ownership
interests in the company, provide participants with excessive awards or
have objectionable structural features. We will consider all incentives,
awards and compensation, and compare them to a company-specific adjusted
allowable dilution cap and a weighted average estimate of shareholder
wealth transfer and voting power dilution.
. We will generally vote against equity-based plans where the total
dilution (including all equity-based plans) is excessive.
. We will support the use of employee stock purchase plans to increase
company stock ownership by employees, provided that shares purchased
under the plan are acquired for no less than 85% of their market
value.
. We will vote against plans that have any of the following structural
features: ability to re-price underwater options without shareholder
approval, ability to issue options with an exercise price below the
stock's current market price, ability to issue reload options, or
automatic share replenishment ("evergreen") feature.
. We will vote for proposals to reprice options if there is a
value-for-value (rather than a share-for-share) exchange.
. We will generally support the board's discretion to determine and
grant appropriate cash compensation and severance packages.
IV. CORPORATE MATTERS
We will review management proposals relating to changes to capital
structure, reincorporation, restructuring and mergers and acquisitions
on a case by case basis, considering the impact of the changes on
corporate governance and shareholder rights, anticipated financial and
operating benefits, portfolio manager views, level of dilution, and a
company's industry and performance in terms of shareholder returns.
. We will vote for merger and acquisition proposals that the proxy
committee and relevant portfolio managers believe, based on their
review of the materials, will result in financial and operating
benefits, have a fair offer price, have favorable prospects for the
combined companies, and will not have a negative impact on corporate
governance or shareholder rights.
. We will vote against proposals to increase the number of authorized
shares of any class of stock that has superior voting rights to
another class of stock.
. We will vote for proposals to increase common share authorization for
a stock split, provided that the increase in authorized shares would
not result in excessive dilution given a company's industry and
performance in terms of shareholder returns.
. We will vote for proposals to institute open-market share repurchase
plans in which all shareholders participate on an equal basis.
F-2
V. SHAREHOLDER PROPOSALS
Shareholder proposals can be extremely complex, and the impact on share
value can rarely be anticipated with any high degree of confidence. The
proxy committee reviews shareholder proposals on a case-by-case basis,
giving careful consideration to such factors as: the proposal's impact
on the company's short-term and long-term share value, its effect on the
company's reputation, the economic effect of the proposal, industry and
regional norms applicable to the company, the company's overall
corporate governance provisions, and the reasonableness of the request.
. We will generally abstain from shareholder social and environmental
proposals.
. We will generally support the board's discretion regarding
shareholder proposals that involve ordinary business practices.
. We will generally vote for shareholder proposals that are designed to
protect shareholder rights if the company's corporate governance
standards indicate that such additional protections are warranted.
. We will generally vote for proposals to lower barriers to shareholder
action.
. We will generally vote for proposals to subject shareholder rights
plans to a shareholder vote. In evaluating these plans, we give
favorable consideration to the presence of "TIDE" provisions
(short-term sunset provisions, qualified bid/permitted offer
provisions, and/or mandatory review by a committee of independent
directors at least every three years).
VI. OTHER
. We will vote against any proposal where the proxy materials lack
sufficient information upon which to base an informed decision.
. We will vote against any proposals to authorize the proxy to conduct
any other business that is not described in the proxy statement.
. We will vote any matters not specifically covered by these proxy
policies and procedures in the economic best interest of advisory
clients.
AIM's proxy policies, and the procedures noted below, may be amended
from time to time.
B. PROXY COMMITTEE PROCEDURES
The proxy committee currently consists of representatives from the Legal and
Compliance Department, the Investments Department and the Finance Department.
The committee members review detailed reports analyzing the proxy issues and
have access to proxy statements and annual reports. Committee members may
also speak to management of a company regarding proxy issues and should
share relevant considerations with the proxy committee. The committee then
discusses the issues and determines the vote. The committee shall give
appropriate and significant weight to portfolio managers' views regarding a
proposal's impact on shareholders. A proxy committee meeting requires a
quorum of three committee members, voting in person or by e-mail.
AIM's proxy committee shall consider its fiduciary responsibility to all
clients when addressing proxy issues and vote accordingly. The proxy
committee may enlist the services of reputable outside professionals and/or
proxy evaluation services, such as Institutional Shareholder Services or any
of its subsidiaries ("ISS"), to assist with the analysis of voting issues
and/or to carry out the actual voting process. To the extent the services of
ISS or another provider are used, the proxy committee shall periodically
review the policies of that provider. The proxy committee shall prepare a
report for the Funds' Board of Trustees on a periodic basis regarding issues
where AIM's votes do not follow the recommendation of ISS or another
provider because AIM's proxy policies differ from those of such provider.
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In addition to the foregoing, the following shall be strictly adhered to
unless contrary action receives the prior approval of the Funds' Board of
Trustees:
1. Other than by voting proxies and participating in Creditors' committees,
AIM shall not engage in conduct that involves an attempt to change or
influence the control of a company.
2. AIM will not publicly announce its voting intentions and the reasons
therefore.
3. AIM shall not participate in a proxy solicitation or otherwise seek
proxy-voting authority from any other public company shareholder.
4. All communications regarding proxy issues between the proxy committee
and companies or their agents, or with fellow shareholders shall be for
the sole purpose of expressing and discussing AIM's concerns for its
advisory clients' interests and not for an attempt to influence or
control management.
C. BUSINESS/DISASTER RECOVERY
If the proxy committee is unable to meet due to a temporary business
interruption, such as a power outage, a sub-committee of the proxy
committee, even if such subcommittee does not constitute a quorum of the
proxy committee, may vote proxies in accordance with the policies stated
herein. If the sub-committee of the proxy committee is not able to vote
proxies, the sub-committee shall authorize ISS to vote proxies by default in
accordance with ISS' proxy policies and procedures, which may vary slightly
from AIM's.
D. RESTRICTIONS AFFECTING VOTING
If a country's laws allow a company in that country to block the sale of the
company's shares by a shareholder in advance of a shareholder meeting, AIM
will not vote in shareholder meetings held in that country, unless the
company represents that it will not block the sale of its shares in
connection with the meeting. Administrative or other procedures, such as
securities lending, may also cause AIM to refrain from voting. Although AIM
considers proxy voting to be an important shareholder right, the proxy
committee will not impede a portfolio manager's ability to trade in a stock
in order to vote at a shareholder meeting.
E. CONFLICTS OF INTEREST
The proxy committee reviews each proxy to assess the extent to which there
may be a material conflict between AIM's interests and those of advisory
clients. A potential conflict of interest situation may include where AIM or
an affiliate manages assets for, administers an employee benefit plan for,
provides other financial products or services to, or otherwise has a
material business relationship with, a company whose management is
soliciting proxies, and failure to vote proxies in favor of management of
the company may harm AIM's relationship with the company. In order to avoid
even the appearance of impropriety, the proxy committee will not take AIM's
relationship with the company into account, and will vote the company's
proxies in the best interest of the advisory clients, in accordance with
these proxy policies and procedures.
If AIM's proxy policies and voting record do not guide the proxy committee's
vote in a situation where a conflict of interest exists, the proxy committee
will vote the proxy in the best interest of the advisory clients, and will
provide information regarding the issue to the Funds' Board of Trustees in
the next quarterly report.
If a committee member has any conflict of interest with respect to a company
or an issue presented, that committee member should inform the proxy
committee of such conflict and abstain from voting on that company or issue.
F. FUND OF FUNDS
When an AIM Fund (an "Investing Fund") that invests in another AIM Fund(s)
(an "Underlying Fund") has the right to vote on the proxy of the Underlying
Fund, the Investing Fund will echo the votes of the other shareholders of
the Underlying AIM Fund.
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G. CONFLICT IN THESE POLICIES
If following any of the policies listed herein would lead to a vote that the
proxy committee deems to be not in the best interest of AIM's advisory
clients, the proxy committee will vote the proxy in the manner that they
deem to be the best interest of AIM's advisory clients and will inform the
Funds' Board of Trustees of such vote and the circumstances surrounding it
promptly thereafter.
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PROXY VOTING POLICIES
(AIM S&P 500 INDEX FUND)
THE PROXY VOTING POLICIES APPLICABLE TO THE FUND FOLLOWS:
GENERAL POLICY
(dated February 10, 2005)
INVESCO Institutional (N.A.), Inc. and its wholly-owned subsidiaries, and
INVESCO Global Asset Management (N.A.), Inc. (collectively, "INVESCO"), each
has responsibility for making investment decisions that are in the best
interests of its clients. As part of the investment management services it
provides to clients, INVESCO may be authorized by clients to vote proxies
appurtenant to the shares for which the clients are beneficial owners.
INVESCO believes that it has a duty to manage clients' assets in the best
economic interests of the clients and that the ability to vote proxies is a
client asset.
INVESCO reserves the right to amend its proxy policies and procedures from time
to time without prior notice to its clients.
PROXY VOTING POLICIES
VOTING OF PROXIES
INVESCO will vote client proxies in accordance with the procedures set forth
below unless the client for non-ERISA clients retains in writing the right to
vote, the named fiduciary (e.g., the plan sponsor) for ERISA clients retains in
writing the right to direct the plan trustee or a third party to vote proxies
or INVESCO determines that any benefit the client might gain from voting a
proxy would be outweighed by the costs associated therewith.
BEST ECONOMIC INTERESTS OF CLIENTS
In voting proxies, INVESCO will take into consideration those factors that may
affect the value of the security and will vote proxies in a manner in which, in
its opinion, is in the best economic interests of clients. INVESCO endeavors to
resolve any conflicts of interest exclusively in the best economic interests of
clients.
ISS SERVICES
INVESCO has contracted with Institutional Shareholder Services ("ISS"), an
independent third party service provider, to vote INVESCO's clients' proxies
according to ISS's proxy voting recommendations. In addition, ISS will provide
proxy analyses, vote recommendations, vote execution and record-keeping
services for clients for which INVESCO has proxy voting responsibility. On an
annual basis, INVESCO will review information obtained from ISS to ascertain
whether ISS (i) has the capacity and competency to adequately analyze proxy
issues, and (ii) can make such recommendations in an impartial manner and in
the best economic interest of INVESCO's clients. This may include a review of
ISS' Policies, Procedures and Practices Regarding Potential Conflicts of
Interests and obtaining information about the work ISS does for corporate
issuers and the payments ISS receives from such issuers.
Custodians forward proxy materials for clients who rely on INVESCO to vote
proxies to ISS. ISS is responsible for exercising the voting rights in
accordance with the ISS proxy voting guidelines. If INVESCO receives proxy
materials in connection with a client's account where the client has, in
writing, communicated to INVESCO that the client, plan fiduciary or other third
party has reserved the right to vote proxies, INVESCO will forward to the party
appointed by client any proxy materials it receives with respect to the
account. In order to avoid voting proxies in circumstances where INVESCO, or
any of its affiliates have or may have any conflict of interest, real or
perceived, INVESCO has engaged ISS to provide the
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proxy analyses, vote recommendations and voting of proxies.
In the event that (i) ISS recuses itself on a proxy voting matter and makes no
recommendation or (ii) INVESCO decides to override the ISS vote recommendation,
the Proxy Committee will review the issue and direct ISS how to vote the
proxies as described below.
PROXY COMMITTEE
The Proxy Committee shall have seven (7) members, which shall include
representatives from portfolio management, operations, and legal/compliance or
other functional departments as deemed appropriate who are knowledgeable
regarding the proxy process. A majority of the members of the Proxy Committee
shall constitute a quorum and the Proxy Committee shall act by a majority vote.
The chair of the Proxy Committee shall be chosen by the Chief Compliance
Officer of INVESCO. The Proxy Committee shall keep minutes of its meetings that
shall be kept with the proxy voting records of INVESCO. The Proxy Committee
will appoint a Proxy Manager to manage the proxy voting process, which includes
the voting of proxies and the maintenance of appropriate records.
Proxy Committee meetings shall be called by the Proxy Manager when override
submissions are made and in instances when ISS has recused itself from a vote
recommendation. In these situations, the Proxy Committee shall meet and
determine how proxies are to be voted in the best interests of clients.
The Proxy Committee periodically reviews new types of corporate governance
issues, evaluates proposals not addressed by the ISS proxy voting guidelines in
instances when ISS has recused itself, and determines how INVESCO should vote.
The Committee monitors adherence to these Procedures, industry trends and
reviews the ISS proxy voting guidelines.
ISS RECUSAL
When ISS makes no recommendation on a proxy voting issue or is recused due to a
conflict of interest, the Proxy Committee will review the issue and, if INVESCO
does not have a conflict of interest, direct ISS how to vote the proxies. In
such cases where INVESCO has a conflict of interest, INVESCO, in its sole
discretion, shall either (a) vote the proxies pursuant to ISS's general proxy
voting guidelines, (b) engage an independent third party to provide a vote
recommendation, or (c) contact its client(s) for direction as to how to vote
the proxies.
OVERRIDE OF ISS RECOMMENDATION
There may be occasions where the INVESCO investment personnel, senior officers
or a member of the Proxy Committee seek to override ISS's recommendations if
they believe that ISS's recommendations are not in accordance with the best
economic interests of clients. In the event that an individual listed above in
this section disagrees with an ISS recommendation on a particular voting issue,
the individual shall document in writing the reasons that he/she believes that
the ISS recommendation is not in accordance with clients' best economic
interests and submit such written documentation to the Proxy Manager for
consideration by the Proxy Committee. Upon review of the documentation and
consultation with the individual and others as the Proxy Committee deems
appropriate, the Proxy Committee may make a determination to override the ISS
voting recommendation if the Committee determines that it is in the best
economic interests of clients and the Committee has addressed conflict of
interest issues as discussed below.
PROXY COMMITTEE MEETINGS
When a Proxy Committee Meeting is called, whether because of an ISS recusal or
request for override of an ISS recommendation, the Proxy Committee shall review
the report of the Chief Compliance Officer as to whether any INVESCO person has
reported a conflict of interest.
The Proxy Committee shall review the information provided to it to determine if
a real or perceived conflict of interest exists and the minutes of the Proxy
Committee shall:
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(1) describe any real or perceived conflict of interest,
(2) discuss any procedure used to address such conflict of interest,
(3) report any contacts from outside parties (other than routine
communications from proxy solicitors), and
(4) include confirmation that the recommendation as to how the proxies are
to be voted is in the best economic interests of clients and was made
without regard to any conflict of interest.
Based on the above review and determinations, the Proxy Committee will direct
ISS how to vote the proxies.
CERTAIN PROXY VOTES MAY NOT BE CAST
In some cases, INVESCO may determine that it is not in the best economic
interests of clients to vote proxies. For example, proxy voting in certain
countries outside the United States requires share blocking. Shareholders who
wish to vote their proxies must deposit their shares 7 to 21 days before the
date of the meeting with a designated depositary. During the blocked period,
shares to be voted at the meeting cannot be sold until the meeting has taken
place and the shares have been returned to the Custodian/Sub-Custodian bank. In
addition, voting certain international securities may involve unusual costs to
clients. In other cases, it may not be possible to vote certain proxies despite
good faith efforts to do so, for instance when inadequate notice of the matter
is provided. In the instance of loan securities, voting of proxies typically
requires termination of the loan, so it is not usually in the best economic
interests of clients to vote proxies on loaned securities. INVESCO typically
will not, but reserves the right to, vote where share blocking restrictions,
unusual costs or other barriers to efficient voting apply. If INVESCO does not
vote, it would have made the determination that the cost of voting exceeds the
expected benefit to the client. The Proxy Manager shall record the reason for
any proxy not being voted, which record shall be kept with the proxy voting
records of INVESCO.
PROXY VOTING RECORDS
Clients may obtain information about how INVESCO voted proxies on their behalf
by contacting their client services representative. Alternatively, clients may
make a written request for proxy voting information to: Proxy Manager, 1360
Peachtree Street, N.E., Atlanta, Georgia 30309.
CONFLICTS OF INTEREST
PROCEDURES TO ADDRESS CONFLICTS OF INTEREST AND IMPROPER INFLUENCE
In order to avoid voting proxies in circumstances where INVESCO or any of its
affiliates have or may have any conflict of interest, real or perceived,
INVESCO has contracted with ISS to provide proxy analyses, vote recommendations
and voting of proxies. Unless noted otherwise by ISS, each vote recommendation
provided by ISS to INVESCO includes a representation from ISS that ISS faces no
conflict of interest with respect to the vote. In instances where ISS has
recused itself and makes no recommendation on a particular matter or if an
override submission is requested, the Proxy Committee shall determine how the
proxy is to be voted and instruct the Proxy Manager accordingly in which case
the conflict of interest provisions discussed below shall apply.
In effecting the policy of voting proxies in the best economic interests of
clients, there may be occasions where the voting of such proxies may present a
real or perceived conflict of interest between INVESCO, as the investment
manager, and clients.
For each director, officer and employee of INVESCO ("INVESCO person"), the
interests of INVESCO's clients must come first, ahead of the interest of
INVESCO and any person within the INVESCO organization, which includes
INVESCO's affiliates.
F-8
Accordingly, each INVESCO person must not put "personal benefit," whether
tangible or intangible, before the interests of clients of INVESCO or otherwise
take advantage of the relationship to INVESCO's clients. "Personal benefit"
includes any intended benefit for oneself or any other individual, company,
group or organization of any kind whatsoever, except a benefit for a client of
INVESCO, as appropriate. It is imperative that each of INVESCO's directors,
officers and employees avoid any situation that might compromise, or call into
question, the exercise of fully independent judgment in the interests of
INVESCO's clients.
Occasions may arise where a person or organization involved in the proxy voting
process may have a conflict of interest. A conflict of interest may also exist
if INVESCO has a business relationship with (or is actively soliciting business
from) either the company soliciting the proxy or a third party that has a
material interest in the outcome of a proxy vote or that is actively lobbying
for a particular outcome of a proxy vote. An INVESCO person (excluding members
of the Proxy Committee) shall not be considered to have a conflict of interest
if the INVESCO person did not know of the conflict of interest and did not
attempt to influence the outcome of a proxy vote. Any individual with actual
knowledge of a conflict of interest relating to a particular referral item
shall disclose that conflict to the Chief Compliance Officer.
The following are examples of situations where a conflict may exist:
. Business Relationships - where INVESCO manages money for a company
or an employee group, manages pension assets or is actively
soliciting any such business, or leases office space from a company;
. Personal Relationships - where a INVESCO person has a personal
relationship with other proponents of proxy proposals, participants
in proxy contests, corporate directors, or candidates for
directorships; and
. Familial Relationships - where an INVESCO person has a known
familial relationship relating to a company (e.g. a spouse or other
relative who serves as a director of a public company or is
employed by the company).
In the event that INVESCO (or an affiliate) manages assets for a company, its
pension plan, or related entity or where any member of the Proxy Committee has
a personal conflict of interest, and where clients' funds are invested in that
company's shares, the Proxy Committee will not take into consideration this
relationship and will vote proxies in that company solely in the best economic
interest of its clients.
It is the responsibility of the Proxy Manager and each member of the Proxy
Committee to report any real or potential conflict of interest of which such
individual has actual knowledge to the Chief Compliance Officer, who shall
present any such information to the Proxy Committee. However, once a particular
conflict has been reported to the Chief Compliance Officer, this requirement
shall be deemed satisfied with respect to all individuals with knowledge of
such conflict.
In addition, the Proxy Manager and each member of the Proxy Committee shall
certify annually as to their compliance with this policy. In addition, any
INVESCO person who submits an ISS override recommendation to the Proxy
Committee shall certify as to their compliance with this policy concurrently
with the submission of their override recommendation. A form of such
certification is attached as Appendix A hereto.
In addition, members of the Proxy Committee must notify INVESCO's Chief
Compliance Officer, with impunity and without fear of retribution or
retaliation, of any direct, indirect or perceived improper influence made by
anyone within INVESCO or by an affiliated company's representatives with regard
to how INVESCO should vote proxies. The Chief Compliance Officer will
investigate the allegations and will report his or her findings to the INVESCO
Risk Management Committee. In the event that it is determined that improper
influence was made, the Risk Management Committee will determine the
appropriate action to take which may include, but is not limited to,
(1) notifying the affiliated company's Chief Executive Officer, its Management
Committee or Board of Directors, (2) taking remedial action, if necessary, to
correct the result of any improper influence where clients have been harmed, or
(3) notifying the appropriate regulatory agencies of the improper influence and
to fully cooperate with
F-9
these regulatory agencies as required. In all cases, the Proxy Committee shall
not take into consideration the improper influence in determining how to vote
proxies and will vote proxies solely in the best economic interest of clients.
Furthermore, members of the Proxy Committee must advise INVESCO's Chief
Compliance Officer and fellow Committee members of any real or perceived
conflicts of interest he or she may have with regard to how proxies are to be
voted regarding certain companies (e.g., personal security ownership in a
company, or personal or business relationships with participants in proxy
contests, corporate directors or candidates for corporate directorships). After
reviewing such conflict, upon advice from the Chief Compliance Officer, the
Committee may require such Committee member to recuse himself or herself from
participating in the discussions regarding the proxy vote item and from casting
a vote regarding how INVESCO should vote such proxy.
ISS PROXY VOTING GUIDELINES
A copy of ISS's Proxy Voting Guidelines Summary in effect as of the revised
date set forth on the title page of this Proxy Voting Policy is attached hereto
as Appendix B.
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APPENDIX A
ACKNOWLEDGEMENT AND CERTIFICATION
I acknowledge that I have read the INVESCO Proxy Voting Policy (a copy of
which has been supplied to me, which I will retain for future reference) and
agree to comply in all respects with the terms and provisions thereof. I
have disclosed or reported all real or potential conflicts of interest to
the INVESCO Compliance Officer and will continue to do so as matters arise.
I have complied with all provisions of this Policy.
------------------------
Print Name
------------------------ ------------------------
Date Signature
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APPENDIX B
ISS 2005 PROXY VOTING GUIDELINES SUMMARY
The following is a condensed version of all proxy voting recommendations
contained in the ISS Proxy Voting Manual.
1. Operational Items
ADJOURN MEETING
Generally vote AGAINST proposals to provide management with the authority to
adjourn an annual or special meeting absent compelling reasons to support the
proposal.
Vote FOR proposals that relate specifically to soliciting votes for a merger or
transaction for which ISS has recommended a FOR vote. Vote AGAINST proposals if
the wording is too vague or if the proposal includes "other business."
AMEND QUORUM REQUIREMENTS
Vote AGAINST proposals to reduce quorum requirements for shareholder meetings
below a majority of the shares outstanding unless there are compelling reasons
to support the proposal.
AMEND MINOR BYLAWS
Vote FOR bylaw or charter changes that are of a housekeeping nature (updates or
corrections).
CHANGE COMPANY NAME
Vote FOR proposals to change the corporate name.
CHANGE DATE, TIME, OR LOCATION OF ANNUAL MEETING
Vote FOR management proposals to change the date/time/location of the annual
meeting unless the proposed change is unreasonable.
Vote AGAINST shareholder proposals to change the date/time/location of the
annual meeting unless the current scheduling or location is unreasonable.
RATIFYING AUDITORS
Vote FOR proposals to ratify auditors, unless any of the following apply:
. An auditor has a financial interest in or association with the
company, and is therefore not independent
. Fees for non-audit services are excessive, or
. There is reason to believe that the independent auditor has
rendered an opinion which is neither accurate nor indicative of the
company's financial position.
Vote CASE-BY-CASE on shareholder proposals asking companies to prohibit or
limit their auditors from engaging in non-audit services.
Vote CASE-BY-CASE on shareholder proposals asking for audit firm rotation,
taking into account the tenure of the audit firm, the length of rotation
specified in the proposal, any significant audit-related issues at the company,
the number of Audit Committee meetings held each year, the number of financial
experts serving on the committee, and whether the company has a periodic
renewal process where the auditor is evaluated for both audit quality and
competitive price.
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TRANSACT OTHER BUSINESS
VOTE AGAINST PROPOSALS TO APPROVE OTHER BUSINESS WHEN IT APPEARS AS VOTING ITEM.
Voting on Director Nominees in Uncontested Elections
Votes on director nominees should be made on a CASE-BY-CASE basis, examining
the following factors: composition of the board and key board committees,
attendance at board meetings, corporate governance provisions and takeover
activity, long-term company performance relative to a market index, directors'
investment in the company, whether the chairman is also serving as CEO, and
whether a retired CEO sits on the board. However, there are some actions by
directors that should result in votes being withheld. These instances include
directors who:
. Attend less than 75 percent of the board and committee meetings
without a valid excuse
. Implement or renew a dead-hand or modified dead-hand poison pill
. Adopt a poison pill without shareholder approval since the
company's last annual meeting and there is no requirement to put
the pill to shareholder vote within 12 months of its adoption
. Ignore a shareholder proposal that is approved by a majority of the
shares outstanding
. Ignore a shareholder proposal that is approved by a majority of the
votes cast for two consecutive years
. Failed to act on takeover offers where the majority of the
shareholders tendered their shares
. Are inside directors or affiliated outsiders and sit on the audit,
compensation, or nominating committees
. Are inside directors or affiliated outsiders and the full board
serves as the audit, compensation, or nominating committee or the
company does not have one of these committees
. Are audit committee members and the non-audit fees paid to the
auditor are excessive. In addition, directors who enacted egregious
corporate governance policies or failed to replace management as
appropriate would be subject to recommendations to withhold votes.
. Are inside directors or affiliated outside directors and the full
board is less than majority independent
. Sit on more than six public company boards or on more than two
public boards in addition to their own if they are CEOs of public
companies.
. Are on the compensation committee when there is a negative
correlation between chief executive pay and company performance
. Have failed to address the issue(s) that resulted in any of the
directors receiving more than 50% withhold votes out of those cast
at the previous board election
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AGE LIMITS
Vote AGAINST shareholder or management proposals to limit the tenure of outside
directors either through term limits or mandatory retirement ages.
BOARD SIZE
Vote FOR proposals seeking to fix the board size or designate a range for the
board size.
Vote AGAINST proposals that give management the ability to alter the size of
the board outside of a specified range without shareholder approval.
CLASSIFICATION/DECLASSIFICATION OF THE BOARD
Vote AGAINST proposals to classify the board.
Vote FOR proposals to repeal classified boards and to elect all directors
annually.
CUMULATIVE VOTING
Vote AGAINST proposals to eliminate cumulative voting.
Vote proposals to restore or permit cumulative voting on a CASE-BY-CASE basis
based on the extent that shareholders have access to the board through their
own nominations.
DIRECTOR AND OFFICER INDEMNIFICATION AND LIABILITY PROTECTION
Proposals on director and officer indemnification and liability protection
should be evaluated on a CASE-BY-CASE basis, using Delaware law as the standard.
Vote AGAINST proposals to eliminate entirely directors' and officers' liability
for monetary damages for violating the duty of care.
Vote AGAINST indemnification proposals that would expand coverage beyond just
legal expenses to acts, such as negligence, that are more serious violations of
fiduciary obligation than mere carelessness.
Vote FOR only those proposals providing such expanded coverage in cases when a
director's or officer's legal defense was unsuccessful if both of the following
apply:
. The director was found to have acted in good faith and in a manner
that he reasonably believed was in the best interests of the
company, and
. Only if the director's legal expenses would be covered.
ESTABLISH/AMEND NOMINEE QUALIFICATIONS
Vote CASE-BY-CASE on proposals that establish or amend director qualifications.
Votes should be based on how reasonable the criteria are and to what degree
they may preclude dissident nominees from joining the board.
Vote AGAINST shareholder proposals requiring two candidates per board seat.
FILLING VACANCIES/REMOVAL OF DIRECTORS
Vote AGAINST proposals that provide that directors may be removed only for
cause.
Vote FOR proposals to restore shareholder ability to remove directors with or
without cause.
Vote AGAINST proposals that provide that only continuing directors may elect
replacements to fill board vacancies.
Vote FOR proposals that permit shareholders to elect directors to fill board
vacancies.
INDEPENDENT CHAIRMAN (SEPARATE CHAIRMAN/CEO)
Generally vote FOR shareholder proposals requiring the position of chairman be
filled by an independent director unless there are compelling reasons to
recommend against the proposal, such as a counterbalancing governance
structure. This should include all of the following:
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. Designated lead director, elected by and from the independent board
members with clearly delineated and comprehensive duties (The role
may alternatively reside with a presiding director, vice chairman,
or rotating lead director)
. Two-thirds independent board
. All-independent key committees
. Established governance guidelines
Additionally, the company should not have under-performed its peers.
MAJORITY OF INDEPENDENT DIRECTORS/ESTABLISHMENT OF COMMITTEES
Vote FOR shareholder proposals asking that a majority or more of directors be
independent unless the board composition already meets the proposed threshold
by ISS's definition of independence.
Vote FOR shareholder proposals asking that board audit, compensation, and/or
nominating committees be composed exclusively of independent directors if they
currently do not meet that standard.
OPEN ACCESS
Vote CASE-BY-CASE on shareholder proposals asking for open access taking into
account the ownership threshold specified in the proposal and the proponent's
rationale for targeting the company in terms of board and director conduct.
STOCK OWNERSHIP REQUIREMENTS
Generally vote AGAINST shareholder proposals that mandate a minimum amount of
stock that directors must own in order to qualify as a director or to remain on
the board. While ISS favors stock ownership on the part of directors, the
company should determine the appropriate ownership requirement.
Vote CASE-BY-CASE shareholder proposals asking that the company adopt a holding
or retention period for its executives (for holding stock after the vesting or
exercise of equity awards), taking into account any stock ownership
requirements or holding period/retention ratio already in place and the actual
ownership level of executives.
TERM LIMITS
Vote AGAINST shareholder or management proposals to limit the tenure of outside
directors either through term limits or mandatory retirement ages.
2. Proxy Contests
VOTING FOR DIRECTOR NOMINEES IN CONTESTED ELECTIONS
Votes in a contested election of directors must be evaluated on a CASE-BY-CASE
basis, considering the following factors:
. Long-term financial performance of the target company relative to
its industry; management's track record
. Background to the proxy contest
. Qualifications of director nominees (both slates)
. Evaluation of what each side is offering shareholders as well as
the likelihood that the proposed objectives and goals can be met;
and stock ownership positions
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REIMBURSING PROXY SOLICITATION EXPENSES
Voting to reimburse proxy solicitation expenses should be analyzed on a
CASE-BY-CASE basis. In cases where ISS recommends in favor of the dissidents,
we also recommend voting for reimbursing proxy solicitation expenses.
CONFIDENTIAL VOTING
Vote FOR shareholder proposals requesting that corporations adopt confidential
voting, use independent vote tabulators and use independent inspectors of
election, as long as the proposal includes a provision for proxy contests as
follows: In the case of a contested election, management should be permitted to
request that the dissident group honor its confidential voting policy. If the
dissidents agree, the policy remains in place. If the dissidents will not
agree, the confidential voting policy is waived.
Vote FOR management proposals to adopt confidential voting.
3. Anti-takeover Defenses and Voting Related Issues
ADVANCE NOTICE REQUIREMENTS FOR SHAREHOLDER PROPOSALS/NOMINATIONS
Votes on advance notice proposals are determined on a CASE-BY-CASE basis,
giving support to those proposals which allow shareholders to submit proposals
as close to the meeting date as reasonably possible and within the broadest
window possible.
AMEND BYLAWS WITHOUT SHAREHOLDER CONSENT
Vote AGAINST proposals giving the board exclusive authority to amend the bylaws.
Vote FOR proposals giving the board the ability to amend the bylaws in addition
to shareholders.
POISON PILLS
Vote FOR shareholder proposals requesting that the company submit its poison
pill to a shareholder vote or redeem it.
Vote FOR shareholder proposals asking that any future pill be put to a
shareholder vote.
SHAREHOLDER ABILITY TO ACT BY WRITTEN CONSENT
Vote AGAINST proposals to restrict or prohibit shareholder ability to take
action by written consent.
Vote FOR proposals to allow or make easier shareholder action by written
consent.
SHAREHOLDER ABILITY TO CALL SPECIAL MEETINGS
Vote AGAINST proposals to restrict or prohibit shareholder ability to call
special meetings.
Vote FOR proposals that remove restrictions on the right of shareholders to act
independently of management.
SUPERMAJORITY VOTE REQUIREMENTS
Vote AGAINST proposals to require a supermajority shareholder vote.
Vote FOR proposals to lower supermajority vote requirements.
4. Mergers and Corporate Restructurings
APPRAISAL RIGHTS
Vote FOR proposals to restore, or provide shareholders with, rights of
appraisal.
F-16
ASSET PURCHASES
Vote CASE-BY-CASE on asset purchase proposals, considering the following
factors:
. Purchase price
. Fairness opinion
. Financial and strategic benefits
. How the deal was negotiated
. Conflicts of interest
. Other alternatives for the business
. Non-completion risk
ASSET SALES
Votes on asset sales should be determined on a CASE-BY-CASE basis, considering
the following factors:
. Impact on the balance sheet/working capital
. Potential elimination of diseconomies
. Anticipated financial and operating benefits
. Anticipated use of funds
. Value received for the asset
. Fairness opinion
. How the deal was negotiated
. Conflicts of interest.
BUNDLED PROPOSALS
Review on a CASE-BY-CASE basis bundled or "conditioned" proxy proposals.
In the case of items that are conditioned upon each other, examine the benefits
and costs of the packaged items.
In instances when the joint effect of the conditioned items is not in
shareholders' best interests, vote against the proposals. If the combined
effect is positive, support such proposals.
CONVERSION OF SECURITIES
Votes on proposals regarding conversion of securities are determined on a
CASE-BY-CASE basis. When evaluating these proposals the investor should review
the dilution to existing shareholders, the conversion price relative to market
value, financial issues, control issues, termination penalties, and conflicts
of interest. Vote FOR the conversion if it is expected that the company will be
subject to onerous penalties or will be forced to file for bankruptcy if the
transaction is not approved.
CORPORATE REORGANIZATION/DEBT RESTRUCTURING/PREPACKAGED BANKRUPTCY
PLANS/REVERSE LEVERAGED BUYOUTS/WRAP PLANS
Votes on proposals to increase common and/or preferred shares and to issue
shares as part of a debt restructuring plan are determined on a CASE-BY-CASE
basis, taking into consideration the following:
. Dilution to existing shareholders' position
. Terms of the offer
. Financial issues
. Management's efforts to pursue other alternatives
. Control issues
. Conflicts of interest
Vote FOR the debt restructuring if it is expected that the company will file
for bankruptcy if the transaction is not approved.
F-17
FORMATION OF HOLDING COMPANY
Votes on proposals regarding the formation of a holding company should be
determined on a CASE-BY-CASE basis, taking into consideration the following:
. The reasons for the change
. Any financial or tax benefits
. Regulatory benefits
. Increases in capital structure
. Changes to the articles of incorporation or bylaws of the company.
Absent compelling financial reasons to recommend the transaction, vote AGAINST
the formation of a holding company if the transaction would include either of
the following:
. Increases in common or preferred stock in excess of the allowable
maximum as calculated by the ISS
. Capital Structure model
. Adverse changes in shareholder rights
GOING PRIVATE TRANSACTIONS (LBOS AND MINORITY SQUEEZEOUTS)
Vote going private transactions on a CASE-BY-CASE basis, taking into account
the following: offer price/premium, fairness opinion, how the deal was
negotiated, conflicts of interest, other alternatives/offers considered, and
non-completion risk.
JOINT VENTURES
Votes CASE-BY-CASE on proposals to form joint ventures, taking into account the
following: percentage of assets/business contributed percentage ownership,
financial and strategic benefits, governance structure, conflicts of interest,
other alternatives, and non-completion risk.
LIQUIDATIONS
Votes on liquidations should be made on a CASE-BY-CASE basis after reviewing
management's efforts to pursue other alternatives, appraisal value of assets,
and the compensation plan for executives managing the liquidation.
Vote FOR the liquidation if the company will file for bankruptcy if the
proposal is not approved.
MERGERS AND ACQUISITIONS/ ISSUANCE OF SHARES TO FACILITATE MERGER OR ACQUISITION
Votes on mergers and acquisitions should be considered on a CASE-BY-CASE basis,
determining whether the transaction enhances shareholder value by giving
consideration to the following:
. Prospects of the combined company, anticipated financial and
operating benefits
. Offer price
. Fairness opinion
. How the deal was negotiated
. Changes in corporate governance
. Change in the capital structure
. Conflicts of interest
PRIVATE PLACEMENTS/WARRANTS/CONVERTIBLE DEBENTURES
Votes on proposals regarding private placements should be determined on a
CASE-BY-CASE basis. When evaluating these proposals the investor should review:
dilution to existing shareholders' position, terms of the offer, financial
issues, management's efforts to pursue other alternatives, control issues, and
conflicts of interest. Vote FOR the private placement if it is expected that
the company will file for bankruptcy if the transaction is not approved.
F-18
SPIN-OFFS
Votes on spin-offs should be considered on a CASE-BY-CASE basis depending on:
. Tax and regulatory advantages
. Planned use of the sale proceeds
. Valuation of spin-off
. Fairness opinion
. Benefits to the parent company
. Conflicts of interest
. Managerial incentives
. Corporate governance changes
. Changes in the capital structure
VALUE MAXIMIZATION PROPOSALS
Vote CASE-BY-CASE on shareholder proposals seeking to maximize shareholder
value by hiring a financial advisor to explore strategic alternatives, selling
the company or liquidating the company and distributing the proceeds to
shareholders. These proposals should be evaluated based on the following
factors: prolonged poor performance with no turnaround in sight, signs of
entrenched board and management, strategic plan in place for improving value,
likelihood of receiving reasonable value in a sale or dissolution, and whether
company is actively exploring its strategic options, including retaining a
financial advisor.
5. State of Incorporation
CONTROL SHARE ACQUISITION PROVISIONS
Vote FOR proposals to opt out of control share acquisition statutes unless
doing so would enable the completion of a takeover that would be detrimental to
shareholders.
Vote AGAINST proposals to amend the charter to include control share
acquisition provisions.
Vote FOR proposals to restore voting rights to the control shares.
CONTROL SHARE CASH-OUT PROVISIONS
Vote FOR proposals to opt out of control share cash-out statutes.
DISGORGEMENT PROVISIONS
Vote FOR proposals to opt out of state disgorgement provisions.
FAIR PRICE PROVISIONS
Vote proposals to adopt fair price provisions on a CASE-BY-CASE basis,
evaluating factors such as the vote required to approve the proposed
acquisition, the vote required to repeal the fair price provision, and the
mechanism for determining the fair price.
Generally, vote AGAINST fair price provisions with shareholder vote
requirements greater than a majority of disinterested shares.
FREEZE-OUT PROVISIONS
Vote FOR proposals to opt out of state freeze-out provisions.
GREENMAIL
Vote FOR proposals to adopt anti-greenmail charter of bylaw amendments or
otherwise restrict a company's ability to make greenmail payments.
F-19
Review on a CASE-BY-CASE basis anti-greenmail proposals when they are bundled
with other charter or bylaw amendments.
REINCORPORATION PROPOSALS
Proposals to change a company's state of incorporation should be evaluated on a
CASE-BY-CASE basis, giving consideration to both financial and corporate
governance concerns, including the reasons for reincorporating, a comparison of
the governance provisions, and a comparison of the jurisdictional laws.
Vote FOR reincorporation when the economic factors outweigh any neutral or
negative governance changes.
STAKEHOLDER PROVISIONS
Vote AGAINST proposals that ask the board to consider non-shareholder
constituencies or other non-financial effects when evaluating a merger or
business combination.
STATE ANTI-TAKEOVER STATUTES
Review on a CASE-BY-CASE basis proposals to opt in or out of state takeover
statutes (including control share acquisition statutes, control share cash-out
statutes, freeze-out provisions, fair price provisions, stakeholder laws,
poison pill endorsements, severance pay and labor contract provisions,
anti-greenmail provisions, and disgorgement provisions).
6. Capital Structure
ADJUSTMENTS TO PAR VALUE OF COMMON STOCK
Vote FOR management proposals to reduce the par value of common stock.
COMMON STOCK AUTHORIZATION
Votes on proposals to increase the number of shares of common stock authorized
for issuance are determined on a CASE-BY-CASE basis using a model developed by
ISS.
Vote AGAINST proposals at companies with dual-class capital structures to
increase the number of authorized shares of the class of stock that has
superior voting rights.
Vote FOR proposals to approve increases beyond the allowable increase when a
company's shares are in danger of being de-listed or if a company's ability to
continue to operate as a going concern is uncertain.
DUAL-CLASS STOCK
Vote AGAINST proposals to create a new class of common stock with superior
voting rights.
Vote FOR proposals to create a new class of nonvoting or sub-voting common
stock if:
. It is intended for financing purposes with minimal or no dilution
to current shareholders
. It is not designed to preserve the voting power of an insider or
significant shareholder
ISSUE STOCK FOR USE WITH RIGHTS PLAN
Vote AGAINST proposals that increase authorized common stock for the explicit
purpose of implementing a shareholder rights plan (poison pill).
F-20
PREEMPTIVE RIGHTS
Review on a CASE-BY-CASE basis shareholder proposals that seek preemptive
rights. In evaluating proposals on preemptive rights, consider the size of a
company, the characteristics of its shareholder base, and the liquidity of the
stock.
PREFERRED STOCK
Vote AGAINST proposals authorizing the creation of new classes of preferred
stock with unspecified voting, conversion, dividend distribution, and other
rights ("blank check" preferred stock).
Vote FOR proposals to create "de-clawed" blank check preferred stock (stock
that cannot be used as a takeover defense).
Vote FOR proposals to authorize preferred stock in cases where the company
specifies the voting, dividend, conversion, and other rights of such stock and
the terms of the preferred stock appear reasonable. Vote AGAINST proposals to
increase the number of blank check preferred stock authorized for issuance when
no shares have been issued or reserved for a specific purpose.
Vote CASE-BY-CASE on proposals to increase the number of blank check preferred
shares after analyzing the number of preferred shares available for issue given
a company's industry and performance in terms of shareholder returns.
RECAPITALIZATION
Votes CASE-BY-CASE on recapitalizations (reclassifications of securities),
taking into account the following: more simplified capital structure, enhanced
liquidity, fairness of conversion terms, impact on voting power and dividends,
reasons for the reclassification, conflicts of interest, and other alternatives
considered.
REVERSE STOCK SPLITS
Vote FOR management proposals to implement a reverse stock split when the
number of authorized shares will be proportionately reduced.
Vote FOR management proposals to implement a reverse stock split to avoid
delisting.
Votes on proposals to implement a reverse stock split that do not
proportionately reduce the number of shares authorized for issue should be
determined on a CASE-BY-CASE basis using a model developed by ISS.
SHARE REPURCHASE PROGRAMS
Vote FOR management proposals to institute open-market share repurchase plans
in which all shareholders may participate on equal terms.
STOCK DISTRIBUTIONS: SPLITS AND DIVIDENDS
Vote FOR management proposals to increase the common share authorization for a
stock split or share dividend, provided that the increase in authorized shares
would not result in an excessive number of shares available for issuance as
determined using a model developed by ISS.
TRACKING STOCK
Votes on the creation of tracking stock are determined on a CASE-BY-CASE basis,
weighing the strategic value of the transaction against such factors as:
adverse governance changes, excessive increases in authorized capital stock,
unfair method of distribution, diminution of voting rights, adverse conversion
features, negative impact on stock option plans, and other alternatives such as
spin-off.
7. Executive and Director Compensation
Votes with respect to equity-based compensation plans should be determined on a
CASE-BY-CASE basis. Our methodology for reviewing compensation plans primarily
focuses on the transfer of
F-21
shareholder wealth (the dollar cost of pay plans to shareholders instead of
simply focusing on voting power dilution). Using the expanded compensation data
disclosed under the SEC's rules, ISS will value every award type. ISS will
include in its analyses an estimated dollar cost for the proposed plan and all
continuing plans. This cost, dilution to shareholders' equity, will also be
expressed as a percentage figure for the transfer of shareholder wealth, and
will be considered along with dilution to voting power. Once ISS determines the
estimated cost of the plan, we compare it to a company-specific dilution cap.
Our model determines a company-specific allowable pool of shareholder wealth
that may be transferred from the company to plan participants, adjusted for:
. Long-term corporate performance (on an absolute basis and relative
to a standard industry peer group and an appropriate market index),
. Cash compensation, and
. Categorization of the company as emerging, growth, or mature.
These adjustments are pegged to market capitalization.
Vote AGAINST plans that expressly permit the re-pricing of underwater stock
options without shareholder approval.
Generally vote AGAINST plans in which (I) there is a disconnect between the
CEO's pay and company performance (an increase in pay and a decrease in
performance) and the main source of the pay increase (over half) is
equity-based and (2) the CEO is the participant of the equity proposal. A
decrease in performance is based on negative one- and three-year total
shareholder returns. An increase in pay is based on the CEO's total direct
compensation (salary, cash bonus, present value of stock options, face value of
restricted stock, face value of long-term incentive plan payouts, and all other
compensation) increasing over the previous year. Also may WITHHOLD votes from
the Compensation Committee members.
Generally vote AGAINST plans if the company's most recent three-year burn rate
exceeds one standard deviation in excess of the industry mean and is over two
percent of common shares outstanding. See Table 1 for details.
TABLE 1: PROXY SEASON 2005 BURN RATE THRESHOLDS
Russell 3000 Non-Russell 3000
------------------------- -------------------------
Standard Mean + Std Standard Mean + Std
GICS GICS Dsec Mean Deviation Dev Mean Deviation Dev
1010 Energy 1.60% 1.02% 2.61% 2.59% 2.19% 4.78%
1510 Materials 1.55% .81% 2.36% 2.54% 1.92% 4.46%
2010 Capital Goods 1.86% 1.19% 3.05% 3.23% 2.93% 6.17%
2020 Commercial Services & Supplies 287% 1.53% 4.40% 4.39% 3.68% 8.07%
2030 Transportation 2.10% 1.50% 3.60% 2.44% 2.22% 4.66%
2510 Automobiles & Components 2.10% 1.37% 3.48% 2.90% 2.28% 5.18%
2520 Consumer Durables & Apparel 2.40% 1.51% 3.90% 3.42% 2.79% 6.21%
2530 Hotels Restaurants & Leisure 2.39% 1.08% 3.48% 3.30% 2.87% 6.17%
2540 Media 2.34% 1.50% 3.84% 4.12% 2.89% 7.01%
2550 Retailing 2.89% 1.95% 4.84% 4.26% 3.50% 7.75%
3010 to Food & Staples Retailing 1.98% 1.50% 3.48% 3.37% 3.32% 6.68%
3030
3510 Health Care Equipment & Services 3.24% 1.96% 5.20% 4.55% 3.24% 7.79%
F-22
3520 Pharmaceuticals & Biotechnology 3.60% 1.72% 5.32% 5.77% 4.15% 9.92%
4010 Banks 1.44% 1.17% 2.61% 1.65% 1.60% 3.25%
4020 Diversified Financials 3.12% 2.54% 5.66% 5.03% 3.35% 8.55%
4030 Insurance 1.45% .88% 2.32% 2.47% 1.77% 4.24%
4040 Real Estate 1.01% .89% 1.90% 1.51% 1.50% 3.01%
4510 Software & Services 5.44% 3.05% 8.49% 8.08% 6.01% 14.10%
4520 Technology Hardware & Equipment 4.00% 2.69% 6.68% 5.87% 4.25% 10.12%
4530 Semiconductors & Semiconductor Equipment 5.12% 2.86% 7.97% 6.79% 3.95% 10.74%
5010 Telecommunications Services 2.56% 2.39% 4.95% 4.66% 3.90% 8.56%
5510 Utilities .90% .65% 1.55% 3.74% 4.63% 8.38%
1010 Energy 1.60% 1.02% 2.61% 2.59% 2.19% 4.78%
1510 Materials 1.55% .81% 2.36% 2.54% 1.92% 4.46%
2010 Capital Goods 1.86% 1.19% 3.05% 3.23% 2.93% 6.17%
2020 Commercial Services & Supplies 287% 1.53% 4.40% 4.39% 3.68% 8.07%
A company with high three-year average burn rates may avoid triggering the burn
rate policy by committing to the industry average over the next years.
However, the above general voting guidelines for pay for performance may change
if the compensation committee members can demonstrate that they have improved
committee performance based on additional public filing such as a DEFA 14A or
8K. The additional filing needs to present strong and compelling evidence of
improved performance with new information that has not been disclosed in the
original proxy statement. The reiteration of the compensation committee report
will not be sufficient evidence of improved committee performance.
Evidence of improved compensation committee performance includes all of the
following:
The compensation committee has reviewed all components of the CEO's
compensation, including the following:
. Base salary, bonus, long-term incentives
. Accumulative realized and unrealized stock option and restricted
stock gains
. Dollar value of perquisites and other personal benefits to the CEO
and the cost to the company
. Earnings and accumulated payment obligations under the company's
nonqualified deferred compensation program
. Actual projected payment obligations under the company's
supplemental executive retirement plan (SERPs)
A tally sheet setting forth all the above components was prepared and reviewed
affixing dollar amounts under the various payout scenarios.
A tally sheet with all the above components should be disclosed for the
following termination scenarios:
F-23
. Payment if termination occurs within 12 months: $______
. Payment if "not for cause" termination occurs within 12 months:
$______
. Payment if "change of control" termination occurs within 12 months:
$______
The compensation committee is committed to provide additional information on
the named executives' annual cash bonus program and/or long-term incentive cash
plan for the current fiscal year. The compensation committee will provide full
disclosure of the qualitative and quantitative performance criteria and hurdle
rates used to determine the payouts of the cash program. From this disclosure,
shareholders will know the minimum level of performance required for any cash
bonus to be delivered as well as the maximum cash bonus payable for superior
performance.
The repetition of the compensation committee report does not meet ISS'
requirement of compelling and strong evidence of improved disclosure. The level
of transparency and disclosure is at the highest level where shareholders can
understand the mechanics of the annual cash bonus and/or long-term incentive
cash plan based on the additional disclosure.
/1/The compensation committee is committed to grant a substantial portion of
performance-based equity awards to the named executive officers. A substantial
portion of performance-based awards would be at least 50 percent of the shares
awarded to each of the named executive officers. Performance-based equity
awards are earned or paid out based on the achievement of company performance
targets. The company will disclose the details of the performance criteria
(e.g., return on equity) and the hurdle rates (e.g., 15 percent) associated
with the performance targets. From this disclosure, shareholders will know the
minimum level of performance required for any equity grants to be made. The
performance-based equity awards do not refer to non-qualified stock options' or
performance-accelerated grants2. Instead, performance-based equity awards are
performance-contingent grants where the individual will not receive the equity
grant by not meeting the target performance and vice versa.
The level of transparency and disclosure is at the highest level where
shareholders can understand the mechanics of the performance-based equity
awards based on the additional disclosure.
/2/The compensation committee has the sole authority to hire and fire outside
compensation consultants. The role of the outside compensation consultant is to
assist the compensation committee to analyze executive pay packages or
contracts and understand the company's financial measures.
Based on the additional disclosure of improved performance of the compensation
committee, ISS will generally vote FOR the compensation committee members up
for annual election and vote FOR the employee-based stock plan if there is one
on the ballot. However, ISS is not likely to vote FOR the compensation
committee members and/or the employee-based stock plan if ISS believes the
company has not provided compelling and sufficient evidence of transparent
additional disclosure of executive compensation based on the above requirements.
- --------
/1/ Non-qualified stock options are not performance-based awards unless the
grant or the vesting of the stock options is tied to the achievement of a
pre-determined and disclosed performance measure. A rising stock market
will generally increase share prices of all companies, despite of the
company's underlying performance.
/2/ Performance-accelerated grants are awards that vest earlier based on the
achievement of a specified measure. However, these grants will ultimately
vest over time even without the attainment of the goal(s).
DIRECTOR COMPENSATION
Votes on compensation plans for directors are determined on a CASE-BY-CASE
basis, using a proprietary, quantitative model developed by ISS.
On occasion, director stock plans that set aside a relatively small of shares
when combined with employee or executive stock compensation plans exceed the
allowable cap. In such cases, starting proxy
F-24
season 2005, ISS will supplement the analytical approach with a qualitative
review of board compensation for companies, taking into consideration:
. Director stock ownership guidelines
. A minimum of three times the annual cash retainer.
. Vesting schedule or mandatory holding/deferral period
. A minimum vesting of three years for stock options or
restricted stock, or
. Deferred stock payable at the end of a three-year deferral
period.
. Mix between cash and equity
. A balanced mix of cash and equity, for example 40% cash/60%
equity or 50% cash/50% equity.
. If the mix is heavier on the equity component, the vesting
schedule or deferral period should be more stringent, with the
lesser of five years or the term of directorship.
. Retirement/Benefit and Perquisites programs
. No retirement/benefits and perquisites provided to non-employee
directors.
. Quality of disclosure
. Provide detailed disclosure on cash and equity compensation
delivered to each non-employee director for the most recent
fiscal year in a table. The column headers for the table may
include the following: name of each non-employee director,
annual retainer, board meeting fees, committee retainer,
committee-meeting fees, and equity grants.
For ISS to recommend a vote FOR director equity plans based on the above
qualitative features, a company needs to demonstrate that it meets all the
above qualitative features in its proxy statement.
STOCK PLANS IN LIEU OF CASH
Votes for plans which provide participants with the option of taking all or a
portion of their cash compensation in the form of stock are determined on a
CASE-BY-CASE basis.
Vote FOR plans which provide a dollar-for-dollar cash for stock exchange.
Votes for plans which do not provide a dollar-for-dollar cash for stock
exchange should be determined on a CASE-BY-CASE basis using a proprietary,
quantitative model developed by ISS. In cases where the exchange is not
dollar-for-dollar, the request for new or additional shares for such equity
program will be considered in the quantitative model. However, the cost would
be lower than full-value awards since part of the deferral compensation is
in-lieu-of cash compensation.
DIRECTOR RETIREMENT PLANS
Vote AGAINST retirement plans for non-employee directors.
Vote FOR shareholder proposals to eliminate retirement plans for non-employee
directors.
MANAGEMENT PROPOSALS SEEKING APPROVAL TO RE-PRICE OPTIONS
Votes on management proposals seeking approval to re-price options are
evaluated on a CASE-BY-CASE basis giving consideration to the following:
. Historic trading patterns
. Rationale for the re-pricing
. Value-for-value exchange
. Treatment of surrendered options
. Option vesting
F-25
. Term of the option
. Exercise price
. Participation
QUALIFIED EMPLOYEE STOCK PURCHASE PLANS
Votes on qualified employee stock purchase plans should be determined on a
CASE-BY-CASE basis. Vote FOR employee stock purchase plans where all of the
following apply:
. Purchase price is at least 85 percent of fair market value
. Offering period is 27 months or less, and
. The number of shares allocated to the plan is ten percent or less
of the outstanding shares
Vote AGAINST qualified employee stock purchase plans where any of the following
apply:
. Purchase price is less than 85 percent of fair market value, or
. Offering period is greater than 27 months, or
. The number of shares allocated to the plan is more than ten percent
of the outstanding shares
NONQUALIFIED EMPLOYEE STOCK PURCHASE PLANS
Votes on nonqualified employee stock purchase plans should be determined on a
CASE-BY-CASE basis. Vote FOR nonqualified employee stock purchase plans with
all the following features:
. Broad-based participation (i.e., all employees of the company with
the exclusion of individuals with 5 percent or more of beneficial
ownership of the company)
. Limits on employee contribution, which may be a fixed dollar amount
or expressed as a percent of base salary
. Company matching contribution up to 25 percent of employee's
contribution, which is effectively a discount of 20 percent from
market value
. No discount on the stock price on the date of purchase since there
is a company matching contribution
Vote AGAINST nonqualified employee stock purchase plans when any of the plan
features do not meet the above criteria.
INCENTIVE BONUS PLANS AND TAX DEDUCTIBILITY PROPOSALS (OBRA-RELATED
COMPENSATION PROPOSALS)
Vote FOR proposals that simply amend shareholder-approved compensation plans to
include administrative features or place a cap on the annual grants any one
participant may receive to comply with the provisions of Section 162(m).
Vote FOR proposals to add performance goals to existing compensation plans to
comply with the provisions of Section 162(m) unless they are clearly
inappropriate.
Votes to amend existing plans to increase shares reserved and to qualify for
favorable tax treatment under the provisions of Section 162(m) should be
considered on a CASE-BY-CASE basis using a proprietary, quantitative model
developed by ISS.
F-26
Generally vote FOR cash or cash and stock bonus plans that are submitted to
shareholders for the purpose of exempting compensation from taxes under the
provisions of Section 162(m) if no increase in shares is requested.
EMPLOYEE STOCK OWNERSHIP PLANS (ESOPS)
Vote FOR proposals to implement an ESOP or increase authorized shares for
existing ESOPs, unless the number of shares allocated to the ESOP is excessive
(more than five percent of outstanding shares.)
401(K) EMPLOYEE BENEFIT PLANS
Vote FOR proposals to implement a 401(k) savings plan for employees.
SHAREHOLDER PROPOSALS REGARDING EXECUTIVE AND DIRECTOR PAY
Generally, vote FOR shareholder proposals seeking additional disclosure of
executive and director pay information, provided the information requested is
relevant to shareholders' needs, would not put the company at a competitive
disadvantage relative to its industry, and is not unduly burdensome to the
company.
Vote AGAINST shareholder proposals seeking to set absolute levels on
compensation or otherwise dictate the amount or form of compensation.
Vote AGAINST shareholder proposals requiring director fees be paid in stock
only. Vote FOR shareholder proposals to put option re-pricings to a shareholder
vote.
Vote on a CASE-BY-CASE basis for all other shareholder proposals regarding
executive and director pay, taking into account company performance, pay level
versus peers, pay level versus industry, and long term corporate outlook.
OPTION EXPENSING
Generally vote FOR shareholder proposals asking the company to expense stock
options, unless the company has already publicly committed to expensing options
by a specific date
PERFORMANCE-BASED AWARDS
Generally vote FOR shareholder proposals advocating the use of
performance-based awards like indexed, premium-priced, and performance-vested
options or performance-based shares, unless:
. The proposal is overly restrictive (e.g., it mandates that awards
to all employees must be performance-based or all awards to top
executives must be a particular type, such as indexed options)
. The company demonstrates that it is using a substantial portion of
performance-based awards for its top executives
GOLDEN PARACHUTES AND EXECUTIVE SEVERANCE AGREEMENTS
Vote FOR shareholder proposals to require golden parachutes or executive
severance agreements to be submitted for shareholder ratification, unless the
proposal requires shareholder approval prior to entering into employment
contracts.
Vote on a CASE-BY-CASE basis on proposals to ratify or cancel golden
parachutes. An acceptable parachute should include the following:
. The triggering mechanism should be beyond the control of management
F-27
. The amount should not exceed three times base amount (defined as
the average annual taxable W-2 compensation during the five years
prior to the year in which the change of control occurs
. Change-in-control payments should be double-triggered, i.e.,
(1) after a change in control has taken place, and (2) termination
of the executive as a result of the change in control. ISS defines
change in control as a change in the company ownership structure
PENSION PLAN INCOME ACCOUNTING
Generally vote FOR shareholder proposals to exclude pension plan income in the
calculation of earnings used in determining executive bonuses/compensation.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLANS (SERP5)
Generally vote FOR shareholder proposals requesting to put extraordinary
benefits contained in SERP agreements to a shareholder vote unless the
company's executive pension plans do not contain excessive benefits beyond what
is offered under employee-wide plans.
8. Social and Environmental Issues
CONSUMER ISSUES AND PUBLIC SAFETY
ANIMAL RIGHTS
Vote CASE-BY-CASE on proposals to phase out the use of animals in product
testing, taking into account:
. The nature of the product and the degree that animal testing is
necessary or federally mandated (such as medical products),
. The availability and feasibility of alternatives to animal testing
to ensure product safety, and
. The degree that competitors are using animal-free testing
Generally vote FOR proposals seeking a report on the company's animal welfare
standards unless:
. The company has already published a set of animal welfare standards
and monitors compliance
. The company's standards are comparable to or better than those of
peer firms, and
. There are no serious controversies surrounding the company's
treatment of animals
DRUG PRICING
Vote CASE-BY-CASE on proposals asking the company to implement price restraints
on pharmaceutical products, taking into account:
. Whether the proposal focuses on a specific drug and region
F-28
. Whether the economic benefits of providing subsidized drugs (e.g.,
public goodwill) outweigh the costs in
. Terms of reduced profits, lower R&D spending, and harm to
competitiveness
. The extent that reduced prices can be offset through the company's
marketing budget without affecting
. R&D spending
. Whether the company already limits price increases of its products
. Whether the company already contributes life -saving
pharmaceuticals to the needy and Third World countries
. The extent that peer companies implement price restraints
GENETICALLY MODIFIED FOODS
Vote AGAINST proposals asking companies to voluntarily label genetically
engineered (GE) ingredients in their products or alternatively to provide
interim labeling and eventually eliminate GE ingredients due to the costs and
feasibility of labeling and/or phasing out the use of GE ingredients.
Vote CASE-BY-CASE on proposals asking for a report on the feasibility of
labeling products containing GE ingredients taking into account:
. The relevance of the proposal in terms of the company's business
and the proportion of it affected by the resolution
. The quality of the company's disclosure on GE product labeling and
related voluntary initiatives and how this disclosure compares with
peer company disclosure
. Company's current disclosure on the feasibility of GE product
labeling, including information on the related costs
. Any voluntary labeling initiatives undertaken or considered by the
company
. Vote CASE-BY-CASE on proposals asking for the preparation of a
report on the financial, legal, and environmental impact of
continued use of GE ingredients/seeds
. The relevance of the proposal in terms of the company's business
and the proportion of it affected by the resolution
. The quality of the company's disclosure on risks related to GE
product use and how this disclosure compares with peer company
disclosure
. The percentage of revenue derived from international operations,
particularly in Europe, where GE products are more regulated and
consumer backlash is more pronounced
Vote AGAINST proposals seeking a report on the health and environmental effects
of genetically modified organisms (GMOs). Health studies of this sort are
better undertaken by regulators and the scientific community. Vote AGAINST
proposals to completely phase out GE ingredients from the company's products or
proposals asking for reports outlining the steps necessary to eliminate GE
ingredients from the company's products. Such resolutions presuppose that there
are proven health risks to GE ingredients (an issue better left to federal
regulators) that outweigh the economic benefits derived from
F-29
biotechnology.
HANDGUNS
Generally vote AGAINST requests for reports on a company's policies aimed at
curtailing gun violence in the United States unless the report is confined to
product safety information. Criminal misuse of firearms is beyond company
control and instead falls within the purview of law enforcement agencies.
HIV/AIDS
Vote CASE-BY-CASE on requests for reports outlining the impact of the health
pandemic (HI V/AIDS, malaria and tuberculosis) on the company's Sub-Saharan
operations and how the company is responding to it, taking into account:
. The nature and size of the company's operations in Sub-Saharan
Africa and the number of local employees
. The company's existing healthcare policies, including benefits and
healthcare access for local workers
. Company donations to healthcare providers operating in the region
Vote AGAINST proposals asking companies to establish, implement, and report on
a standard of response to the HIV/AIDS, TB, and Malaria health pandemic in
Africa and other developing countries, unless the company has significant
operations in these markets and has failed to adopt policies and/or procedures
to address these issues comparable to those of industry peers.
PREDATORY LENDING
Vote CASE-BY CASE on requests for reports on the company's procedures for
preventing predatory lending, including the establishment of a board committee
for oversight, taking into account:
. Whether the company has adequately disclosed mechanisms in place to
prevent abusive lending practices
. Whether the company has adequately disclosed the financial risks of
its sub-prime business
. Whether the company has been subject to violations of lending laws
or serious lending controversies
. Peer companies' policies to prevent abusive lending practices
TOBACCO
Most tobacco-related proposals should be evaluated on a CASE-BY-CASE basis,
taking into account the following factors:
Second-hand smoke:
. Whether the company complies with all local ordinances and
regulations
. The degree that voluntary restrictions beyond those mandated by law
might hurt the company's competitiveness
F-30
. The risk of any health-related liabilities.
Advertising to youth:
. Whether the company complies with federal, state, and local laws on
the marketing of tobacco or if it has been fined for violations
. Whether the company has gone as far as peers in restricting
advertising
. Whether the company entered into the Master Settlement Agreement,
which restricts marketing of tobacco to youth
. Whether restrictions on marketing to youth extend to foreign
countries
Cease production of tobacco-related products or avoid selling products to
tobacco companies:
. The percentage of the company's business affected
. The economic loss of eliminating the business versus any potential
tobacco-related liabilities.
Spin-off tobacco-related businesses:
. The percentage of the company's business affected
. The feasibility of a spin-off
. Potential future liabilities related to the company's tobacco
business
Stronger product warnings:
Vote AGAINST proposals seeking stronger product warnings. Such decisions are
better left to public health authorities.
Investment in tobacco stocks:
Vote AGAINST proposals prohibiting investment in tobacco equities. Such
decisions are better left to portfolio managers.
ENVIRONMENT AND ENERGY
ARCTIC NATIONAL WILDLIFE REFUGE
Generally vote AGAINST request for reports outlining potential environmental
damage from drilling in the Arctic National Wildlife Refuge (ANWR) unless:
. New legislation is adopted allowing development and drilling in the
ANWR region;
. The company intends to pursue operations in the ANWR; and
The company does not currently disclose an environmental risk report for their
operations in the ANWR.
F-31
CERES PRINCIPLES
Vote CASE-BY-CASE on proposals to adopt the CERES Principles, taking into
account:
. The company's current environmental disclosure beyond legal
requirements, including environmental health and safety (EHS)
audits and reports that may duplicate CERES
. The company's environmental performance record, including
violations of federal and state regulations, level of toxic
emissions, and accidental spills
. Environmentally conscious practices of peer companies, including
endorsement of CERES
. Costs of membership and implementation.
ENVIRONMENTAL-ECONOMIC RISK REPORT
Vote CASE by CASE on proposals requesting an economic risk assessment of
environmental performance considering:
. The feasibility of financially quantifying environmental risk
factors,
. The company's compliance with applicable legislation and/or
regulations regarding environmental performance,
. The costs associated with implementing improved standards,
. The potential costs associated with remediation resulting from poor
environmental performance, and
. The current level of disclosure on environmental policies and
initiatives.
ENVIRONMENTAL REPORTS
Generally vote FOR requests for reports disclosing the company's environmental
policies unless it already has well-documented environmental management systems
that are available to the public.
GLOBAL WARMING
Generally vote FOR proposals requesting a report on greenhouse gas emissions
from company operations and/or products unless this information is already
publicly disclosed or such factors are not integral to the company's line of
business.
Generally vote AGAINST proposals that call for reduction in greenhouse gas
emissions by specified amounts or within a restrictive time frame unless the
company lags industry standards and has been the subject of recent, significant
fines or litigation resulting from greenhouse gas emissions.
RECYCLING
Vote CASE-BY-CASE on proposals to adopt a comprehensive recycling strategy,
taking into account:
. The nature of the company's business and the percentage affected
F-32
. The extent that peer companies are recycling
. The timetable prescribed by the proposal
. The costs and methods of implementation
. Whether the company has a poor environmental track record, such as
violations of federal and state regulations
RENEWABLE ENERGY
In general, vote FOR requests for reports on the feasibility of developing
renewable energy sources unless the report is duplicative of existing
disclosure or irrelevant to the company's line of business.
Generally vote AGAINST proposals requesting that the company invest in
renewable energy sources. Such decisions are best left to management's
evaluation of the feasibility and financial impact that such programs may have
on the company.
SUSTAINABILITY REPORT
Generally vote FOR proposals requesting the company to report on policies and
initiatives related to social, economic, and environmental sustainability,
unless:
. The company already discloses similar information through existing
reports or policies such as an Environment, Health, and Safety
(EHS) report; comprehensive Code of Corporate Conduct; and/or
Diversity Report; or
. The company has formally committed to the implementation of a
reporting program based on Global Reporting Initiative (GRI)
guidelines or a similar standard within a specified time frame.
GENERAL CORPORATE ISSUES
OUTSOURCING/ OFFSHORING
Vote Case by Case on proposals calling for companies to report on the risks
associated with outsourcing, considering:
. Risks associated with certain international markets
. The utility of such a report to shareholders
. The existence of a publicly available code of corporate conduct
that applies to international operations
LINK EXECUTIVE COMPENSATION TO SOCIAL PERFORMANCE
Vote CASE-BY-CASE on proposals to review ways of linking executive compensation
to social factors, such as corporate downsizings, customer or employee
satisfaction, community involvement, human rights, environmental performance,
predatory lending, and executive/employee pay disparities. Such resolutions
should be evaluated in the context of:
. The relevance of the issue to be linked to pay
F-33
. The degree that social performance is already included in the
company's pay structure and disclosed
. The degree that social performance is used by peer companies in
setting pay
. Violations or complaints filed against the company relating to the
particular social performance measure
. Artificial limits sought by the proposal, such as freezing or
capping executive pay
. Independence of the compensation committee
. Current company pay levels.
CHARITABLE/POLITICAL CONTRIBUTIONS
Generally vote AGAINST proposals asking the company to affirm political
nonpartisanship in the workplace so long as:
. The company is in compliance with laws governing corporate
political activities, and
. The company has procedures in place to ensure that employee
contributions to company-sponsored political action committees
(PACs) are strictly voluntary and not coercive.
Vote AGAINST proposals to report or publish in newspapers the company's
political contributions. Federal and state laws restrict the amount of
corporate contributions and include reporting requirements.
Vote AGAINST proposals disallowing the company from making political
contributions. Businesses are affected by legislation at the federal, state,
and local level and barring contributions can put the company at a competitive
disadvantage.
Vote AGAINST proposals restricting the company from making charitable
contributions. Charitable contributions are generally useful for assisting
worthwhile causes and for creating goodwill in the community. In the absence of
bad faith, self-dealing, or gross negligence, management should determine which
contributions are in the best interests of the company.
Vote AGAINST proposals asking for a list of company executives, directors,
consultants, legal counsels, lobbyists, or investment bankers that have prior
government service and whether such service had a bearing on the business of
the company. Such a list would be burdensome to prepare without providing any
meaningful information to shareholders.
LABOR STANDARDS AND HUMAN RIGHTS
CHINA PRINCIPLES
Vote AGAINST proposals to implement the China Principles unless:
. There are serious controversies surrounding the company's China
operations, and
. The company does not have a code of conduct with standards similar
to those promulgated by the International Labor Organization (ILO).
F-34
COUNTRY-SPECIFIC HUMAN RIGHTS REPORTS
Vote CASE-BY-CASE on requests for reports detailing the company's operations in
a particular country and steps to protect human rights, based on:
. The nature and amount of company business in that country
. The company's workplace code of conduct
. Proprietary and confidential information involved
. Company compliance with U.S. regulations on investing in the country
. Level of peer company involvement in the country.
INTERNATIONAL CODES OF CONDUCT/VENDOR STANDARDS
Vote CASE-BY-CASE on proposals to implement certain human rights standards at
company facilities or those of its suppliers and to commit to outside,
independent monitoring. In evaluating these proposals, the following should be
considered:
. The company's current workplace code of conduct or adherence to
other global standards and the degree they meet the standards
promulgated by the proponent
. Agreements with foreign suppliers to meet certain workplace
standards
. Whether company and vendor facilities are monitored and how
. Company participation in fair labor organizations
. Type of business
. Proportion of business conducted overseas
. Countries of operation with known human rights abuses
. Whether the company has been recently involved in significant labor
and human rights controversies or violations
. Peer company standards and practices
. Union presence in company's international factories
Generally vote FOR reports outlining vendor standards compliance unless any of
the following apply:
. The company does not operate in countries with significant human
rights violations
. The company has no recent human rights controversies or violations,
or
. The company already publicly discloses information on its vendor
standards compliance.
MACBRIDE PRINCIPLES
Vote CASE-BY-CASE on proposals to endorse or increase activity on the MacBride
Principles, taking into account:
F-35
. Company compliance with or violations of the Fair Employment Act of
1989
. Company antidiscrimination policies that already exceed the legal
requirements
. The cost and feasibility of adopting all nine principles
The cost of duplicating efforts to follow two sets of standards (Fair
Employment and the MacBride Principles)
. The potential for charges of reverse discrimination
. The potential that any company sales or contracts in the rest of
the United Kingdom could be negatively impacted
. The level of the company's investment in Northern Ireland
. The number of company employees in Northern Ireland
. The degree that industry peers have adopted the MacBride Principles
. Applicable state and municipal laws that limit contracts with
companies that have not adopted the MacBride Principles.
MILITARY BUSINESS
FOREIGN MILITARY SALES/OFFSETS
Vote AGAINST reports on foreign military sales or offsets. Such disclosures may
involve sensitive and confidential information. Moreover, companies must comply
with government controls and reporting on foreign military sales.
LANDMINES AND CLUSTER BOMBS
Vote CASE-BY-CASE on proposals asking a company to renounce future involvement
in antipersonnel landmine production, taking into account:
. Whether the company has in the past manufactured landmine components
. Whether the company's peers have renounced future production
Vote CASE-BY-CASE on proposals asking a company to renounce future involvement
in cluster bomb production, taking into account:
. What weapons classifications the proponent views as cluster bombs
. Whether the company currently or in the past has manufactured
cluster bombs or their components
. The percentage of revenue derived from cluster bomb manufacture
. Whether the company's peers have renounced future production
F-36
NUCLEAR WEAPONS
Vote AGAINST proposals asking a company to cease production of nuclear weapons
components and delivery systems, including disengaging from current and
proposed contracts. Components and delivery systems serve multiple military and
non-military uses, and withdrawal from these contracts could have a negative
impact on the company's business.
OPERATIONS IN NATIONS SPONSORING TERRORISM (IRAN)
Vote CASE-BY-CASE on requests for a board committee review and report outlining
the company's financial and reputational risks from its operations in Iran,
taking into account current disclosure on:
. The nature and purpose of the Iranian operations and the amount of
business involved (direct and indirect revenues and expenses) that
could be affected by political disruption
. Compliance with U.S. sanctions and laws
SPACED-BASED WEAPONIZATION
Generally vote FOR reports on a company's involvement in spaced-based
weaponization unless:
. The information is already publicly available or
The disclosures sought could compromise proprietary information.
F-37
WORKPLACE DIVERSITY
BOARD DIVERSITY
Generally vote FOR reports on the company's efforts to diversify the board,
unless:
. The board composition is reasonably inclusive in relation to
companies of similar size and business or
. The board already reports on its nominating procedures and
diversity initiatives.
Generally vote AGAINST proposals that would call for the adoption of specific
committee charter language regarding diversity initiatives unless the company
fails to publicly disclose existing equal opportunity or nondiscrimination
policies.
Vote CASE-BY-CASE on proposals asking the company to increase the
representation of women and minorities on the board, taking into account:
. The degree of board diversity
. Comparison with peer companies
. Established process for improving board diversity
. Existence of independent nominating committee
. Use of outside search firm
. History of EEO violations
EQUAL EMPLOYMENT OPPORTUNITY (EEO)
Generally vote FOR reports outlining the company's affirmative action
initiatives unless all of the following apply:
. The company has well-documented equal opportunity programs
. The company already publicly reports on its company-wide
affirmative initiatives and provides data on its workforce
diversity, and
. The company has no recent EEO-related violations or litigation.
Vote AGAINST proposals seeking information on the diversity efforts of
suppliers and service providers, which can pose a significant cost and
administration burden on the company.
GLASS CEILING
Generally vote FOR reports outlining the company's progress towards the Glass
Ceiling Commission's business recommendations, unless:
. The composition of senior management and the board is fairly
inclusive
. The company has well-documented programs addressing diversity
initiatives and leadership development
F-38
. The company already issues public reports on its company-wide
affirmative initiatives and provides data on its workforce
diversity, and
. The company has had no recent, significant EEO-related violations
or litigation
SEXUAL ORIENTATION
Vote FOR proposals seeking to amend a company's EEO statement in order to
prohibit discrimination based on sexual orientation, unless the change would
result in excessive costs for the company.
Vote AGAINST proposals to ext end company benefits to or eliminate benefits
from domestic partners. Benefits decisions should be left to the discretion of
the company.
10. Mutual Fund Proxies
ELECTION OF DIRECTORS
Vote the election of directors on a CASE-BY-CASE basis, considering the
following factors: board structure; director independence and qualifications;
and compensation of directors within the fund and the family of funds
attendance at board and committee meetings.
Votes should be withheld from directors who:
. attend less than 75 percent of the board and committee meetings
without a valid excuse for the absences. Valid reasons include
illness or absence due to company business. Participation via
telephone is acceptable.
. In addition, if the director missed only one meeting or one day's
meetings, votes should not be withheld even if such absence dropped
the director's attendance below 75 percent.
. ignore a shareholder proposal that is approved by a majority of
shares outstanding;
. ignore a shareholder proposal that is approved by a majority of the
votes cast for two consecutive years;
. are interested directors and sit on the audit or nominating
committee; or
. are interested directors and the full board serves as the audit or
. nominating committee or the company does not have one of these
committees.
CONVERTING CLOSED-END FUND TO OPEN-END FUND
Vote conversion proposals on a CASE-BY-CASE basis, considering the following
factors: past performance as a closed-end fund; market in which the fund
invests; measures taken by the board to address the discount; and past
shareholder activism, board activity, and votes on related proposals.
PROXY CONTESTS
Votes on proxy contests should be determined on a CASE-BY-CASE basis,
considering the following factors:
. Past performance relative to its peers
F-39
. Market in which fund invests
. Measures taken by the board to address the issues
. Past shareholder activism, board activity, and votes on related
proposals
. Strategy of the incumbents versus the dissidents
. Independence of directors
. Experience and skills of director candidates
. Governance profile of the company
. Evidence of management entrenchment
INVESTMENT ADVISORY AGREEMENTS
Votes on investment advisory agreements should be determined on a CASE-BY-CASE
basis, considering the following factors:
. Proposed and current fee schedules
. Fund category/investment objective
. Performance benchmarks
. Share price performance as compared with peers
. Resulting fees relative to peers
. Assignments (where the advisor undergoes a change of control)
APPROVING NEW CLASSES OR SERIES OF SHARES
Vote FOR the establishment of new classes or series of shares.
PREFERRED STOCK PROPOSALS
Votes on the authorization for or increase in preferred shares should be
determined on a CASE-BY-CASE basis, considering the following factors: stated
specific financing purpose, possible dilution for common shares, and whether
the shares can be used for anti-takeover purposes
1940 ACT POLICIES
Votes on 1940 Act policies should be determined on a CASE-BY-CASE basis,
considering the following factors:
. potential competitiveness; regulatory developments; current and
potential returns; and current and potential risk.
Generally vote FOR these amendments as long as the proposed changes do not
fundamentally alter the investment focus of the fund and do comply with t he
current SEC interpretation.
F-40
CHANGING A FUNDAMENTAL RESTRICTION TO A NON-FUNDAMENTAL RESTRICTION
Proposals to change a fundamental restriction to a non-fundamental restriction
should be evaluated on a CASE- BY-CASE basis, considering the following
factors: the fund's target investments, the reasons given by the fund for the
change, and the projected impact of the change on the portfolio.
CHANGE FUNDAMENTAL INVESTMENT OBJECTIVE TO NON-FUNDAMENTAL
Vote AGAINST proposals to change a fund's fundamental investment objective to
non-fundamental.
NAME CHANGE PROPOSALS
Votes on name change proposals should be determined on a CASE-BY-CASE basis,
considering the following factors: political/economic changes in the target
market, consolidation in the target market, and current asset composition
CHANGE IN FUND'S SUB-CLASSIFICATION
Votes on changes in a fund's sub-classification should be determined on a
CASE-BY-CASE basis, considering the following factors: potential
competitiveness, current and potential returns, risk of concentration, and
consolidation in target industry
DISPOSITION OF ASSETS/TERMINATION/LIQUIDATION
Vote these proposals on a CASE-BY-CASE basis, considering the following
factors: strategies employed to salvage the company; the fund's past
performance; and terms of the liquidation.
CHANGES TO THE CHARTER DOCUMENT
Votes on changes to the charter document should be determined on a CASE-BY-CASE
basis, considering the following factors:
. The degree of change implied by the proposal
. The efficiencies that could result
. The state of incorporation
. Regulatory standards and implications
Vote AGAINST any of the following changes:
. Removal of shareholder approval requirement to reorganize or
terminate the trust or any of its series
. Removal of shareholder approval requirement for amendments to the
new declaration of trust
. Removal of shareholder approval requirement to amend the fund's
management contract, allowing the contract to be modified by the
investment manager and the trust management, as permitted by the
1940 Act
F-41
. Allow the trustees to impose other fees in addition to sales
charges on investment in a fund, such as deferred sales charges and
redemption fees that may be imposed upon redemption of a fund's
shares
. Removal of shareholder approval requirement to engage in and
terminate sub-advisory arrangements
Removal of shareholder approval requirement to change the domicile of the fund
CHANGING THE DOMICILE OF A FUND
Vote re-incorporations on a CASE-BY-CASE basis, considering the following
factors:
. regulations of both states; required fundamental policies of both
states; and the increased flexibility available.
AUTHORIZING THE BOARD TO HIRE AND TERMINATE SUB-ADVISORS WITHOUT SHAREHOLDER
APPROVAL
Vote AGAINST proposals authorizing the board to hire/terminate sub-advisors
without shareholder approval.
DISTRIBUTION AGREEMENTS
Vote these proposals on a CASE-BY-CASE basis, considering the following factors:
. fees charged to comparably sized funds with similar objectives, the
proposed distributor's reputation and past performance, the
competitiveness of the fund in the industry, and terms of the
agreement.
MASTER-FEEDER STRUCTURE
Vote FOR the establishment of a master-feeder structure.
MERGERS
Vote merger proposals on a CASE-BY-CASE basis, considering the following
factors:
. resulting fee structure, performance of both funds, continuity of
management personnel, and changes in corporate governance and their
impact on shareholder rights.
SHAREHOLDER PROPOSALS TO ESTABLISH DIRECTOR OWNERSHIP REQUIREMENT
Generally vote AGAINST shareholder proposals that mandate a specific minimum
amount of stock that directors must own in order to qualify as a director or to
remain on the board. While ISS favors stock ownership on the part of directors,
the company should determine the appropriate ownership requirement.
F-42
SHAREHOLDER PROPOSALS TO REIMBURSE SHAREHOLDER FOR EXPENSES INCURRED
Voting to reimburse proxy solicitation expenses should be analyzed on a
CASE-BY-CASE basis. In cases where ISS recommends in favor of the dissidents,
we also recommend voting for reimbursing proxy solicitation expenses.
SHAREHOLDER PROPOSALS TO TERMINATE THE INVESTMENT ADVISOR
Vote to terminate the investment advisor on a CASE-BY-CASE basis, considering
the following factors: performance of the fund's NAV, the fund's history of
shareholder relations, and the performance of other funds under the advisor's
management.
. performance of the fund's NAV, the fund's history of shareholder
relations, and the performance of other funds under the advisor's
management.
F-43
APPENDIX G
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
To the best knowledge of the Trust, the names and addresses of the record
and beneficial holders of 5% or more of the outstanding shares of each class of
the Trust's equity securities and the percentage of the outstanding shares held
by such holders are set forth below. Unless otherwise indicated below, the
Trust has no knowledge as to whether all or any portion of the shares owned of
record are also owned beneficially.
A shareholder who owns beneficially 25% or more of the outstanding
securities of a Fund is presumed to "control" that Fund as defined in the 1940
Act. Such control may affect the voting rights of other shareholders.
All information listed below is as of September 30, 2005.
AIM DYNAMICS FUND
INVESTOR
CLASS CLASS A CLASS B CLASS C CLASS K CLASS R INSTITUTIONAL
SHARES SHARES SHARES SHARES SHARES SHARES* CLASS SHARES
-------- ------- ------- ------- ------- ------- -------------
PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE
NAME AND ADDRESS OF OWNED OF OWNED OF OWNED OF OWNED OF OWNED OF OWNED OF OWNED OF
PRINCIPAL HOLDER RECORD RECORD RECORD RECORD RECORD RECORD RECORD
- ------------------- ------------------------------------------------------- ----------
AIM Growth Allocation Fund
Omnibus Account
c/o AIM Advisors
11 E Greenway Plaza,
Suite 100
Houston, TX 77046-1173 -- -- -- -- -- -- 26.86%
AMVESCAP National
Trust Co
FBO AMVESCAP 401(k) Plan
P. O. Box 105779
Atlanta, GA 30348-5779 -- -- -- -- -- -- 50.08%
AMVESCAP National
Trust Company
FBO AMVESCAP Money
Purchase Plan
P. O. Box 105779
Atlanta, GA 30348-5779 -- -- -- -- -- -- 18.36%
Capital Bank and Trust Co.,
Carris Financial Corp
c/o Plan Premier/FastCorp
8515 E. Orchard Rd. #2T2
Englewood, CO 80111-5002 -- -- -- -- 5.41% -- --
- --------
* Class R shares commenced operations on October 25, 2005.
G-1
INVESTOR
CLASS CLASS A CLASS B CLASS C CLASS K CLASS R INSTITUTIONAL
SHARES SHARES SHARES SHARES SHARES SHARES* CLASS SHARES
-------- ------- ------- ------- ------- ------- -------------
PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE
NAME AND ADDRESS OF OWNED OF OWNED OF OWNED OF OWNED OF OWNED OF OWNED OF OWNED OF
PRINCIPAL HOLDER RECORD RECORD RECORD RECORD RECORD RECORD RECORD
- ------------------- ------------------------------------------------------- ----------
Charles Schwab & Co. Inc.
Special Custody For the
Exclusive Benefit
of Customers
Attn: Mutual Funds
101 Montgomery St.,
San Francisco, CA 94104-4122 10.09% 19.50% -- -- -- -- --
FIIOC Agent
Employee Benefit Plan
100 Magellan Way KWIC
Covington, KY 41015-1987 5.53% -- -- -- -- -- --
Merrill Lynch
4800 Deer Lake Dr East
Jacksonville FL 32246-6484 -- -- 13.14% -- 18.54% -- --
Morgan Stanley DW
Attn: Mutual Fund Operations
3 Harborside Pl. Floor 6
Jersey City, NJ 07311-3907 -- -- 9.21% -- -- -- --
Saxon & Co.
P. O. Box 7780-1888
Philadelphia, PA 19182-0001 -- -- -- -- 42.69% -- --
SEI Trust Company
c/o HSBC TPA Portal 401K
Attn: Mutual Fund
Administrator
One Freedom Valley Dr.
Oaks, PA 19456 -- -- -- -- 6.54% -- --
Transamerica Life Ins &
Annuity Co.
Attn: Daisy Lo
Retirement Services-
Separate Acct.
P. O. Box 30368
Los Angeles, CA 90030-0368 -- 31.79% -- -- -- -- --
- --------
* Class R shares commenced operations on October 25, 2005.
G-2
AIM Small Company Growth Fund
INVESTOR INSTITUTIONAL
CLASS CLASS A CLASS B CLASS C CLASS K CLASS R CLASS
SHARES SHARES SHARES SHARES SHARES SHARES* SHARES
-------- ------- ------- ------- ------- ------- -------------
PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE
NAME AND ADDRESS OF OWNED OF OWNED OF OWNED OF OWNED OF OWNED OF OWNED OF OWNED OF
PRINCIPAL HOLDER RECORD RECORD RECORD RECORD RECORD RECORD RECORD
- ------------------- ------------------------------------------------------- ----------
AIM Growth Allocation Fund Omnibus Account
c/o AIM Advisors
11 E Greenway Plaza, Suite 100
Houston, TX 77046-1113 -- -- -- -- -- -- 99.95%
Charles Schwab & Co. Inc.
Special Custody Acct for the Exclusive Benefit of
Customers
Attn: Mutual Funds
101 Montgomery St.,
San Francisco, CA 94104-4122 12.03% 12.14% -- -- -- -- --
Capital Bank & Trust
FBO Pechiney Roller Products LLC.
8515 E Orchard Rd., #212
Greenwood Vlg, CO 80111-5002 -- -- -- -- 16.82% -- --
Citigroup Global Markets House Account
Attn: Cindy Tempesta
7th Floor
333 West 34th Street
New York NY 10001-2402 -- -- -- 5.27% -- -- --
Dain Rauscher Inc.
Marsha S. Glazer Ttee
Marsha S. Glazer Charitable Remainder Unitrust
B Dtd 3/14/95
Msg Managed Crut Funds
P. O. Box 997 -- 5.41% -- -- -- -- --
Delaware Charter Guarantee & Trust FBO
Principal Financial Group Omnibus Qualified
711 High Street
Des Moines, IA 50392-0002 -- -- -- -- 57.43% -- --
- --------
* Class R shares commenced operations on October 25, 2005.
G-3
INVESTOR INSTITUTIONAL
CLASS CLASS A CLASS B CLASS C CLASS K CLASS R CLASS
SHARES SHARES SHARES SHARES SHARES SHARES* SHARES
-------- ------- ------- ------- ------- ------- -------------
PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE
NAME AND ADDRESS OF OWNED OF OWNED OF OWNED OF OWNED OF OWNED OF OWNED OF OWNED OF
PRINCIPAL HOLDER RECORD RECORD RECORD RECORD RECORD RECORD RECORD
- ------------------- ------------------------------------------------------- ----------
Delaware Charter Guarantee Plans
FBO Various Qualified Plans
711 High Street
Des Moines, IA 50309-2732 -- -- -- -- 5.56% -- --
Dain Rauscher Inc.
Marsha S. Glazer Ttee
Marsha S. Glazer Charitable Remainder Unitrust
A Dtd 3/14/95
Msg Managed Crut Funds
P. O. Box 997 -- 5.41% -- -- -- -- --
FIIOC Agent
Employee Benefit Plans
100 Magellan Way KW1C
Covington, KY 41015-1987 10.68% -- -- -- -- -- --
Nationwide Life Insurance Co.
QPVA (EISP)
IPO Portfolio Accounting
P. O. Box 182029
Columbus, OH 43218-2029 8.22% -- -- -- -- -- --
Prudential Retirement Ins & Ann co.
280 Trumbull St
Hartford, CT 06103-3509 6.64% -- -- -- -- -- --
Wells Fargo Bank NA FBO Tetra Tech Inc.
Retirement Plan
P. O. Box 1533
Minneapolis, MN 55480-1533 5.03% -- -- -- -- -- --
- --------
* Class R shares commenced operations on October 25, 2005.
G-4
AIM S&P 500 Index Fund
INVESTOR
CLASS INSTITUTIONAL
SHARES CLASS SHARES
-------- -------------
PERCENTAGE PERCENTAGE
NAME AND ADDRESS OF OWNED OF OWNED OF
PRINCIPAL HOLDER RECORD RECORD
------------------- ---------- ----------
BISYS Retirement Services FBO
Greater Chesapeake Hand Specialists
700 17th Street
Suite 300
Denver, CO 80202-3531 -- 5.29%
INVESCO Trust Co. TR
REA Magnet Wire Company Inc.
Executive Deferred Comp Plan
3600 E. Pontiac St.
Fort Wayne, IN 46803-3804 -- 6.37%
Wilmington Trust Comp Ttee
FBO Bonestroo, Rosene, Anderlek & Assoc.
301 W. 11th St.
Wilmington, DE 19801-1519 -- 74.70%
MANAGEMENT OWNERSHIP
As of September 30, 2005, the trustees and officers as a group owned less
than 1% of the outstanding shares of each class of each Fund.
G-5
APPENDIX H-1
PENDING LITIGATION ALLEDGING MARKET TIMING
The following civil lawsuits, including purported class action and
shareholder derivative suits, involve, depending on the lawsuit, one or more
AIM Funds, IFG, AIM, AIM Management, AMVESCAP, certain related entities,
certain of their current and former officers and/or certain unrelated third
parties and are based on allegations of improper market timing and related
activity in the AIM Funds. These lawsuits either have been served or have had
service of process waived as of September 20, 2005 (with the exception of the
Sayegh lawsuit discussed below).
RICHARD LEPERA, ON BEHALF OF HIMSELF AND ALL OTHERS SIMILARLY SITUATED, V.
INVESCO FUNDS GROUP, INC., INVESCO STOCK FUNDS, INC., INVESCO BOND FUNDS,
INC., INVESCO SECTOR FUNDS, INC. AND DOE DEFENDANTS 1-100, in the District
Court, City and County of Denver, Colorado, (Civil Action No. 03-CV-7600),
filed on October 2, 2003. This claim alleges: common law breach of fiduciary
duty; common law breach of contract; and common law tortious interference
with contract. The plaintiff in this case is seeking: compensatory and
punitive damages; injunctive relief; disgorgement of revenues and profits;
and costs and expenses, including counsel fees and expert fees.
MIKE SAYEGH, ON BEHALF OF THE GENERAL PUBLIC, V. JANUS CAPITAL CORPORATION,
JANUS CAPITAL MANAGEMENT LLC, JANUS INVESTMENT FUND, EDWARD J. STERN, CANARY
CAPITAL PARTNERS LLC, CANARY INVESTMENT MANAGEMENT LLC, CANARY CAPITAL
PARTNERS LTD., KAPLAN & CO. SECURITIES INC., BANK ONE CORPORATION, BANC ONE
INVESTMENT ADVISORS, THE ONE GROUP MUTUAL FUNDS, BANK OF AMERICA
CORPORATION, BANC OF AMERICA CAPITAL MANAGEMENT LLC, BANC OF AMERICA
ADVISORS LLC, NATIONS FUND INC., ROBERT H. GORDON, THEODORE H. SIHPOL III,
CHARLES D. BRYCELAND, SECURITY TRUST COMPANY, STRONG CAPITAL MANAGEMENT
INC., JB OXFORD & COMPANY, ALLIANCE CAPITAL MANAGEMENT HOLDING L.P.,
ALLIANCE CAPITAL MANAGEMENT L.P., ALLIANCE CAPITAL MANAGEMENT CORPORATION,
AXA FINANCIAL INC., ALLIANCEBERNSTEIN REGISTRANTS, GERALD MALONE, CHARLES
SCHAFFRAN, MARSH & MCLENNAN COMPANIES, INC., PUTNAM INVESTMENTS TRUST,
PUTNAM INVESTMENT MANAGEMENT LLC, PUTNAM INVESTMENT FUNDS, AND DOES 1-500,
in the Superior Court of the State of California, County of Los Angeles
(Case No. BC304655), filed on October 22, 2003 and amended on December 17,
2003 to substitute INVESCO Funds Group, Inc. and Raymond R. Cunningham for
unnamed Doe defendants. This claim alleges unfair business practices and
violations of Sections 17200 and 17203 of the California Business and
Professions Code. The plaintiff in this case is seeking: injunctive relief;
restitution, including pre-judgment interest; an accounting to determine the
amount to be returned by the defendants and the amount to be refunded to the
public; the creation of an administrative process whereby injured customers
of the defendants receive their losses; and counsel fees.
RAJ SANYAL, DERIVATIVELY ON BEHALF OF NATIONS INTERNATIONAL EQUITY FUND, V.
WILLIAM P. CARMICHAEL, WILLIAM H. GRIGG, THOMAS F. KELLER, CARL E. MUNDY,
JR., CORNELIUS J. PINGS, A. MAX WALKER, CHARLES B. WALKER, EDMUND L. BENSON,
III, ROBERT H. GORDON, JAMES B. SOMMERS, THOMAS S. WORD, JR., EDWARD D.
BEDARD, GERALD MURPHY, ROBERT B. CARROLL, INVESCO GLOBAL ASSET MANAGEMENT,
PUTNAM INVESTMENT MANAGEMENT, BANK OF AMERICA CORPORATION, MARSICO CAPITAL
MANAGEMENT, LLC, BANC OF AMERICA ADVISORS, LLC, BANC OF AMERICA CAPITAL
MANAGEMENT, LLC, AND NATIONS FUNDS TRUST, in the Superior Court Division,
State of North Carolina (Civil Action No. 03-CVS-19622), filed on
November 14, 2003.
H-1
This claim alleges common law breach of fiduciary duty; abuse of control;
gross mismanagement; waste of fund assets; and unjust enrichment. The
plaintiff in this case is seeking: injunctive relief, including imposition
of a constructive trust; damages; restitution and disgorgement; and costs
and expenses, including counsel fees and expert fees.
L. SCOTT KARLIN, DERIVATIVELY ON BEHALF OF INVESCO FUNDS GROUP, INC. V.
AMVESCAP, PLC, INVESCO, INC., CANARY CAPITAL PARTNERS, LLC, CANARY
INVESTMENT MANAGEMENT, LLC, AND CANARY CAPITAL PARTNERS, LTD., in the United
States District Court, District of Colorado (Civil Action No. 03-MK-2406),
filed on November 28, 2003. This claim alleges violations of Section 36(b)
of the Investment Company Act of 1940 ("Investment Company Act"), and common
law breach of fiduciary duty. The plaintiff in this case is seeking damages
and costs and expenses, including counsel fees and expert fees.
RICHARD RAVER, INDIVIDUALLY AND ON BEHALF OF ALL OTHERS SIMILARLY SITUATED,
V. INVESCO FUNDS GROUP, INC., INVESCO STOCK FUNDS, INC, AIM MANAGEMENT
GROUP, INC., AIM STOCK FUNDS, AIM STOCK FUNDS, INC., AMVESCAP PLC, INVESCO
ADVANTAGE HEALTH SCIENCES FUND, INVESCO CORE EQUITY FUND, INVESCO DYNAMICS
FUND, INVESCO ENERGY FUND, INVESCO FINANCIAL SERVICES FUND, INVESCO GOLD &
PRECIOUS METALS FUND, INVESCO HEALTH SCIENCES FUND, INVESCO INTERNATIONAL
CORE EQUITY FUND, INVESCO LEISURE FUND, INVESCO MID-CAP GROWTH FUND, INVESCO
MULTI-SECTOR FUND, INVESCO S&P 500 INDEX FUND, INVESCO SMALL COMPANY GROWTH
FUND, INVESCO TECHNOLOGY FUND, INVESCO TOTAL RETURN FUND, INVESCO UTILITIES
FUND, INVESCO ADVANTAGE FUND, INVESCO BALANCED FUND, INVESCO EUROPEAN FUND,
INVESCO GROWTH FUND, INVESCO HIGH YIELD FUND, INVESCO GROWTH & INCOME FUND,
INVESCO INTERNATIONAL BLUE CHIP VALUE FUND, INVESCO REAL ESTATE OPPORTUNITY
FUND, INVESCO SELECT FUND, INVESCO TAX-FREE BOND FUND, INVESCO
TELECOMMUNICATIONS FUND, INVESCO U.S. GOVERNMENT SECURITIES FUND, INVESCO
VALUE FUND, EDWARD J. STERN, CANARY INVESTMENT MANAGEMENT, LLC, CANARY
CAPITAL PARTNERS, LTD., CANARY CAPITAL PARTNERS, LLC, AND DOES 1-100, in the
United States District Court, District of Colorado (Civil Action
No. 03-F-2441), filed on December 2, 2003. This claim alleges violations of:
Sections 11 and 15 of the Securities Act of 1933 (the "Securities Act");
Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the
"Exchange Act"); Rule 10b-5 under the Exchange Act; and Sections 34(b),
36(a) and 36(b) of the Investment Company Act. The claim also alleges common
law breach of fiduciary duty. The plaintiffs in this case are seeking:
damages; pre-judgment and post-judgment interest; counsel fees and expert
fees; and other relief.
JERRY FATTAH, CUSTODIAN FOR BASIM FATTAH, INDIVIDUALLY AND ON BEHALF OF ALL
OTHERS SIMILARLY SITUATED, V. INVESCO ADVANTAGE HEALTH SCIENCES FUND,
INVESCO CORE EQUITY FUND, INVESCO DYNAMICS FUND, INVESCO ENERGY FUND,
INVESCO FINANCIAL SERVICES FUND, INVESCO GOLD & PRECIOUS METALS FUND,
INVESCO HEALTH SCIENCES FUND, INVESCO INTERNATIONAL CORE EQUITY FUND
(FORMERLY KNOWN AS INTERNATIONAL BLUE CHIP VALUE FUND), INVESCO LEISURE
FUND, INVESCO MID-CAP GROWTH FUND, INVESCO MULTI-SECTOR FUND, AIM INVESCO
S&P 500 INDEX FUND, INVESCO SMALL COMPANY GROWTH FUND, INVESCO TECHNOLOGY
FUND, INVESCO TOTAL RETURN FUND, INVESCO UTILITIES FUND, AIM MONEY MARKET
FUND, AIM INVESCO TAX-FREE MONEY FUND, AIM INVESCO TREASURER'S MONEY MARKET
RESERVE FUND, AIM INVESCO TREASURER'S TAX-EXEMPT RESERVE FUND, AIM INVESCO
U.S. GOVERNMENT MONEY FUND, INVESCO ADVANTAGE FUND, INVESCO BALANCED FUND,
INVESCO EUROPEAN FUND, INVESCO
H-2
GROWTH FUND, INVESCO HIGH YIELD FUND, INVESCO GROWTH & INCOME FUND, INVESCO
REAL ESTATE OPPORTUNITY FUND, INVESCO SELECT INCOME FUND, INVESCO TAX-FREE
BOND FUND, INVESCO TELECOMMUNICATIONS FUND, INVESCO U.S. GOVERNMENT
SECURITIES FUND, INVESCO VALUE FUND, INVESCO, INVESCO LATIN AMERICAN GROWTH
FUND (COLLECTIVELY KNOWN AS THE "INVESCO FUNDS"), AIM STOCK FUNDS, AIM
COUNSELOR SERIES TRUST, AIM SECTOR FUNDS INC., AIM BOND FUNDS INC., AIM
COMBINATION STOCK AND BOND FUNDS INC., AIM MONEY MARKET FUNDS INC., AIM
INTERNATIONAL FUNDS INC. (COLLECTIVELY KNOWN AS THE "INVESCO FUNDS
REGISTRANTS"), AMVESCAP PLC, INVESCO FUNDS GROUP INC., TIMOTHY MILLER,
RAYMOND CUNNINGHAM, THOMAS KOLBE, EDWARD STERN, AMERICAN SKANDIA INC., BREAN
MURRAY & CO., INC., CANARY CAPITAL PARTNERS, LLC, CANARY INVESTMENT
MANAGEMENT, LLC, CANARY CAPITAL PARTNERS, LTD., AND JOHN DOES 1-100, in the
United States District Court, District of Colorado (Civil Action
No. 03-F-2456), filed on December 4, 2003. This claim alleges violations of:
Sections 11 and 15 of Securities Act; Sections 10(b) and 20(a) of the
Exchange Act; Rule 10b-5 under the Exchange Act; and Section 206 of the
Investment Advisers Act of 1940, as amended (the "Advisers Act"). The
plaintiffs in this case are seeking: compensatory damages; rescission;
return of fees paid; accounting for wrongfully gotten gains, profits and
compensation; restitution and disgorgement; and other costs and expenses,
including counsel fees and expert fees.
EDWARD LOWINGER AND SHARON LOWINGER, INDIVIDUALLY AND ON BEHALF OF ALL
OTHERS SIMILARLY SITUATED, V. INVESCO ADVANTAGE HEALTH SCIENCES FUND,
INVESCO CORE EQUITY FUND, INVESCO DYNAMICS FUND, INVESCO ENERGY FUND,
INVESCO FINANCIAL SERVICES FUND, INVESCO GOLD & PRECIOUS METALS FUND,
INVESCO HEALTH SCIENCES FUND, INVESCO INTERNATIONAL CORE EQUITY FUND
(FORMERLY KNOWN AS INTERNATIONAL BLUE CHIP VALUE FUND), INVESCO LEISURE
FUND, INVESCO MID-CAP GROWTH FUND, INVESCO MULTI-SECTOR FUND, AIM INVESCO
S&P 500 INDEX FUND, INVESCO SMALL COMPANY GROWTH FUND, INVESCO TECHNOLOGY
FUND, INVESCO TOTAL RETURN FUND, INVESCO UTILITIES FUND, AIM MONEY MARKET
FUND, AIM INVESCO TAX-FREE MONEY FUND, AIM INVESCO TREASURER'S MONEY MARKET
RESERVE FUND, AIM INVESCO TREASURER'S TAX-EXEMPT RESERVE FUND, AIM INVESCO
U.S. GOVERNMENT MONEY FUND, INVESCO ADVANTAGE FUND, INVESCO BALANCED FUND,
INVESCO EUROPEAN FUND, INVESCO GROWTH FUND, INVESCO HIGH-YIELD FUND, INVESCO
GROWTH & INCOME FUND, INVESCO REAL ESTATE OPPORTUNITY FUND, INVESCO SELECT
INCOME FUND, INVESCO TAX-FREE BOND FUND, INVESCO TELECOMMUNICATIONS FUND,
INVESCO U.S. GOVERNMENT SECURITIES FUND, INVESCO VALUE FUND, INVESCO;
INVESCO LATIN AMERICAN GROWTH FUND (COLLECTIVELY KNOWN AS THE "INVESCO
FUNDS"), AIM STOCK FUNDS, AIM COUNSELOR SERIES TRUST, AIM SECTOR FUNDS INC.,
AIM BOND FUNDS INC., AIM COMBINATION STOCK AND BOND FUNDS INC., AIM MONEY
MARKET FUNDS INC., AIM INTERNATIONAL FUNDS INC. (COLLECTIVELY KNOWN AS THE
"INVESCO FUNDS REGISTRANTS"), AMVESCAP PLC, INVESCO FUNDS GROUP, INC.,
TIMOTHY MILLER, RAYMOND CUNNINGHAM, THOMAS KOLBE, EDWARD J. STERN, AMERICAN
SKANDIA INC., BREAN MURRAY & CO., INC., CANARY CAPITAL PARTNERS, LLC, CANARY
INVESTMENT MANAGEMENT, LLC, CANARY CAPITAL PARTNERS, LTD., AND JOHN DOES
1-100, in the United States District Court, Southern District of New York
(Civil Action No. 03-CV-9634), filed on December 4, 2003. This claim alleges
violations of: Sections 11 and 15 of the Securities Act; Sections 10(b) and
20(a) of the Exchange Act; Rule 10b-5 under the Exchange Act; and
Section 206 of the Advisers Act. The plaintiffs in this case are seeking:
compensatory damages; rescission; return of fees paid; accounting for
wrongfully gotten gains, profits and compensation; restitution and
disgorgement; and other costs and expenses, including counsel fees and
expert fees.
H-3
JOEL GOODMAN, INDIVIDUALLY AND ON BEHALF OF ALL OTHERS SIMILARLY SITUATED,
V. INVESCO FUNDS GROUP, INC. AND RAYMOND R. CUNNINGHAM, in the District
Court, City and County of Denver, Colorado (Case Number 03CV9268), filed on
December 5, 2003. This claim alleges common law breach of fiduciary duty and
aiding and abetting breach of fiduciary duty. The plaintiffs in this case
are seeking: injunctive relief; accounting for all damages and for all
profits and any special benefits obtained; disgorgement; restitution and
damages; costs and disbursements, including counsel fees and expert fees;
and equitable relief.
STEVEN B. EHRLICH, CUSTODIAN FOR ALEXA P. EHRLICH, UGTMA/FLORIDA, AND DENNY
P. JACOBSON, INDIVIDUALLY AND ON BEHALF OF ALL OTHERS SIMILARLY SITUATED, V.
INVESCO ADVANTAGE HEALTH SCIENCES FUND, INVESCO CORE EQUITY FUND, INVESCO
DYNAMICS FUND, INVESCO ENERGY FUND, INVESCO FINANCIAL SERVICES FUND, INVESCO
GOLD & PRECIOUS METALS FUND, INVESCO HEALTH SCIENCES FUND, INVESCO
INTERNATIONAL CORE EQUITY FUND (FORMERLY KNOWN AS INTERNATIONAL BLUE CHIP
VALUE FUND), INVESCO LEISURE FUND, INVESCO MID-CAP GROWTH FUND, INVESCO
MULTI-SECTOR FUND, AIM INVESCO S&P 500 INDEX FUND, INVESCO SMALL COMPANY
GROWTH FUND, INVESCO TECHNOLOGY FUND, INVESCO TOTAL RETURN FUND, INVESCO
UTILITIES FUND, AIM MONEY MARKET FUND, AIM INVESCO TAX-FREE MONEY FUND, AIM
INVESCO TREASURERS MONEY MARKET RESERVE FUND, AIM INVESCO TREASURERS
TAX-EXEMPT RESERVE FUND, AIM INVESCO US GOVERNMENT MONEY FUND, INVESCO
ADVANTAGE FUND, INVESCO BALANCED FUND, INVESCO EUROPEAN FUND, INVESCO GROWTH
FUND, INVESCO HIGH-YIELD FUND, INVESCO GROWTH & INCOME FUND, INVESCO REAL
ESTATE OPPORTUNITY FUND, INVESCO SELECT INCOME FUND, INVESCO TAX-FREE BOND
FUND, INVESCO TELECOMMUNICATIONS FUND, INVESCO U.S. GOVERNMENT SECURITIES
FUND, INVESCO VALUE FUND, INVESCO LATIN AMERICAN GROWTH FUND (COLLECTIVELY
KNOWN AS THE "INVESCO FUNDS"), AIM STOCK FUNDS, AIM COUNSELOR SERIES TRUST,
AIM SECTOR FUNDS INC., AIM BOND FUNDS INC., AIM COMBINATION STOCK AND BOND
FUNDS INC., AIM MONEY MARKET FUNDS INC., AIM INTERNATIONAL FUNDS INC.
(COLLECTIVELY KNOWN AS THE "INVESCO FUNDS REGISTRANTS"), AMVESCAP PLC,
INVESCO FUNDS GROUP, INC., TIMOTHY MILLER, RAYMOND CUNNINGHAM, THOMAS KOLBE,
EDWARD J. STERN, AMERICAN SKANDIA INC., BREAN MURRAY & CO., INC., CANARY
CAPITAL PARTNERS, LLC, CANARY INVESTMENT MANAGEMENT, LLC, CANARY CAPITAL
PARTNERS, LTD., AND JOHN DOES 1-100, in the United States District Court,
District of Colorado (Civil Action No. 03-N-2559), filed on December 17,
2003. This claim alleges violations of: Sections 11 and 15 of the Securities
Act; Sections 10(b) and 20(a) of the Exchange Act; Rule 10b-5 under the
Exchange Act; and Section 206 of the Advisers Act. The plaintiffs in this
case are seeking: compensatory damages; rescission; return of fees paid;
accounting for wrongfully gotten gains, profits and compensation;
restitution and disgorgement; and other costs and expenses, including
counsel fees and expert fees.
JOSEPH R. RUSSO, INDIVIDUALLY AND ON BEHALF OF ALL OTHERS SIMILARLY
SITUATED, V. INVESCO ADVANTAGE HEALTH SCIENCES FUND, INVESCO CORE EQUITY
FUND, INVESCO DYNAMICS FUND, INVESCO ENERGY FUND, INVESCO FINANCIAL SERVICES
FUND, INVESCO GOLD & PRECIOUS METALS FUND, INVESCO HEALTH SCIENCES FUND,
INVESCO INTERNATIONAL CORE EQUITY FUND (FORMERLY KNOWN AS INTERNATIONAL BLUE
CHIP VALUE FUND), INVESCO LEISURE FUND, INVESCO MID-CAP GROWTH FUND, INVESCO
MULTI-SECTOR FUND, AIM INVESCO S&P 500 INDEX FUND, INVESCO SMALL COMPANY
GROWTH FUND, INVESCO TECHNOLOGY FUND, INVESCO TOTAL RETURN FUND, INVESCO
UTILITIES FUND, AIM MONEY MARKET FUND, AIM INVESCO TAX-FREE
H-4
MONEY FUND, AIM INVESCO TREASURERS MONEY MARKET RESERVE FUND, AIM INVESCO
TREASURERS TAX-EXEMPT RESERVE FUND, AIM INVESCO US GOVERNMENT MONEY FUND,
INVESCO ADVANTAGE FUND, INVESCO BALANCED FUND, INVESCO EUROPEAN FUND,
INVESCO GROWTH FUND, INVESCO HIGH-YIELD FUND, INVESCO GROWTH & INCOME FUND,
INVESCO REAL ESTATE OPPORTUNITY FUND, INVESCO SELECT INCOME FUND, INVESCO
TAX-FREE BOND FUND, INVESCO TELECOMMUNICATIONS FUND, INVESCO U.S. GOVERNMENT
SECURITIES FUND, INVESCO VALUE FUND, INVESCO LATIN AMERICAN GROWTH FUND
(COLLECTIVELY KNOWN AS THE "INVESCO FUNDS"), AIM STOCK FUNDS, AIM COUNSELOR
SERIES TRUST, AIM SECTOR FUNDS INC., AIM BOND FUNDS INC., AIM COMBINATION
STOCK AND BOND FUNDS INC., AIM MONEY MARKET FUNDS INC., AIM INTERNATIONAL
FUNDS INC. (COLLECTIVELY KNOWN AS THE "INVESCO FUNDS REGISTRANTS"), AMVESCAP
PLC, INVESCO FUNDS GROUP, INC., TIMOTHY MILLER, RAYMOND CUNNINGHAM, THOMAS
KOLBE, EDWARD J. STERN, AMERICAN SKANDIA INC., BREAN MURRAY & CO., INC.,
CANARY CAPITAL PARTNERS, LLC, CANARY INVESTMENT MANAGEMENT, LLC, CANARY
CAPITAL PARTNERS, LTD., AND JOHN DOES 1-100, in the United States District
Court, Southern District of New York (Civil Action No. 03-CV-10045), filed
on December 18, 2003. This claim alleges violations of: Sections 11 and 15
of the Securities Act; Sections 10(b) and 20(a) of the Exchange Act; Rule
10b-5 under the Exchange Act; and Section 206 of the Advisers Act. The
plaintiffs in this case are seeking: compensatory damages; rescission;
return of fees paid; accounting for wrongfully gotten gains, profits and
compensation; restitution and disgorgement; and other costs and expenses,
including counsel fees and expert fees.
MIRIAM CALDERON, INDIVIDUALLY AND ON BEHALF OF ALL OTHERS SIMILARLY
SITUATED, V. AMVESCAP PLC, AVZ, INC., AMVESCAP RETIREMENT, INC., AMVESCAP
NATIONAL TRUST COMPANY, ROBERT F. MCCULLOUGH, GORDON NEBEKER, JEFFREY G.
CALLAHAN, INVESCO FUNDS GROUP, INC., RAYMOND R. CUNNINGHAM, AND DOES 1-100,
in the United States District Court, District of Colorado (Civil Action
No. 03-M-2604), filed on December 24, 2003. This claim alleges violations of
Sections 404, 405 and 406B of the Employee Retirement Income Security Act
("ERISA"). The plaintiffs in this case are seeking: declarations that the
defendants breached their ERISA fiduciary duties and that they are not
entitled to the protection of Section 404(c)(1)(B) of ERISA; an order
compelling the defendants to make good all losses to a particular retirement
plan described in this case (the "Retirement Plan") resulting from the
defendants' breaches of their fiduciary duties, including losses to the
Retirement Plan resulting from imprudent investment of the Retirement Plan's
assets, and to restore to the Retirement Plan all profits the defendants
made through use of the Retirement Plan's assets, and to restore to the
Retirement Plan all profits which the participants would have made if the
defendants had fulfilled their fiduciary obligations; damages on behalf of
the Retirement Plan; imposition of a constructive trust, injunctive relief,
damages suffered by the Retirement Plan, to be allocated proportionately to
the participants in the Retirement Plan; restitution and other costs and
expenses, including counsel fees and expert fees.
PAT B. GORSUCH AND GEORGE L. GORSUCH V. INVESCO FUNDS GROUP, INC. AND AIM
ADVISER, INC., in the United States District Court, District of Colorado
(Civil Action No. 03-MK-2612), filed on December 24, 2003. This claim
alleges violations of Sections 15(a), 20(a) and 36(b) of the Investment
Company Act. The plaintiffs in this case are seeking: rescission and/or
voiding of the investment advisory agreements; return of fees paid; damages;
and other costs and expenses, including counsel fees and expert fees.
LORI WEINRIB, INDIVIDUALLY AND ON BEHALF OF ALL OTHERS SIMILARLY SITUATED,
V. INVESCO FUNDS GROUP, INC., AIM STOCK FUNDS, AIM COUNSELOR SERIES
H-5
TRUST, AIM SECTOR FUNDS INC., AIM BOND FUNDS INC., AIM COMBINATION STOCK AND
BOND FUNDS INC., AIM MONEY MARKET FUNDS INC., AIM INTERNATIONAL FUNDS INC.,
AMVESCAP PLC, TIMOTHY MILLER, RAYMOND CUNNINGHAM, THOMAS KOLBE, EDWARD J.
STERN, AMERICAN SKANDIA INC., BREAN MURRAY & CO., INC., CANARY CAPITAL
PARTNERS, LLC, CANARY INVESTMENT MANAGEMENT, LLC, CANARY CAPITAL PARTNERS,
LTD., AND JOHN DOES 1-100, in the United States District Court, Southern
District of New York (Civil Action No. 04-CV-00492), filed on January 21,
2004. This claim alleges violations of: Sections 11 and 15 of the 1933 Act;
Sections 10(b) and 20(a) of the Exchange Act; Rule 10b-5 under the Exchange
Act; and Section 206 of the Advisers Act. The plaintiffs in this case are
seeking: compensatory damages; rescission; return of fees paid; accounting
for wrongfully gotten gains, profits and compensation; restitution and
disgorgement; and other costs and expenses, including counsel fees and
expert fees.
ROBERT S. BALLAGH, JR., INDIVIDUALLY AND ON BEHALF OF ALL OTHERS SIMILARLY
SITUATED, V. INVESCO FUNDS GROUP, INC., INVESCO STOCK FUNDS, INC., AIM
MANAGEMENT GROUP, INC., AIM STOCK FUNDS, AIM STOCK FUNDS, INC., AMVESCAP
PLC, INVESCO ADVANTAGE HEALTH SCIENCES FUND, INVESCO CORE EQUITY FUND,
INVESCO DYNAMICS FUND, INVESCO ENERGY FUND, INVESCO FINANCIAL SERVICES FUND,
INVESCO GOLD & PRECIOUS METALS FUND, INVESCO HEALTH SCIENCES FUND, INVESCO
INTERNATIONAL CORE EQUITY FUND, INVESCO LEISURE FUND, INVESCO MID-CAP GROWTH
FUND, INVESCO MULTI-SECTOR FUND, INVESCO S&P 500 INDEX FUND, INVESCO SMALL
COMPANY GROWTH FUND, INVESCO TECHNOLOGY FUND, INVESCO TOTAL RETURN FUND,
INVESCO UTILITIES FUND, INVESCO ADVANTAGE FUND, INVESCO BALANCED FUND,
INVESCO EUROPEAN FUND, INVESCO GROWTH FUND, INVESCO HIGH YIELD FUND, INVESCO
GROWTH & INCOME FUND, INVESCO INTERNATIONAL BLUE CHIP VALUE FUND, INVESCO
REAL ESTATE OPPORTUNITY FUND, INVESCO SELECT FUND, INVESCO TAX-FREE BOND
FUND, INVESCO TELECOMMUNICATIONS FUND, INVESCO U.S. GOVERNMENT SECURITIES
FUND, INVESCO VALUE FUND, EDWARD J. STERN, CANARY INVESTMENT MANAGEMENT,
LLC, CANARY CAPITAL PARTNERS, LTD., CANARY CAPITAL PARTNERS, LLC, AND DOES
1-100, in the United States District Court, District of Colorado (Civil
Action No. 04-MK-0152), filed on January 28, 2004. This claim alleges
violations of: Sections 11 and 15 of the Securities Act; Sections 10(b) and
20(a) of the Exchange Act; Rule 10b-5 under the Exchange Act; and Sections
34(b), 36(a) and 36(b) of the Investment Company Act. The claim also alleges
common law breach of fiduciary duty. The plaintiffs in this case are
seeking: damages; pre-judgment and post-judgment interest; counsel fees and
expert fees; and other relief.
JONATHAN GALLO, INDIVIDUALLY AND ON BEHALF OF ALL OTHERS SIMILARLY SITUATED,
V. INVESCO FUNDS GROUP, INC., INVESCO STOCK FUNDS, INC., AIM MANAGEMENT
GROUP, INC., AIM STOCK FUNDS, AIM STOCK FUNDS, INC., AMVESCAP PLC, INVESCO
ADVANTAGE HEALTH SCIENCES FUND, INVESCO CORE EQUITY FUND, INVESCO DYNAMICS
FUND, INVESCO ENERGY FUND, INVESCO FINANCIAL SERVICES FUND, INVESCO GOLD &
PRECIOUS METALS FUND, INVESCO HEALTH SCIENCES FUND, INVESCO INTERNATIONAL
CORE EQUITY FUND, INVESCO LEISURE FUND, INVESCO MID-CAP GROWTH FUND, INVESCO
MULTI-SECTOR FUND, INVESCO S&P 500 INDEX FUND, INVESCO SMALL COMPANY GROWTH
FUND, INVESCO TECHNOLOGY FUND, INVESCO TOTAL RETURN FUND, INVESCO UTILITIES
FUND, INVESCO ADVANTAGE FUND, INVESCO BALANCED FUND, INVESCO EUROPEAN FUND,
INVESCO GROWTH FUND, INVESCO HIGH YIELD FUND, INVESCO GROWTH & INCOME FUND,
INVESCO INTERNATIONAL BLUE CHIP VALUE FUND, INVESCO REAL ESTATE OPPORTUNITY
FUND, INVESCO SELECT FUND, INVESCO TAX-FREE BOND FUND, INVESCO
TELECOMMUNICATIONS FUND, INVESCO U.S. GOVERNMENT
H-6
SECURITIES FUND, INVESCO VALUE FUND, EDWARD J. STERN, CANARY INVESTMENT
MANAGEMENT, LLC, CANARY CAPITAL PARTNERS, LTD., CANARY CAPITAL PARTNERS,
LLC, AND DOES 1-100, in the United States District Court, District of
Colorado (Civil Action No. 04-MK-0151), filed on January 28, 2004. This
claim alleges violations of: Sections 11 and 15 of the Securities Act;
Sections 10(b) and 20(a) of the Exchange Act; Rule 10b-5 under the Exchange
Act; and Sections 34(b), 36(a) and 36(b) of the Investment Company Act. The
claim also alleges common law breach of fiduciary duty. The plaintiffs in
this case are seeking: damages; pre-judgment and post-judgment interest;
counsel fees and expert fees; and other relief.
EILEEN CLANCY, INDIVIDUALLY AND ON BEHALF OF ALL OTHERS SIMILARLY SITUATED,
V. INVESCO ADVANTAGE HEALTH SCIENCES FUND, INVESCO CORE EQUITY FUND, INVESCO
DYNAMICS FUND, INVESCO ENERGY FUND, INVESCO FINANCIAL SERVICES FUND, INVESCO
GOLD & PRECIOUS METALS FUND, INVESCO HEALTH SCIENCES FUND, INVESCO
INTERNATIONAL CORE EQUITY FUND (FORMERLY KNOWN AS INTERNATIONAL BLUE CHIP
VALUE FUND), INVESCO LEISURE FUND, INVESCO MID-CAP GROWTH FUND, INVESCO
MULTI-SECTOR FUND, AIM INVESCO S&P 500 INDEX FUND, INVESCO SMALL COMPANY
GROWTH FUND, INVESCO TECHNOLOGY FUND, INVESCO TOTAL RETURN FUND, INVESCO
UTILITIES FUND, AIM MONEY MARKET FUND, AIM INVESCO TAX-FREE MONEY FUND, AIM
INVESCO TREASURER'S MONEY MARKET RESERVE FUND, AIM INVESCO TREASURER'S
TAX-EXEMPT RESERVE FUND, AIM INVESCO US GOVERNMENT MONEY FUND, INVESCO
ADVANTAGE FUND, INVESCO BALANCED FUND, INVESCO EUROPEAN FUND, INVESCO GROWTH
FUND, INVESCO HIGH-YIELD FUND, INVESCO GROWTH & INCOME FUND, INVESCO REAL
ESTATE OPPORTUNITY FUND, INVESCO SELECT INCOME FUND, INVESCO TAX-FREE BOND
FUND, INVESCO TELECOMMUNICATIONS FUND, INVESCO U.S. GOVERNMENT SECURITIES
FUND, INVESCO VALUE FUND, INVESCO, INVESCO LATIN AMERICAN GROWTH FUND
(COLLECTIVELY KNOWN AS THE "INVESCO FUNDS"), AIM STOCK FUNDS, AIM COUNSELOR
SERIES TRUST, AIM SECTOR FUNDS INC., AIM BOND FUNDS INC., AIM COMBINATION
STOCK AND BOND FUNDS INC., AIM MONEY MARKET FUNDS INC., AIM INTERNATIONAL
FUNDS INC. (COLLECTIVELY KNOWN AS THE "INVESCO FUNDS REGISTRANTS"), AMVESCAP
PLC, INVESCO FUNDS GROUP, INC., TIMOTHY MILLER, RAYMOND CUNNINGHAM AND
THOMAS KOLBE, in the United States District Court, Southern District of New
York (Civil Action No. 04-CV-0713), filed on January 30, 2004. This claim
alleges violations of Sections 11 and 15 of the Securities Act. The
plaintiffs in this case are seeking: compensatory damages, rescission;
return of fees paid; and other costs and expenses, including counsel fees
and expert fees.
SCOTT WALDMAN, ON BEHALF OF HIMSELF AND ALL OTHERS SIMILARLY SITUATED, V.
INVESCO FUNDS GROUP, INC., INVESCO DYNAMICS FUND, INVESCO EUROPEAN FUND,
INVESCO SMALL COMPANY GROWTH FUND, INVESCO TECHNOLOGY FUND, AIM STOCK FUNDS,
AIM COUNSELOR SERIES TRUST, AIM SECTOR FUNDS INC., AIM BOND FUNDS INC., AIM
COMBINATION STOCK AND BOND FUNDS INC., AIM MONEY MARKET FUNDS INC., AIM
INTERNATIONAL FUNDS INC., AMVESCAP PLC, AND RAYMOND CUNNINGHAM, in the
United States District Court, Southern District of New York (Civil Action
No. 04-CV-00915), filed on February 3, 2004. This claim alleges violations
of Sections 11 and 15 of the Securities Act and common law breach of
fiduciary duty. The plaintiffs in this case are seeking compensatory
damages; injunctive relief; and costs and expenses, including counsel fees
and expert fees.
CARL E. VONDER HAAR AND MARILYN P. MARTIN, ON BEHALF OF THEMSELVES AND ALL
OTHERS SIMILARLY SITUATED, V. INVESCO FUNDS GROUP, INC., INVESCO STOCK
FUNDS, INC. AND DOE DEFENDANTS 1-100, in the United States District Court,
H-7
District of Colorado (Civil Action No. 04-CV-812), filed on February 5,
2004. This claim alleges: common law breach of fiduciary duty; breach of
contract; and tortious interference with contract. The plaintiffs in this
case are seeking: injunctive relief; damages; disgorgement; and costs and
expenses, including counsel fees and expert fees.
HENRY KRAMER, DERIVATIVELY ON BEHALF OF INVESCO ENERGY FUND, INVESCO STOCK
FUNDS, INC., AND INVESCO MUTUAL FUNDS V. AMVESCAP, PLC, INVESCO FUNDS GROUP,
INC., CANARY CAPITAL PARTNERS, LLC, CANARY INVESTMENT MANAGEMENT, LLC, AND
CANARY CAPITAL PARTNERS, LTD., DEFENDANTS, AND INVESCO ENERGY FUND, INVESCO
STOCK FUNDS, INC., AND INVESCO MUTUAL FUNDS, NOMINAL DEFENDANTS, in the
United States District Court, District of Colorado (Civil Action
No. 04-MK-0397), filed on March 4, 2004. This claim alleges violations of
Section 36(b) of the Investment Company Act and common law breach of
fiduciary duty. The plaintiff in this case is seeking damages and costs and
expenses, including counsel fees and expert fees.
CYNTHIA L. ESSENMACHER, DERIVATIVELY ON BEHALF OF THE INVESCO DYNAMICS FUND
AND THE REMAINING "INVESCO FUNDS" V. INVESCO FUNDS GROUPS, INC., AMVESCAP
PLC, AIM MANAGEMENT GROUP, INC., RAYMOND CUNNINGHAM, TIMOTHY MILLER, THOMAS
KOLBE AND MICHAEL LEGOSKI, DEFENDANTS, AND INVESCO DYNAMICS FUND AND THE
"INVESCO FUNDS", NOMINAL DEFENDANTS, in the United States District Court,
District of Delaware (Civil Action No. 04-CV-188), filed on March 29, 2004.
This claim alleges: violations of Section 36(b) of the Investment Company
Act; violations of Section 206 of the Advisers Act; common law breach of
fiduciary duty; and civil conspiracy. The plaintiff in this case is seeking:
damages; injunctive relief; and costs and expenses, including counsel fees
and expert fees.
ANNE G. PERENTESIS (WIDOW) V. AIM INVESTMENTS, ET AL (INVESCO FUNDS GROUP,
INC.), in the District Court of Maryland for Baltimore County (Case NO.
080400228152005), field on July 21, 2005. This claim alleges financial
losses, mental anguish and emotional distress as a result of unlawful market
timing and related activity by the defendants. The plaintiff in this case is
seeking damages and costs and expenses.
Pursuant to an Order of the MDL Court, plaintiffs in the above lawsuits
(with the exception of Carl E. Vonder Haar, et al. v. INVESCO Funds Group, Inc.
et al.and Mike Sayegh v. Janus Capital Corporation, et al.) 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 (the Lepera
lawsuit discussed below); (ii) a Consolidated Amended Fund Derivative Complaint
purportedly brought on behalf of the AIM Funds and fund registrants (the
Essenmacher lawsuit discussed below); 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 Calderon lawsuit discussed below). The plaintiffs in the Vonder Haar
and Sayegh lawsuits continue to seek remand of their lawsuits to state court.
Set forth below is detailed information about these three amended complaints.
H-8
RICHARD LEPERA, INDIVIDUALLY AND ON BEHALF OF ALL OTHERS SIMILARLY SITUATED
(LEAD PLAINTIFF: CITY OF CHICAGO DEFERRED COMPENSATION PLAN), V. INVESCO
FUNDS GROUP, INC., AMVESCAP, PLC, AIM INVESTMENTS, AIM ADVISORS, INC.,
INVESCO INSTITUTIONAL (N.A.), INC., INVESCO ASSETS MANAGEMENT LIMITED,
INVESCO GLOBAL ASSETS MANAGEMENT (N.A.), AIM STOCK FUNDS, AIM MUTUAL FUNDS,
AIM COMBINATION STOCK & BOND FUNDS, AIM SECTOR FUNDS, AIM TREASURER'S SERIES
TRUST, INVESCO DISTRIBUTORS, INC., AIM DISTRIBUTORS, INC., RAYMOND R.
CUNNINGHAM, TIMOTHY J. MILLER, THOMAS A. KOLBE, MICHAEL D. LEGOSKI, MICHAEL
K. BRUGMAN, MARK WILLIAMSON, EDWARD J. STERN, CANARY CAPITAL PARTNERS, LLC,
CANARY INVESTMENT MANAGEMENT, LLC, CANARY CAPITAL PARTNERS, LTD., RYAN
GOLDBERG, MICHAEL GRADY, CITIGROUP, INC., CITIGROUP GLOBAL MARKETS HOLDINGS,
INC., SALOMON SMITH BARNEY, INC., MORGAN STANLEY DW, ANNA BRUGMAN, ANB
CONSULTING, LLC, KAPLAN & CO. SECURITIES INC., SECURITY TRUST COMPANY, N.A.,
GRANT D. SEEGER, JB OXFORD HOLDINGS, INC., NATIONAL CLEARING CORPORATION,
JAMES G. LEWIS, KRAIG L. KIBBLE, JAMES Y. LIN, BANK OF AMERICA CORPORATION,
BANC OF AMERICA SECURITIES LLC, THEODORE C. SIHPOL, III, BEAR STEARNS & CO.,
INC., BEAR STEARNS SECURITIES CORP., CHARLES SCHWAB & CO., CREDIT SUISSE
FIRST BOSTON (USA) INC., PRUDENTIAL FINANCIAL, INC., PRUDENTIAL SECURITIES,
INC., CANADIAN IMPERIAL BANK OF COMMERCE, JP MORGAN CHASE AND CO., AND JOHN
DOE DEFENDANTS 1-100, in the MDL Court (Case No. 04-MD-15864;
No. 04-CV-00814-JFM) (originally in the United States District Court for the
District of Colorado), filed on September 29, 2004. This lawsuit alleges
violations of Sections 11, 12(a) (2), and 15 of the Securities Act;
Section 10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder;
Section 20(a) of the Exchange Act; Sections 34(b), 36(a), 36(b) and 48(a) of
the Investment Company Act; breach of fiduciary duty/constructive fraud;
aiding and abetting breach of fiduciary duty; and unjust enrichment. The
plaintiffs in this lawsuit are seeking: compensatory damages, including
interest; and other costs and expenses, including counsel and expert fees.
CYNTHIA ESSENMACHER, SILVANA G. DELLA CAMERA, FELICIA BERNSTEIN AS CUSTODIAN
FOR DANIELLE BROOKE BERNSTEIN, EDWARD CASEY, TINA CASEY, SIMON DENENBERG,
GEORGE L. GORSUCH, PAT B. GORSUCH, L. SCOTT KARLIN, HENRY KRAMER, JOHN E.
MORRISEY, HARRY SCHIPPER, BERTY KREISLER, GERSON SMITH, CYNTHIA PULEO,
ZACHARY ALAN STARR, JOSHUA GUTTMAN, AND AMY SUGIN, DERIVATIVELY ON BEHALF OF
THE MUTUAL FUNDS, TRUSTS AND CORPORATIONS COMPRISING THE INVESCO AND AIM
FAMILY OF MUTUAL FUNDS V. AMVESCAP, PLC, INVESCO FUNDS GROUP, INC., INVESCO
DISTRIBUTORS, INC., INVESCO INSTITUTIONAL (N.A.), INC., INVESCO ASSETS
MANAGEMENT LIMITED, INVESCO GLOBAL ASSETS MANAGEMENT (N.A.), AIM MANAGEMENT
GROUP, INC., AIM ADVISERS, INC., AIM INVESTMENT SERVICES, INC., AIM
DISTRIBUTORS, INC., FUND MANAGEMENT COMPANY, MARK H. WILLIAMSON, RAYMOND R.
CUNNINGHAM, TIMOTHY MILLER, THOMAS KOLBE, MICHAEL LEGOSKI, MICHAEL BRUGMAN,
FRED A. DEERING, VICTOR L. ANDREWS, BOB R. BAKER, LAWRENCE H. BUDNER, JAMES
T. BUNCH, GERALD J. LEWIS, JOHN W. MCINTYRE, LARRY SOLL, RONALD L. GROOMS,
WILLIAM J. GALVIN, JR., ROBERT H. GRAHAM, FRANK S. BAYLEY, BRUCE L.
CROCKETT, ALBERT R. DOWDEN, EDWARD K. DUNN, JACK M. FIELDS, CARL
FRISCHILING, PREMA MATHAI-DAVIS, LEWIS F. PENNOCK, RUTH H. QUIGLEY, LOUIS S.
SKLAR, OWEN DALY II, AURUM SECURITIES CORP., AURUM CAPITAL MANAGEMENT CORP.,
GOLDEN GATE FINANCIAL GROUP, LLC, BANK OF AMERICA CORP., BANC OF AMERICA
SECURITIES LLC, BANK OF AMERICA, N.A., BEAR STEARNS & CO., INC., CANARY
CAPITAL PARTNERS, LLC, CANARY CAPITAL PARTNERS, LTD., CANARY INVESTMENT
MANAGEMENT, LLC, EDWARD J. STERN, CANADIAN
H-9
IMPERIAL BANK OF COMMERCE, CIRCLE TRUST COMPANY, RYAN GOLDBERG, MICHAEL
GRADY, KAPLAN & CO. SECURITIES, INC., JP MORGAN CHASE & CO., OPPENHEIMER &
CO., INC., PRITCHARD CAPITAL PARTNERS LLC, TIJA MANAGEMENT, TRAUTMAN
WASSERMAN & COMPANY, INC., DEFENDANTS, AND THE INVESCO FUNDS AND THE AIM
FUNDS AND ALL TRUSTS AND CORPORATIONS THAT COMPRISE THE INVESCO FUNDS AND
AIM FUNDS THAT WERE MANAGED BY INVESCO AND AIM, NOMINAL DEFENDANTS, in the
MDL Court (Case No. 04-MD-15864-FPS; No. 04-819), filed on September 29,
2004. This lawsuit alleges violations of Sections 206 and 215 of the
Investment Advisers Act; Sections 36(a), 36(b) and 47 of the Investment
Company Act; control person liability under Section 48 of the Investment
Company Act; breach of fiduciary duty; aiding and abetting breach of
fiduciary duty; breach of contract; unjust enrichment; interference with
contract; and civil conspiracy. The plaintiffs in this lawsuit are seeking:
removal of director defendants; removal of adviser, sub-adviser and
distributor defendants; rescission of management and other contracts between
the Funds and defendants; rescission of 12b-1 plans; disgorgement of
management fees and other compensation/profits paid to adviser defendants;
compensatory and punitive damages; and fees and expenses, including attorney
and expert fees.
MIRIAM CALDERON, INDIVIDUALLY AND ON BEHALF OF ALL OTHERS SIMILARLY
SITUATED, V. AVZ, INC., AMVESCAP RETIREMENT, INC., AMVESCAP NATIONAL TRUST
COMPANY, INVESCO FUNDS GROUP, INC., AMVESCAP, ROBERT F. MCCULLOUGH, GORDON
NEBEKER, JEFFREY G. CALLAHAN, AND RAYMOND R. CUNNINGHAM, in the MDL Court
(Case No. 1:04-MD-15864-FPS), filed on September 29, 2004. This lawsuit
alleges violations of ERISA Sections 404, 405 and 406. The plaintiffs in
this lawsuit are seeking: declaratory judgment; restoration of losses
suffered by the plan; disgorgement of profits; imposition of a constructive
trust; injunctive relief; compensatory damages; costs and attorneys' fees;
and equitable restitution.
On August 25, 2005, the MDL Court issued rulings on the common issues of law
presented in defendants' motions to dismiss the shareholder class and
derivative complaints. These rulings were issued in the context of the Janus
lawsuits, but the Court's legal determinations apply at the omnibus level to
all cases within his track, including the AIM and IFG cases. The Court
dismissed for failure to make pre-suit demand on the fund board all
derivative causes of action but one: the excessive fee claim under
Section 36(b) of the Investment Company Act of 1940 (the "1940 Act"), as to
which the demand requirement does not apply. The Court dismissed all claims
asserted in the class complaint but two: (i) the securities fraud claims
under Section 10(b) of the Securities Exchange Act of 1934, and (ii) the
excessive fee claim under Section 36(b) of the 1940 Act. In addition, the
Court limited plaintiffs' potential recovery on the 36(b) claim to fees
attributable to timing assets, as opposed to all fees on funds in which any
timing occurred. The question whether the duplicative Section 36(b) claim
properly belongs in the derivative complaint or in the class action
complaint will be decided at a later date. The Court will subsequently issue
an order applying his legal rulings to the allegations in the AIM and IFG
complaints.
H-10
APPENDIX H-2
PENDING LITIGATION ALLEGING INADEQUATELY EMPLOYED FAIR VALUE PRICING
The following civil class action lawsuits involve, depending on the lawsuit,
one or more AIM Funds, IFG and/or AIM and allege that the defendants
inadequately employed fair value pricing. These lawsuits either have been
served or have had service of process waived as of September 20, 2005.
T.K. PARTHASARATHY, EDMUND WOODBURY, STUART ALLEN SMITH AND SHARON SMITH,
INDIVIDUALLY AND ON BEHALF OF ALL OTHERS SIMILARLY SITUATED, V. T. ROWE
PRICE INTERNATIONAL FUNDS, INC., T. ROWE PRICE INTERNATIONAL, INC., ARTISAN
FUNDS, INC., ARTISAN PARTNERS LIMITED PARTNERSHIP, AIM INTERNATIONAL FUNDS,
INC. AND AIM ADVISORS, INC., in the Third Judicial Circuit Court for Madison
County, Illinois (Case No. 2003-L-001253), filed on September 23, 2003. This
claim alleges: common law breach of duty and common law negligence and gross
negligence. The plaintiffs in these cases are seeking: compensatory and
punitive damages; interest; and attorneys' fees and costs. The Third
Judicial Circuit Court for Madison County, Illinois has issued an order
severing the claims of plaintiff Parthasarathy from the claims of the other
plaintiffs against AIM and other defendants. As a result, AIM is a defendant
in the following severed action: EDMUND WOODBURY, STUART ALLEN SMITH and
SHARON SMITH, Individually and On Behalf of All Others Similarly Situated,
v. AIM INTERNATIONAL FUNDS, INC., ET AL., in the Third Judicial Circuit
Court for Madison County, Illinois (Case No. 03-L-1253A). The claims made by
plaintiffs and the relief sought in the Woodbury lawsuit are identical to
those in the Parthasarathy lawsuit. On April 22, 2005, Defendants in the
Woodbury lawsuit removed the action to Federal Court (U.S. District Court,
Southern District of Illinois, No. 05-CV-302-DRH). Based on a recent Federal
appellate court decision (the "Kircher" case), AIM and the other defendants
in the Woodbury lawsuit removed the action to Federal court (U.S. District
Court, Southern District of Illinois, Cause No. 05-CV-302-DRH) on April 22,
2005. On April 26, 2005, AIM and the other defendants filed their Motion to
Dismiss the plaintiffs' state law based claims. On June 10, 2005, the Court
dismissed the Woodbury lawsuit based upon the Kircher ruling and ordered the
court clerk to close this case. Plaintiffs filed a Motion to Amend the
Judgment arguing that the Kircher ruling does not apply to require the
dismissal of the claims against AIM in the Woodbury lawsuit. On July 7,
2005, the Court denied this Motion. On September 2, 2005, the Court
consolidated the nine cases on this subject matter, including the case
against AIM.
JOHN BILSKI, INDIVIDUALLY AND ON BEHALF OF ALL OTHERS SIMILARLY SITUATED, V.
AIM INTERNATIONAL FUNDS, INC., AIM ADVISORS, INC., INVESCO INTERNATIONAL
FUNDS, INC., INVESCO FUNDS GROUP, INC., T. ROWE PRICE INTERNATIONAL FUNDS,
INC. AND T. ROWE PRICE INTERNATIONAL, INC., in the United States District
Court, Southern District of Illinois (East St. Louis) (Case No. 03-772),
filed on November 19, 2003. This claim alleges: violations of Sections 36(a)
and 36(b) of the Investment Company Act of 1940; common law breach of duty;
and common law negligence and gross negligence. The plaintiff in this case
is seeking: compensatory and punitive damages; interest; and attorneys' fees
and costs. This lawsuit has been transferred to the MDL Court by order of
the United States District Court, Southern District of Illinois (East St.
Louis).
H-11
APPENDIX H-3
PENDING LITIGATION ALLEGING EXCESSIVE ADVISORY AND/OR DISTRIBUTION FEES
The following civil lawsuits, including purported class action and
shareholder derivative suits, involve, depending on the lawsuit, one or more of
IFG, AIM, IINA, ADI and/or INVESCO Distributors and allege 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 and, in some
cases, also allege that the defendants adopted unlawful distribution plans.
These lawsuits either have been served or have had service of process waived as
of September 20, 2005.
All of the lawsuits discussed below 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. By order of the United States District Court for the Southern
District of Texas, Houston Division, the Kondracki and Papia lawsuits discussed
below have been consolidated for pre-trial purpose into the Berdat lawsuit
discussed below and administratively closed.
RONALD KONDRACKI v. AIM ADVISORS, INC. AND AIM DISTRIBUTOR, INC., in the
United States District Court for the Southern District of Illinois (Civil
Action No. 04-CV-263-DRH), filed on April 16, 2004. This claim alleges
violations of Section 36(b) of the Investment Company Act of 1940 (the
"Investment Company Act"). The plaintiff in this case is seeking: damages;
injunctive relief; prospective relief in the form of reduced fees;
rescission of the investment advisory agreements and distribution plans; and
costs and expenses, including counsel fees.
DOLORES BERDAT, MARVIN HUNT, MADELINE HUNT, RANDAL C. BREVER AND RHONDA
LECURU V. INVESCO FUNDS GROUP, INC., INVESCO INSTITUTIONAL (N.A.), INC.,
INVESCO DISTRIBUTORS, INC., AIM ADVISORS, INC. AND AIM DISTRIBUTORS, INC.,
in the United States District Court for the Middle District of Florida,
Tampa Division (Case No. 8:04-CV-978-T24-TBM), filed on April 29, 2004. This
claim alleges violations of Sections 36(b) and 12(b) of the Investment
Company Act. The plaintiffs in this case are seeking: damages; injunctive
relief; rescission of the investment advisory agreements and distribution
plans; and costs and expenses, including counsel fees.
FERDINANDO PAPIA, FRED DUNCAN, GRACE GIAMANCO, JEFFREY S. THOMAS, COURTNEY
KING, KATHLEEN BLAIR, HENRY BERDAT, RUTH MOCCIA, MURRAY BEASLEY AND FRANCES
J. BEASLEY v. A I M ADVISORS, INC. AND A I M DISTRIBUTORS, INC., in the
United States District Court for the Middle District of Florida, Tampa
Division (Case No. 8:04-CV-977-T17-MSS), filed on April 29, 2004. This claim
alleges violations of Sections 36(b) and 12(b) of the Investment Company
Act. The plaintiffs in this case are seeking: damages; injunctive relief;
rescission of the investment advisory agreements and distribution plans; and
costs and expenses, including counsel fees.
H-12
APPENDIX H-4
PENDING LITIGATION ALLEGING IMPROPER CHARGING OF DISTRIBUTION FEES ON LIMITED
OFFERING FUNDS OR SHARE CLASSES
The following civil lawsuits, including shareholder derivative suits,
involve, depending on the lawsuit, one or more of IFG, AIM, ADI and/or certain
of the trustees of the AIM Funds and allege that the defendants breached their
fiduciary duties by charging distribution fees while AIM Funds and/or specific
share classes were closed generally to new investors and/or while other share
classes of the same AIM Fund were not charged the same distribution fees. These
lawsuits either have been served or have had service of process waived as of
September 20, 2005.
By order of the United States District Court for the Southern District of
Texas, Houston Division, the Lieber lawsuit discussed below has been
consolidated for pre-trial purposes into the Zucker lawsuit discussed below and
administratively closed.
LAWRENCE ZUCKER, ON BEHALF OF AIM SMALL CAP GROWTH FUND AND AIM LIMITED
MATURITY TREASURY FUND, V. A I M ADVISORS, INC., in the United States
District Court, Southern District of Texas, Houston Division (Civil Action
No. H-03-5653), filed on December 10, 2003. This claim alleges violations of
Section 36(b) of the Investment Company Act of 1940 (the "Investment Company
Act") and common law breach of fiduciary duty. The plaintiff in this case is
seeking: damages; injunctive relief; and costs and expenses, including
counsel fees. In March 2005, the parties entered a Stipulation whereby,
among other things, the plaintiff agreed to dismiss without prejudice all
claims against all of the individual defendants and his claims based on
state law causes of action. This effectively limits this case to alleged
violations of Section 36(b) against ADI.
STANLEY LIEBER, ON BEHALF OF INVESCO BALANCED FUND, INVESCO CORE EQUITY
FUND, INVESCO DYNAMICS FUND, INVESCO ENERGY FUND, INVESCO EUROPEAN FUND,
INVESCO FINANCIAL SERVICES FUND, INVESCO GOLD & PRECIOUS METALS FUND,
INVESCO GROWTH & INCOME FUND, INVESCO GROWTH FUND, INVESCO HEALTH SCIENCE
FUND, INVESCO HIGH YIELD FUND, INVECO INTERNATIONAL BLUE CHIP VALUE FUND,
INVESCO LEISURE FUND, INVESCO REAL ESTATE OPPORTUNITY FUND, INVESCO S&P 500
INDEX FUND, INVESCO SELECT INCOME FUND, INVESCO TAX FREE BOND FUND, INVESCO
TECHNOLOGY FUND, INVESCO TELECOMMUNICATIONS FUND, INVESCO TOTAL RETURN FUND,
INVESCO US GOVERNMENT SECURITIES FUND, INVESCO UTILITIES FUND, INVESCO VALUE
EQUITY FUND, V. INVESCO FUNDS GROUP, INC. AND A I M ADVISORS, INC., in the
United States District Court, Southern District of Texas, Houston Division
(Civil Action No. H-03-5744), filed on December 17, 2003. This claim alleges
violations of Section 36(b) of the Investment Company Act and common law
breach of fiduciary duty. The plaintiff in this case is seeking: damages;
injunctive relief; and costs and expenses, including counsel fees. In March
2005, the parties entered a Stipulation whereby, among other things, the
plaintiff agreed to dismiss without prejudice all claims against all of the
individual defendants and his claims based on state law causes of action.
This effectively limits this case to alleged violations of Section 36(b)
against ADI.
HERMAN C. RAGAN, DERIVATIVELY, AND ON BEHALF OF HIMSELF AND ALL OTHERS
SIMILARLY SITUATED, V. INVESCO FUNDS GROUP, INC., AND A I M DISTRIBUTORS,
INC., in the United States District Court for the Southern District of
Georgia, Dublin Division (Civil Action No. CV304-031), filed on May 6, 2004.
This claim alleges violations of: Section 10(b) of the Securities Exchange
Act of 1934 (the "Exchange Act") and Rule 10b-5 thereunder; Sections 17(a)
(2) and 17(a) (3) of the Securities Act of 1933; and Section 36(b) of the
Investment Company Act. This claim also alleges controlling person
H-13
liability, within the meaning of Section 20 of the Exchange Act against ADI.
The plaintiff in this case is seeking: damages and costs and expenses,
including counsel fees.
H-14
APPENDIX H-5
PENDING LITIGATION ALLEGING IMPROPER MUTUAL FUND SALES PRACTICES
AND DIRECTED-BROKERAGE ARRANGEMENTS
The following civil lawsuits, including purported class action and
shareholder derivative suits, involve, depending on the lawsuit, one or more of
AIM Management, IFG, AIM, AIS and/or certain of the trustees of the AIM Funds
and allege that the defendants improperly used the assets of the AIM Funds to
pay brokers to aggressively push the AIM Funds over other mutual funds and that
the defendants concealed such payments from investors by disguising them as
brokerage commissions. These lawsuits either have been served or have had
service of process waived as of September 20, 2005.
By order of the United States District Court for the Southern District of
Texas, Houston Division, the claims made in the Beasley, Kehlbeck Trust, Fry,
Apu and Bendix lawsuits discussed below were consolidated into the Boyce
lawsuit discussed below and these other lawsuits were administratively closed.
On June 7, 2005, plaintiffs filed their Consolidated Amended Complaint in which
they make substantially identical allegations to those of the individual
underlying lawsuits. However, the City of Chicago Deferred Compensation Plan
has been joined as an additional plaintiff in the Consolidated Amended
Complaint. Plaintiffs added defendants, including current and former
directors/trustees of the AIM Funds formerly advised by IFG.
JOY D. BEASLEY AND SHEILA MCDAID, INDIVIDUALLY AND ON BEHALF OF ALL OTHERS
SIMILARLY SITUATED, V. AIM MANAGEMENT GROUP INC., INVESCO FUNDS GROUP, INC.,
AIM INVESTMENT SERVICES, INC., AIM ADVISORS, INC., ROBERT H. GRAHAM, MARK H.
WILLIAMSON, FRANK S. BAYLEY, BRUCE L. CROCKETT, ALBERT R. DOWDEN, EDWARD K.
DUNN, JR., JACK M. FIELDS, CARL FRISCHLING, PREMA MATHAI-DAVIS, LEWIS F.
PENNOCK, RUTH H. QUIGLEY, AND LOUIS S. SKLAR, AND JOHN DOES 1-100,
DEFENDANTS, AND AIM AGGRESSIVE GROWTH FUND, AIM ASIA PACIFIC GROWTH FUND,
AIM BALANCED FUND, AIM BASIC BALANCED FUND, AIM BASIC VALUE FUND, AIM BLUE
CHIP FUND, AIM CAPITAL DEVELOPMENT FUND, AIM CHARTER FUND, AIM CONSTELLATION
FUND, AIM DENT DEMOGRAPHIC TRENDS FUND, AIM DEVELOPING MARKETS FUND, AIM
DIVERSIFIED DIVIDEND FUND, AIM EMERGING GROWTH FUND, AIM EUROPEAN GROWTH
FUND, AIM EUROPEAN SMALL COMPANY FUND, AIM FLOATING RATE FUND, AIM GLOBAL
AGGRESSIVE GROWTH FUND, AIM GLOBAL EQUITY FUND, AIM GLOBAL GROWTH FUND, AIM
GLOBAL HEALTH CARE FUND, AIM GLOBAL VALUE FUND, AIM HIGH INCOME MUNICIPAL
FUND, AIM HIGH YIELD FUND, AIM INCOME FUND, AIM INTERMEDIATE GOVERNMENT
FUND, AIM INTERNATIONAL EMERGING GROWTH FUND, AIM INTERNATIONAL GROWTH FUND,
AIM LARGE CAP BASIC VALUE FUND, AIM LARGE CAP GROWTH FUND, AIM LIBRA FUND,
AIM LIMITED MATURITY TREASURY FUND, AIM MID CAP BASIC VALUE FUND, AIM MID
CAP CORE EQUITY FUND, AIM MID CAP GROWTH FUND, AIM MUNICIPAL BOND FUND, AIM
OPPORTUNITIES I FUND, AIM OPPORTUNITIES II FUND, AIM OPPORTUNITIES III FUND,
AIM PREMIER EQUITY FUND, AIM REAL ESTATE FUND, AIM SELECT EQUITY FUND, AIM
SHORT TERM BOND FUND, AIM SMALL CAP EQUITY FUND, AIM SMALL CAP GROWTH FUND,
AIM TAX-FREE INTERMEDIATE FUND, AIM TOTAL RETURN BOND FUND, AIM TRIMARK
ENDEAVOR FUND, AIM TRIMARK FUND, AIM TRIMARK SMALL COMPANIES FUND, AIM
WEINGARTEN FUND, INVESCO ADVANTAGE HEALTH SCIENCES FUND, INVESCO CORE EQUITY
FUND, INVESCO DYNAMICS FUND, INVESCO ENERGY FUND, INVESCO FINANCIAL SERVICES
FUND, INVESCO GOLD & PRECIOUS METALS FUND, INVESCO HEALTH SCIENCES FUND,
INVESCO INTERNATIONAL CORE EQUITY FUND, INVESCO LEISURE FUND, INVESCO
MID-CAP GROWTH FUND, INVESCO MULTI-SECTOR FUND, INVESCO S&P 500 INDEX FUND,
INVESCO SMALL COMPANY GROWTH FUND, INVESCO TECHNOLOGY FUND, INVESCO TOTAL
RETURN FUND, INVESCO UTILITIES FUND, NOMINAL DEFENDANTS, in the United
States District Court for
H-15
the District of Colorado (Civil Action No. 04-B-0958), filed on May 10,
2004. The plaintiffs voluntarily dismissed this case in Colorado and
re-filed it on July 2, 2004 in the United States District Court for the
Southern District of Texas, Houston Division (Civil Action H-04-2589). This
claim alleges violations of Sections 34(b), 36(b) and 48(a) of the
Investment Company Act of 1940 (the "Investment Company Act") and violations
of Sections 206 and 215 of the Investment Advisers Act of 1940 (the
"Advisers Act"). The claim also alleges common law breach of fiduciary duty.
The plaintiffs in this case are seeking: 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.
RICHARD TIM BOYCE V. AIM MANAGEMENT GROUP INC., INVESCO FUNDS GROUP, INC.,
AIM INVESTMENT SERVICES, INC., AIM ADVISORS, INC., ROBERT H. GRAHAM, MARK H.
WILLIAMSON, FRANK S. BAYLEY, BRUCE L. CROCKETT, ALBERT R. DOWDEN, EDWARD K.
DUNN, JR., JACK M. FIELDS, CARL FRISCHLING, PREMA MATHAI-DAVIS, LEWIS F.
PENNOCK, RUTH H. QUIGLEY, AND LOUIS S. SKLAR, AND JOHN DOES 1-100,
DEFENDANTS, AND AIM AGGRESSIVE GROWTH FUND, AIM ASIA PACIFIC GROWTH FUND,
AIM BALANCED FUND, AIM BASIC BALANCED FUND, AIM BASIC VALUE FUND, AIM BLUE
CHIP FUND, AIM CAPITAL DEVELOPMENT FUND, AIM CHARTER FUND, AIM CONSTELLATION
FUND, AIM DENT DEMOGRAPHIC TRENDS FUND, AIM DEVELOPING MARKETS FUND, AIM
DIVERSIFIED DIVIDEND FUND, AIM EMERGING GROWTH FUND, AIM EUROPEAN GROWTH
FUND, AIM EUROPEAN SMALL COMPANY FUND, AIM FLOATING RATE FUND, AIM GLOBAL
AGGRESSIVE GROWTH FUND, AIM GLOBAL EQUITY FUND, AIM GLOBAL GROWTH FUND, AIM
GLOBAL HEALTH CARE FUND, AIM GLOBAL VALUE FUND, AIM HIGH INCOME MUNICIPAL
FUND, AIM HIGH YIELD FUND, AIM INCOME FUND, AIM INTERMEDIATE GOVERNMENT
FUND, AIM INTERNATIONAL EMERGING GROWTH FUND, AIM INTERNATIONAL GROWTH FUND,
AIM LARGE CAP BASIC VALUE FUND, AIM LARGE CAP GROWTH FUND, AIM LIBRA FUND,
AIM LIMITED MATURITY TREASURY FUND, AIM MID CAP BASIC VALUE FUND, AIM MID
CAP CORE EQUITY FUND, AIM MID CAP GROWTH FUND, AIM MUNICIPAL BOND FUND, AIM
OPPORTUNITIES I FUND, AIM OPPORTUNITIES II FUND, AIM OPPORTUNITIES III FUND,
AIM PREMIER EQUITY FUND, AIM REAL ESTATE FUND, AIM SELECT EQUITY FUND, AIM
SHORT TERM BOND FUND, AIM SMALL CAP EQUITY FUND, AIM SMALL CAP GROWTH FUND,
AIM TAX-FREE INTERMEDIATE FUND, AIM TOTAL RETURN BOND FUND, AIM TRIMARK
ENDEAVOR FUND, AIM TRIMARK FUND, AIM TRIMARK SMALL COMPANIES FUND, AIM
WEINGARTEN FUND, INVESCO ADVANTAGE HEALTH SCIENCES FUND, INVESCO CORE EQUITY
FUND, INVESCO DYNAMICS FUND, INVESCO ENERGY FUND, INVESCO FINANCIAL SERVICES
FUND, INVESCO GOLD & PRECIOUS METALS FUND, INVESCO HEALTH SCIENCES FUND,
INVESCO INTERNATIONAL CORE EQUITY FUND, INVESCO LEISURE FUND, INVESCO
MID-CAP GROWTH FUND, INVESCO MULTI-SECTOR FUND, INVESCO S&P 500 INDEX FUND,
INVESCO SMALL COMPANY GROWTH FUND, INVESCO TECHNOLOGY FUND, INVESCO TOTAL
RETURN FUND, INVESCO UTILITIES FUND, NOMINAL DEFENDANTS, in the United
States District Court for the District of Colorado (Civil Action
No. 04-N-0989), filed on May 13, 2004. The plaintiff voluntarily dismissed
this case in Colorado and re-filed it on July 1, 2004 in the United States
District Court for the Southern District of Texas, Houston Division (Civil
Action H-04-2587). This claim alleges violations of Sections 34(b), 36(b)
and 48(a) of the Investment Company Act and violations of Sections 206 and
215 of the Advisers Act. The claim also alleges common law breach of
fiduciary duty. The plaintiff in this case is seeking: 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
H-16
fees, commissions and soft dollar payments; restitution of all unlawfully or
discriminatorily obtained fees and charges; and attorneys' and experts' fees.
KEHLBECK TRUST DTD 1-25-93, BILLY B. KEHLBECK AND DONNA J. KEHLBECK, TTEES
V. AIM MANAGEMENT GROUP INC., INVESCO FUNDS GROUP, INC., AIM INVESTMENT
SERVICES, INC., AIM ADVISORS, INC., ROBERT H. GRAHAM, MARK H. WILLIAMSON,
FRANK S. BAYLEY, BRUCE L. CROCKETT, ALBERT R. DOWDEN, EDWARD K. DUNN, JR.,
JACK M. FIELDS, CARL FRISCHLING, PREMA MATHAI-DAVIS, LEWIS F. PENNOCK, RUTH
H. QUIGLEY, AND LOUIS S. SKLAR, AND JOHN DOES 1-100, DEFENDANTS, AND AIM
AGGRESSIVE GROWTH FUND, AIM ASIA PACIFIC GROWTH FUND, AIM BALANCED FUND, AIM
BASIC BALANCED FUND, AIM BASIC VALUE FUND, AIM BLUE CHIP FUND, AIM CAPITAL
DEVELOPMENT FUND, AIM CHARTER FUND, AIM CONSTELLATION FUND, AIM DENT
DEMOGRAPHIC TRENDS FUND, AIM DEVELOPING MARKETS FUND, AIM DIVERSIFIED
DIVIDEND FUND, AIM EMERGING GROWTH FUND, AIM EUROPEAN GROWTH FUND, AIM
EUROPEAN SMALL COMPANY FUND, AIM FLOATING RATE FUND, AIM GLOBAL AGGRESSIVE
GROWTH FUND, AIM GLOBAL EQUITY FUND, AIM GLOBAL GROWTH FUND, AIM GLOBAL
HEALTH CARE FUND, AIM GLOBAL VALUE FUND, AIM HIGH INCOME MUNICIPAL FUND, AIM
HIGH YIELD FUND, AIM INCOME FUND, AIM INTERMEDIATE GOVERNMENT FUND, AIM
INTERNATIONAL EMERGING GROWTH FUND, AIM INTERNATIONAL GROWTH FUND, AIM LARGE
CAP BASIC VALUE FUND, AIM LARGE CAP GROWTH FUND, AIM LIBRA FUND, AIM LIMITED
MATURITY TREASURY FUND, AIM MID CAP BASIC VALUE FUND, AIM MID CAP CORE
EQUITY FUND, AIM MID CAP GROWTH FUND, AIM MUNICIPAL BOND FUND, AIM
OPPORTUNITIES I FUND, AIM OPPORTUNITIES II FUND, AIM OPPORTUNITIES III FUND,
AIM PREMIER EQUITY FUND, AIM REAL ESTATE FUND, AIM SELECT EQUITY FUND, AIM
SHORT TERM BOND FUND, AIM SMALL CAP EQUITY FUND, AIM SMALL CAP GROWTH FUND,
AIM TAX-FREE INTERMEDIATE FUND, AIM TOTAL RETURN BOND FUND, AIM TRIMARK
ENDEAVOR FUND, AIM TRIMARK FUND, AIM TRIMARK SMALL COMPANIES FUND, AIM
WEINGARTEN FUND, INVESCO ADVANTAGE HEALTH SCIENCES FUND, INVESCO CORE EQUITY
FUND, INVESCO DYNAMICS FUND, INVESCO ENERGY FUND, INVESCO FINANCIAL SERVICES
FUND, INVESCO GOLD & PRECIOUS METALS FUND, INVESCO HEALTH SCIENCES FUND,
INVESCO INTERNATIONAL CORE EQUITY FUND, INVESCO LEISURE FUND, INVESCO
MULTI-SECTOR FUND, INVESCO MID-CAP GROWTH FUND, INVESCO S&P 500 INDEX FUND,
INVESCO SMALL COMPANY GROWTH FUND, INVESCO TECHNOLOGY FUND, INVESCO TOTAL
RETURN FUND, INVESCO UTILITIES FUND, NOMINAL DEFENDANTS, in the United
States District Court for the Southern District of Texas, Houston Division
(Civil Action No. H-04-2802), filed on July 9, 2004. This claim alleges
violations of Sections 34(b), 36(b) and 48(a) of the Investment Company Act
and violations of Sections 206 and 215 of the Advisers Act. The claim also
alleges common law breach of fiduciary duty. The plaintiff in this case is
seeking: 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.
JANICE R. FRY, BOB J. FRY, JAMES P. HAYES, VIRGINIA L. MAGBUAL, HENRY W.
MEYER AND GEORGE ROBERT PERRY V. AIM MANAGEMENT GROUP INC., INVESCO FUNDS
GROUP, INC., AIM INVESTMENT SERVICES, INC., AIM ADVISORS, INC., ROBERT H.
GRAHAM, MARK H. WILLIAMSON, FRANK S. BAYLEY, BRUCE L. CROCKETT, ALBERT R.
DOWDEN, EDWARD K. DUNN, JR., JACK M. FIELDS, CARL FRISCHLING, PREMA
MATHAI-DAVIS, LEWIS F. PENNOCK, RUTH H. QUIGLEY, AND LOUIS S. SKLAR, AND
JOHN DOES 1-100, DEFENDANTS, AND AIM AGGRESSIVE GROWTH FUND, AIM ASIA
PACIFIC GROWTH FUND, AIM BALANCED FUND, AIM BASIC BALANCED FUND, AIM BASIC
VALUE
H-17
FUND, AIM BLUE CHIP FUND, AIM CAPITAL DEVELOPMENT FUND, AIM CHARTER FUND,
AIM CONSTELLATION FUND, AIM DENT DEMOGRAPHIC TRENDS FUND, AIM DEVELOPING
MARKETS FUND, AIM DIVERSIFIED DIVIDEND FUND, AIM EMERGING GROWTH FUND, AIM
EUROPEAN GROWTH FUND, AIM EUROPEAN SMALL COMPANY FUND, AIM FLOATING RATE
FUND, AIM GLOBAL AGGRESSIVE GROWTH FUND, AIM GLOBAL EQUITY FUND, AIM GLOBAL
GROWTH FUND, AIM GLOBAL HEALTH CARE FUND, AIM GLOBAL VALUE FUND, AIM GROUP
INCOME FUND, AIM GROUP VALUE FUND, AIM HIGH INCOME MUNICIPAL FUND, AIM HIGH
YIELD FUND, AIM INCOME FUND, AIM INTERMEDIATE GOVERNMENT FUND, AIM
INTERNATIONAL EMERGING GROWTH FUND, AIM INTERNATIONAL GROWTH FUND, AIM LARGE
CAP BASIC VALUE FUND, AIM LARGE CAP GROWTH FUND, AIM LIBRA FUND, AIM LIMITED
MATURITY TREASURY FUND, AIM MID CAP BASIC VALUE FUND, AIM MID CAP CORE
EQUITY FUND, AIM MID CAP GROWTH FUND, AIM MUNICIPAL BOND FUND, AIM
OPPORTUNITIES I FUND, AIM OPPORTUNITIES II FUND, AIM OPPORTUNITIES III FUND,
AIM PREMIER EQUITY FUND, AIM REAL ESTATE FUND, AIM SELECT EQUITY FUND, AIM
SHORT TERM BOND FUND, AIM SMALL CAP EQUITY FUND, AIM SMALL CAP GROWTH FUND,
AIM TAX-FREE INTERMEDIATE FUND, AIM TOTAL RETURN BOND FUND, AIM TRIMARK
ENDEAVOR FUND, AIM TRIMARK FUND, AIM TRIMARK SMALL COMPANIES FUND, AIM
WEINGARTEN FUND, INVESCO ADVANTAGE HEALTH SCIENCES FUND, INVESCO CORE EQUITY
FUND, INVESCO DYNAMICS FUND, INVESCO ENERGY FUND, INVESCO FINANCIAL SERVICES
FUND, INVESCO GOLD & PRECIOUS METALS FUND, INVESCO HEALTH SCIENCES FUND,
INVESCO INTERNATIONAL CORE EQUITY FUND, INVESCO LEISURE FUND, INVESCO
MULTI-SECTOR FUND, INVESCO MID-CAP GROWTH FUND, INVESCO S&P 500 INDEX FUND,
INVESCO SMALL COMPANY GROWTH FUND, INVESCO TECHNOLOGY FUND, INVESCO TOTAL
RETURN FUND, INVESCO UTILITIES FUND, NOMINAL DEFENDANTS, in the United
States District Court for the Southern District of Texas, Houston Division
(Civil Action No. H-04-2832), filed on July 12, 2004. This claim alleges
violations of Sections 34(b), 36(b) and 48(a) of the Investment Company Act
and violations of Sections 206 and 215 of the Advisers Act. The claim also
alleges common law breach of fiduciary duty. The plaintiff in this case is
seeking: 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.
ROBERT P. APU, SUZANNE K. APU, MARINA BERTI, KHANH DINH, FRANK KENDRICK,
EDWARD A. KREZEL, DAN B. LESIUK, JOHN B. PERKINS, MILDRED E. RUEHLMAN, LOUIS
E. SPERRY, J. DORIS WILLSON AND ROBERT W. WOOD V. AIM MANAGEMENT GROUP INC.,
INVESCO FUNDS GROUP, INC., AIM INVESTMENT SERVICES, INC., AIM ADVISORS,
INC., ROBERT H. GRAHAM, MARK H. WILLIAMSON, FRANK S. BAYLEY, BRUCE L.
CROCKETT, ALBERT R. DOWDEN, EDWARD K. DUNN, JR., JACK M. FIELDS, CARL
FRISCHLING, PREMA MATHAI-DAVIS, LEWIS F. PENNOCK, RUTH H. QUIGLEY, AND LOUIS
S. SKLAR, AND JOHN DOES 1-100, DEFENDANTS, AND AIM AGGRESSIVE GROWTH FUND,
AIM ASIA PACIFIC GROWTH FUND, AIM BALANCED FUND, AIM BASIC BALANCED FUND,
AIM BASIC VALUE FUND, AIM BLUE CHIP FUND, AIM CAPITAL DEVELOPMENT FUND, AIM
CHARTER FUND, AIM CONSTELLATION FUND, AIM DENT DEMOGRAPHIC TRENDS FUND, AIM
DEVELOPING MARKETS FUND, AIM DIVERSIFIED DIVIDEND FUND, AIM EMERGING GROWTH
FUND, AIM EUROPEAN GROWTH FUND, AIM EUROPEAN SMALL COMPANY FUND, AIM
FLOATING RATE FUND, AIM GLOBAL AGGRESSIVE GROWTH FUND, AIM GLOBAL EQUITY
FUND, AIM GLOBAL GROWTH FUND, AIM GLOBAL HEALTH CARE FUND, AIM GLOBAL VALUE
FUND, AIM GROUP INCOME FUND, AIM GROUP VALUE FUND, AIM HIGH INCOME MUNICIPAL
FUND, AIM HIGH YIELD FUND, AIM INCOME FUND, AIM
H-18
INTERMEDIATE GOVERNMENT FUND, AIM INTERNATIONAL EMERGING GROWTH FUND, AIM
INTERNATIONAL GROWTH FUND, AIM LARGE CAP BASIC VALUE FUND, AIM LARGE CAP
GROWTH FUND, AIM LIBRA FUND, AIM LIMITED MATURITY TREASURY FUND, AIM MID CAP
BASIC VALUE FUND, AIM MID CAP CORE EQUITY FUND, AIM MID CAP GROWTH FUND, AIM
MUNICIPAL BOND FUND, AIM OPPORTUNITIES I FUND, AIM OPPORTUNITIES II FUND,
AIM OPPORTUNITIES III FUND, AIM PREMIER EQUITY FUND, AIM REAL ESTATE FUND,
AIM SELECT EQUITY FUND, AIM SHORT TERM BOND FUND, AIM SMALL CAP EQUITY FUND,
AIM SMALL CAP GROWTH FUND, AIM TAX-FREE INTERMEDIATE FUND, AIM TOTAL RETURN
BOND FUND, AIM TRIMARK ENDEAVOR FUND, AIM TRIMARK FUND, AIM TRIMARK SMALL
COMPANIES FUND, AIM WEINGARTEN FUND, INVESCO ADVANTAGE HEALTH SCIENCES FUND,
INVESCO CORE EQUITY FUND, INVESCO DYNAMICS FUND, INVESCO ENERGY FUND,
INVESCO FINANCIAL SERVICES FUND, INVESCO GOLD & PRECIOUS METALS FUND,
INVESCO HEALTH SCIENCES FUND, INVESCO INTERNATIONAL CORE EQUITY FUND,
INVESCO LEISURE FUND, INVESCO MULTI-SECTOR FUND, INVESCO MID-CAP GROWTH
FUND, INVESCO S&P 500 INDEX FUND, INVESCO SMALL COMPANY GROWTH FUND, INVESCO
TECHNOLOGY FUND, INVESCO TOTAL RETURN FUND, INVESCO UTILITIES FUND, NOMINAL
DEFENDANTS, in the United States District Court for the Southern District of
Texas, Houston Division (Civil Action No. H-04-2884), filed on July 15,
2004. This claim alleges violations of Sections 34(b), 36(b) and 48(a) of
the Investment Company Act and violations of Sections 206 and 215 of the
Advisers Act. The claim also alleges common law breach of fiduciary duty.
The plaintiff in this case is seeking: 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.
HARVEY R. BENDIX, CVETAN GEORGIEV, DAVID M. LUCOFF, MICHAEL E. PARMELEE,
TRUSTEE OF THE HERMAN S. AND ESPERANZA A. DRAYER RESIDUAL TRUST U/A 1/22/83
AND STANLEY S. STEPHENSON, TRUSTEE OF THE STANLEY J. STEPHENSON TRUST V. AIM
MANAGEMENT GROUP INC., INVESCO FUNDS GROUP, INC., AIM INVESTMENT SERVICES,
INC., AIM ADVISORS, INC., ROBERT H. GRAHAM, MARK H. WILLIAMSON, FRANK S.
BAYLEY, BRUCE L. CROCKETT, ALBERT R. DOWDEN, EDWARD K. DUNN, JR., JACK M.
FIELDS, CARL FRISCHLING, PREMA MATHAI-DAVIS, LEWIS F. PENNOCK, RUTH H.
QUIGLEY, AND LOUIS S. SKLAR, AND JOHN DOES 1-100, DEFENDANTS, AND AIM
AGGRESSIVE GROWTH FUND, AIM ASIA PACIFIC GROWTH FUND, AIM BALANCED FUND, AIM
BASIC BALANCED FUND, AIM BASIC VALUE FUND, AIM BLUE CHIP FUND, AIM CAPITAL
DEVELOPMENT FUND, AIM CHARTER FUND, AIM CONSTELLATION FUND, AIM DENT
DEMOGRAPHIC TRENDS FUND, AIM DEVELOPING MARKETS FUND, AIM DIVERSIFIED
DIVIDEND FUND, AIM EMERGING GROWTH FUND, AIM EUROPEAN GROWTH FUND, AIM
EUROPEAN SMALL COMPANY FUND, AIM FLOATING RATE FUND, AIM GLOBAL AGGRESSIVE
GROWTH FUND, AIM GLOBAL EQUITY FUND, AIM GLOBAL GROWTH FUND, AIM GLOBAL
HEALTH CARE FUND, AIM GLOBAL VALUE FUND, AIM GROUP INCOME FUND, AIM GROUP
VALUE FUND, AIM HIGH INCOME MUNICIPAL FUND, AIM HIGH YIELD FUND, AIM INCOME
FUND, AIM INTERMEDIATE GOVERNMENT FUND, AIM INTERNATIONAL EMERGING GROWTH
FUND, AIM INTERNATIONAL GROWTH FUND, AIM LARGE CAP BASIC VALUE FUND, AIM
LARGE CAP GROWTH FUND, AIM LIBRA FUND, AIM LIMITED MATURITY TREASURY FUND,
AIM MID CAP BASIC VALUE FUND, AIM MID CAP CORE EQUITY FUND, AIM MID CAP
GROWTH FUND, AIM MUNICIPAL BOND FUND, AIM OPPORTUNITIES I FUND, AIM
OPPORTUNITIES II FUND, AIM OPPORTUNITIES III FUND, AIM PREMIER EQUITY FUND,
AIM REAL ESTATE FUND, AIM SELECT EQUITY FUND, AIM SHORT TERM BOND FUND, AIM
SMALL CAP EQUITY FUND, AIM SMALL CAP GROWTH FUND, AIM TAX-FREE
H-19
INTERMEDIATE FUND, AIM TOTAL RETURN BOND FUND, AIM TRIMARK ENDEAVOR FUND,
AIM TRIMARK FUND, AIM TRIMARK SMALL COMPANIES FUND, AIM WEINGARTEN FUND,
INVESCO ADVANTAGE HEALTH SCIENCES FUND, INVESCO CORE EQUITY FUND, INVESCO
DYNAMICS FUND, INVESCO ENERGY FUND, INVESCO FINANCIAL SERVICES FUND, INVESCO
GOLD & PRECIOUS METALS FUND, INVESCO HEALTH SCIENCES FUND, INVESCO
INTERNATIONAL CORE EQUITY FUND, INVESCO LEISURE FUND, INVESCO MULTI-SECTOR
FUND, INVESCO MID-CAP GROWTH FUND, INVESCO S&P 500 INDEX FUND, INVESCO SMALL
COMPANY GROWTH FUND, INVESCO TECHNOLOGY FUND, INVESCO TOTAL RETURN FUND,
INVESCO UTILITIES FUND, NOMINAL DEFENDANTS, in the United States District
Court for the Southern District of Texas, Houston Division (Civil Action No.
H-04-3030), filed on July 27, 2004. This claim alleges violations of
Sections 34(b), 36(b) and 48(a) of the Investment Company Act and violations
of Sections 206 and 215 of the Advisers Act. The claim also alleges common
law breach of fiduciary duty. The plaintiff in this case is seeking:
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.
H-20
APPENDIX H-6
PENDING LITIGATION ALLEGING FAILURE TO ENSURE PARTICIPATION IN
CLASS ACTION SETTLEMENTS
The following civil lawsuit, purporting to be a class action lawsuit, has
been filed against AIM, IINA, AIM Capital 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 was dismissed by the Court
on August 12, 2005.
AVO HOGAN AND JULIAN W. MEADOWS, ON BEHALF OF THEMSELVES AND ALL OTHERS
SIMILARLY SITUATED, V. BOB R. BAKER, FRANK S. BAYLEY, JAMES T. BUNCH, BRUCE L.
CROCKETT, ALBERT R. DOWDEN, EDWARD K. DUNN, JR., JACK M. FIELDS, CARL
FRISCHLING, ROBERT H. GRAHAM, GERALD J. LEWIS, PREMA MATHAI-DAVIS, LEWIS F.
PENNOCK, RUTH H. QUIGLEY, LOUIS S. SKLAR, LARRY SOLL, PH.D, MARK H. WILLIAMSON,
AIM INVESTMENTS, LTD., AIM ADVISORS, INC., AIM CAPITAL MANAGEMENT, INC.,
INVESCO INSTITUTIONAL (N.A.), INC. AND JOHN DOES NO. 1 THROUGH 100, in the
United States District Court, Northern District of Texas (Civil Action
No. 3:05-CV-73-P), filed on January 11, 2005. This claim alleges violations of
Sections 36(a), 36(b) and 47(b) of the Investment Company Act. The claim also
alleges common law breach of fiduciary duty and negligence. The plaintiffs in
this case are seeking: compensatory and punitive damages; forfeiture of all
commissions and fees paid by the class of plaintiffs; and costs and counsel
fees.
H-21
FINANCIAL STATEMENTS
FS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees and Shareholders of AIM Dynamics 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 Dynamics Fund, formerly known
as INVESCO Dynamics Fund, (one of the funds constituting AIM Stock Funds,
hereafter referred to as the "Fund") at July 31, 2005, 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 July 31, 2005 by correspondence with the
custodian and brokers, provide a reasonable basis for our opinion.
/S/ PRICEWATERHOUSECOOPERS LLP
September 21, 2005
Houston, Texas
FS-1
FINANCIALS
SCHEDULE OF INVESTMENTS
July 31, 2005
MARKET
SHARES VALUE
------------------------------------------------------------------------
COMMON STOCKS & OTHER EQUITY
INTERESTS-98.70%
ADVERTISING-1.02%
Omnicom Group Inc. 245,700 $ 20,852,559
------------------------------------------------------------------------
AEROSPACE & DEFENSE-1.12%
L-3 Communications Holdings, Inc. 292,500 22,882,275
------------------------------------------------------------------------
AIR FREIGHT & LOGISTICS-0.98%
Robinson (C.H.) Worldwide, Inc. 319,500 19,991,115
------------------------------------------------------------------------
APPAREL RETAIL-1.95%
Abercrombie & Fitch Co. -- Class A 283,800 20,447,790
------------------------------------------------------------------------
Ross Stores, Inc. 730,800 19,366,200
------------------------------------------------------------------------
39,813,990
------------------------------------------------------------------------
APPAREL, ACCESSORIES & LUXURY
GOODS-2.88%
Coach, Inc./(a)/ 745,000 26,156,950
------------------------------------------------------------------------
Polo Ralph Lauren Corp. 659,400 32,468,856
------------------------------------------------------------------------
58,625,806
------------------------------------------------------------------------
APPLICATION SOFTWARE-4.76%
Amdocs Ltd. (United Kingdom)/(a)/ 765,700 22,733,633
------------------------------------------------------------------------
Autodesk, Inc. 385,400 13,176,826
------------------------------------------------------------------------
Hyperion Solutions Corp./(a)/ 231,000 10,870,860
------------------------------------------------------------------------
Mercury Interactive Corp./(a)/ 385,400 15,173,198
------------------------------------------------------------------------
MicroStrategy Inc. -- Class A/(a)/ 157,600 12,158,840
------------------------------------------------------------------------
NAVTEQ Corp./(a)/ 518,500 22,798,445
------------------------------------------------------------------------
96,911,802
------------------------------------------------------------------------
ASSET MANAGEMENT & CUSTODY
BANKS-2.33%
KKR Financial Corp.
(Acquired 08/05/04; Cost $21,590,000)/(b)(c)/ 1,079,500 23,783,544
------------------------------------------------------------------------
Legg Mason, Inc. 231,750 23,673,262
------------------------------------------------------------------------
47,456,806
------------------------------------------------------------------------
AUTOMOTIVE RETAIL-1.09%
Advance Auto Parts, Inc./(a)/ 321,200 22,149,952
------------------------------------------------------------------------
BIOTECHNOLOGY-2.29%
Genzyme Corp./(a)/ 286,700 21,333,347
------------------------------------------------------------------------
Gilead Sciences, Inc./(a)/ 350,000 15,683,500
------------------------------------------------------------------------
Martek Biosciences Corp./(a)(d)/ 220,000 9,589,800
------------------------------------------------------------------------
46,606,647
------------------------------------------------------------------------
BROADCASTING & CABLE TV-0.51%
Univision Communications Inc. -- Class A/(a)/ 366,300 10,358,964
------------------------------------------------------------------------
CASINOS & GAMING-1.35%
Station Casinos, Inc. 375,000 27,543,750
------------------------------------------------------------------------
MARKET
SHARES VALUE
---------------------------------------------------------------------------
COMMODITY CHEMICALS-0.78%
Lyondell Chemical Co. 565,600 $ 15,802,864
---------------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT-2.85%
ADC Telecommunications, Inc./(a)/ 516,927 13,512,472
---------------------------------------------------------------------------
Comverse Technology, Inc./(a)/ 962,500 24,341,625
---------------------------------------------------------------------------
Scientific-Atlanta, Inc. 525,200 20,220,200
---------------------------------------------------------------------------
58,074,297
---------------------------------------------------------------------------
COMPUTER HARDWARE-0.56%
Palm, Inc./(a)(d)/ 401,735 11,465,517
---------------------------------------------------------------------------
COMPUTER STORAGE & PERIPHERALS-0.99%
QLogic Corp./(a)/ 649,500 20,166,975
---------------------------------------------------------------------------
CONSTRUCTION & ENGINEERING-1.03%
Chicago Bridge & Iron Co. N.V.-New York Shares
(Netherlands) 748,900 20,931,755
---------------------------------------------------------------------------
CONSUMER ELECTRONICS-0.52%
Harman International Industries, Inc. 123,300 10,597,635
---------------------------------------------------------------------------
DATA PROCESSING & OUTSOURCED
SERVICES-1.81%
Alliance Data Systems Corp./(a)/ 646,100 27,504,477
---------------------------------------------------------------------------
Iron Mountain Inc./(a)/ 272,200 9,333,738
---------------------------------------------------------------------------
36,838,215
---------------------------------------------------------------------------
DEPARTMENT STORES-2.51%
Kohl's Corp./(a)/ 468,100 26,377,435
---------------------------------------------------------------------------
Nordstrom, Inc. 671,600 24,855,916
---------------------------------------------------------------------------
51,233,351
---------------------------------------------------------------------------
DIVERSIFIED BANKS-1.10%
Centennial Bank Holdings, Inc.
(Acquired 12/27/04; Cost $21,749,700)/(a)(c)(e)/ 2,071,400 22,371,120
---------------------------------------------------------------------------
DIVERSIFIED COMMERCIAL & PROFESSIONAL
SERVICES-2.33%
ChoicePoint Inc./(a)/ 518,900 22,624,040
---------------------------------------------------------------------------
Corrections Corp. of America/(a)/ 659,650 24,796,243
---------------------------------------------------------------------------
47,420,283
---------------------------------------------------------------------------
DIVERSIFIED METALS & MINING-1.71%
Freeport-McMoRan Copper & Gold, Inc. -- Class B 326,900 13,167,532
---------------------------------------------------------------------------
Phelps Dodge Corp. 203,900 21,705,155
---------------------------------------------------------------------------
34,872,687
---------------------------------------------------------------------------
DRUG RETAIL-0.96%
Shoppers Drug Mart Corp. (Canada) 585,400 19,613,745
---------------------------------------------------------------------------
EDUCATION SERVICES-1.11%
Career Education Corp./(a)/ 582,600 22,599,054
---------------------------------------------------------------------------
FS-2
MARKET
SHARES VALUE
------------------------------------------------------------------------
ELECTRICAL COMPONENTS &
EQUIPMENT-0.94%
Cooper Industries, Ltd. -- Class A (Bermuda) 297,700 $ 19,225,466
------------------------------------------------------------------------
ELECTRONIC EQUIPMENT
MANUFACTURERS-1.81%
Amphenol Corp. -- Class A 556,000 24,764,240
------------------------------------------------------------------------
Cogent Inc./(a)/ 400,400 12,040,028
------------------------------------------------------------------------
36,804,268
------------------------------------------------------------------------
GENERAL MERCHANDISE STORES-1.09%
Dollar General Corp. 1,095,600 22,262,592
------------------------------------------------------------------------
HEALTH CARE DISTRIBUTORS-0.51%
Henry Schein, Inc./(a)/ 240,000 10,360,800
------------------------------------------------------------------------
HEALTH CARE EQUIPMENT-5.99%
Biomet, Inc. 441,300 16,826,769
------------------------------------------------------------------------
INAMED Corp./(a)/ 162,600 11,775,492
------------------------------------------------------------------------
Kinetic Concepts, Inc./(a)/ 346,000 20,749,620
------------------------------------------------------------------------
Mentor Corp. 240,000 11,940,000
------------------------------------------------------------------------
PerkinElmer, Inc. 950,000 19,931,000
------------------------------------------------------------------------
Varian Medical Systems, Inc./(a)/ 520,000 20,415,200
------------------------------------------------------------------------
Waters Corp./(a)/ 450,000 20,376,000
------------------------------------------------------------------------
122,014,081
------------------------------------------------------------------------
HEALTH CARE FACILITIES-0.86%
LifePoint Hospitals, Inc./(a)/ 375,000 17,535,000
------------------------------------------------------------------------
HEALTH CARE SERVICES-1.98%
DaVita, Inc./(a)/ 464,700 21,952,428
------------------------------------------------------------------------
Express Scripts, Inc./(a)/ 350,000 18,305,000
------------------------------------------------------------------------
40,257,428
------------------------------------------------------------------------
HEALTH CARE SUPPLIES-1.37%
Cooper Cos., Inc. (The) 316,600 21,750,420
------------------------------------------------------------------------
Gen-Probe Inc./(a)/ 140,000 6,172,600
------------------------------------------------------------------------
27,923,020
------------------------------------------------------------------------
HOMEBUILDING-1.31%
Pulte Homes, Inc. 285,800 26,756,596
------------------------------------------------------------------------
HOTELS, RESORTS & CRUISE LINES-3.23%
Hilton Hotels Corp. 1,429,200 35,372,700
------------------------------------------------------------------------
Starwood Hotels & Resorts Worldwide, Inc./(f)/ 481,200 30,469,584
------------------------------------------------------------------------
65,842,284
------------------------------------------------------------------------
HOUSEHOLD APPLIANCES-0.52%
Whirlpool Corp. 131,400 10,509,372
------------------------------------------------------------------------
HOUSEWARES & SPECIALTIES-1.67%
Fortune Brands, Inc. 108,400 10,249,220
------------------------------------------------------------------------
Jarden Corp./(a)/ 620,850 23,815,806
------------------------------------------------------------------------
34,065,026
------------------------------------------------------------------------
MARKET
SHARES VALUE
------------------------------------------------------------------------------
INDUSTRIAL GASES-0.63%
Praxair, Inc. 261,100 $ 12,895,729
------------------------------------------------------------------------------
INDUSTRIAL MACHINERY-0.92%
ITT Industries, Inc. 176,300 18,758,320
------------------------------------------------------------------------------
INTEGRATED OIL & GAS-1.11%
Murphy Oil Corp. 425,000 22,542,000
------------------------------------------------------------------------------
INTERNET SOFTWARE & SERVICES-1.10%
Akamai Technologies, Inc./(a)/ 252,473 3,855,263
------------------------------------------------------------------------------
VeriSign, Inc./(a)/ 705,900 18,572,229
------------------------------------------------------------------------------
22,427,492
------------------------------------------------------------------------------
IT CONSULTING & OTHER SERVICES-0.88%
Cognizant Technology Solutions Corp. -- Class A/(a)/ 364,200 17,874,936
------------------------------------------------------------------------------
MANAGED HEALTH CARE-1.98%
AMERIGROUP Corp./(a)/ 300,000 10,395,000
------------------------------------------------------------------------------
CIGNA Corp. 120,000 12,810,000
------------------------------------------------------------------------------
Coventry Health Care, Inc./(a)/ 138,000 9,760,740
------------------------------------------------------------------------------
WellCare Health Plans Inc./(a)/ 192,000 7,357,440
------------------------------------------------------------------------------
40,323,180
------------------------------------------------------------------------------
OIL & GAS DRILLING-2.26%
Nabors Industries, Ltd. (Bermuda)/(a)/ 335,000 21,925,750
------------------------------------------------------------------------------
Noble Corp. (Cayman Islands) 360,000 24,184,800
------------------------------------------------------------------------------
46,110,550
------------------------------------------------------------------------------
OIL & GAS EQUIPMENT & SERVICES-3.36%
Grant Prideco, Inc./(a)/ 600,000 19,260,000
------------------------------------------------------------------------------
National-Oilwell Varco Inc./(a)/ 470,000 24,604,500
------------------------------------------------------------------------------
Weatherford International Ltd. (Bermuda)/(a)/ 390,000 24,679,200
------------------------------------------------------------------------------
68,543,700
------------------------------------------------------------------------------
OIL & GAS EXPLORATION &
PRODUCTION-2.15%
Rosetta Resources, Inc. (Acquired 06/28/05;
Cost $19,782,400)/(a)(b)(c)/ 1,236,400 19,782,400
------------------------------------------------------------------------------
Talisman Energy Inc. (Canada) 550,000 24,013,000
------------------------------------------------------------------------------
43,795,400
------------------------------------------------------------------------------
OIL & GAS STORAGE &
TRANSPORTATION-1.35%
Williams Cos., Inc. (The) 1,300,000 27,612,000
------------------------------------------------------------------------------
OTHER DIVERSIFIED FINANCIAL
SERVICES-1.02%
CapitalSource Inc./(a)/ 1,062,600 20,805,708
------------------------------------------------------------------------------
PACKAGED FOODS & MEATS-1.01%
McCormick & Co., Inc. 294,600 10,246,188
------------------------------------------------------------------------------
TreeHouse Foods, Inc./(a)/ 336,000 10,274,880
------------------------------------------------------------------------------
20,521,068
------------------------------------------------------------------------------
FS-3
MARKET
SHARES VALUE
-----------------------------------------------------------------------------
PHARMACEUTICALS-1.13%
Medicis Pharmaceutical Corp. -- Class A 360,000 $ 12,211,200
-----------------------------------------------------------------------------
MGI Pharma, Inc./(a)/ 400,000 10,920,000
-----------------------------------------------------------------------------
23,131,200
-----------------------------------------------------------------------------
RAILROADS-0.53%
CSX Corp. 236,900 10,788,426
-----------------------------------------------------------------------------
REAL ESTATE-1.79%
Aames Investment Corp./(e)/ 1,642,800 15,179,472
-----------------------------------------------------------------------------
People's Choice Financial Corp. (Acquired 12/21/04;
Cost $21,918,000)/(a)(c)/ 2,191,800 21,370,050
-----------------------------------------------------------------------------
36,549,522
-----------------------------------------------------------------------------
REAL ESTATE MANAGEMENT &
DEVELOPMENT-1.13%
CB Richard Ellis Group, Inc. -- Class A/(a)/ 500,000 23,020,000
-----------------------------------------------------------------------------
REGIONAL BANKS-0.63%
Signature Bank/(a)/ 427,300 12,831,819
-----------------------------------------------------------------------------
SEMICONDUCTOR EQUIPMENT-0.74%
Tessera Technologies Inc./(a)/ 427,500 15,013,800
-----------------------------------------------------------------------------
SEMICONDUCTORS-4.81%
Altera Corp./(a)/ 915,200 20,015,424
-----------------------------------------------------------------------------
Analog Devices, Inc. 500,100 19,603,920
-----------------------------------------------------------------------------
ATI Technologies Inc. (Canada)/(a)/ 771,800 9,716,962
-----------------------------------------------------------------------------
Microchip Technology Inc. 807,315 25,083,277
-----------------------------------------------------------------------------
National Semiconductor Corp. 957,000 23,647,470
-----------------------------------------------------------------------------
98,067,053
-----------------------------------------------------------------------------
SPECIALIZED FINANCE-1.03%
Chicago Mercantile Exchange Holdings Inc. 69,500 20,922,975
-----------------------------------------------------------------------------
SPECIALTY CHEMICALS-0.97%
Rohm and Haas Co. 428,700 19,745,922
-----------------------------------------------------------------------------
SPECIALTY STORES-2.47%
Office Depot, Inc./(a)/ 984,900 27,951,462
-----------------------------------------------------------------------------
Staples, Inc. 985,550 22,440,974
-----------------------------------------------------------------------------
50,392,436
-----------------------------------------------------------------------------
STEEL-1.00%
Nucor Corp. 185,400 10,280,430
-----------------------------------------------------------------------------
United States Steel Corp. 238,400 10,167,760
-----------------------------------------------------------------------------
20,448,190
-----------------------------------------------------------------------------
MARKET
SHARES VALUE
-----------------------------------------------------------------------------
THRIFTS & MORTGAGE FINANCE-0.81%
Hudson City Bancorp, Inc. 1,386,900 $ 16,407,027
-----------------------------------------------------------------------------
TRUCKING-0.51%
Swift Transportation Co., Inc./(a)/ 476,800 10,484,832
-----------------------------------------------------------------------------
WIRELESS TELECOMMUNICATION SERVICES-
3.56%
American Tower Corp. -- Class A/(a)/ 1,132,700 26,029,446
-----------------------------------------------------------------------------
Nextel Partners, Inc. -- Class A/(a)/ 987,550 24,589,995
-----------------------------------------------------------------------------
SpectraSite, Inc./(a)/ 268,600 21,944,620
-----------------------------------------------------------------------------
72,564,061
-----------------------------------------------------------------------------
Total Common Stocks & Other Equity Interests
(Cost $1,639,915,336) 2,011,314,443
-----------------------------------------------------------------------------
NUMBER
OF EXERCISE EXPIRATION
CONTRACTS PRICE DATE
PUT OPTIONS
PURCHASED-0.02%
HEALTH CARE
EQUIPMENT-0.02%
INAMED Corp.
(Cost $779,215) 1,626 $70 Oct.-05 499,995
---------------------------------------------------------
SHARES
MONEY MARKET FUNDS-1.30%
Premier Portfolio-Institutional Class
(Cost $26,495,353)/(g)/ 26,495,353 26,495,353
--------------------------------------------------------------------------
TOTAL INVESTMENTS-100.02%
(excluding investments purchased with cash
collateral from securities loaned)
(Cost $1,667,189,904) 2,038,309,791
--------------------------------------------------------------------------
INVESTMENTS PURCHASED WITH CASH
COLLATERAL FROM SECURITIES LOANED
MONEY MARKET FUNDS-0.47%
Premier Portfolio-Institutional Class/(g)(h)/ 9,532,450 9,532,450
--------------------------------------------------------------------------
Total Money Market Funds (purchased with
cash collateral from securities loaned)
(Cost $9,532,450) 9,532,450
--------------------------------------------------------------------------
TOTAL INVESTMENTS-100.49%
(Cost $1,676,722,354) 2,047,842,241
--------------------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES-(0.49%) (9,969,512)
--------------------------------------------------------------------------
NET ASSETS-100.00% $2,037,872,729
--------------------------------------------------------------------------
FS-4
Notes to Schedule of Investments:
/(a)/Non-income producing security.
/(b)/Security fair valued in good faith in accordance with the procedures
established by the Board of Trustees. The aggregate market value of these
securities at July 31, 2005 was $43,565,944, which represented 2.13% of
the Fund's Total Investments. See Note 1A.
/(c)/Security not registered under the Securities Act of 1933, as amended
(e.g., the security was purchased in a Rule 144A transaction or a
Regulation D transaction). The security may be resold only pursuant to an
exemption from registration under the 1933 Act, typically to qualified
institutional buyers. The Fund has no rights to demand registration of
these securities. The aggregate market value of these securities at July
31, 2005 was $87,307,114, which represented 4.28% of the Fund's Net
Assets. These securities are considered to be illiquid. The Fund is
limited to investing 15% of net assets in illiquid securities.
/(d)/All or a portion of this security has been pledged as collateral for
securities lending transactions at July 31, 2005.
/(e)/The Investment Company Act of 1940 defines affiliates as those companies
in which a fund holds 5% or more of the outstanding voting securities. The
Fund has not owned enough of the outstanding voting securities of the
issuer to have control (as defined in the Investment Company Act of 1940)
of that issuer. The aggregate market value of these securities at July 31,
2005 was $37,550,592, which represented 1.84% of the Fund's Net Assets.
/(f)/Each unit represents one common share and one Class B share.
/(g)/The money market fund and the Fund are affiliated by having the same
investment advisor. See Note 3.
/(h)/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 to Financial Statements which are an integral part of
the financial statements.
FS-5
STATEMENT OF ASSETS AND LIABILITIES
July 31, 2005
ASSETS:
Investments, at market value (cost $1,604,762,007)* $ 1,974,263,846
- -----------------------------------------------------------------------------------
Investments in affiliates (cost $71,960,347) 73,578,395
- -----------------------------------------------------------------------------------
Total investments (cost $1,676,722,354) 2,047,842,241
- -----------------------------------------------------------------------------------
Receivables for:
Investments sold 29,820,497
- -----------------------------------------------------------------------------------
Fund shares sold 1,166,721
- -----------------------------------------------------------------------------------
Dividends 707,385
- -----------------------------------------------------------------------------------
Investment for trustee deferred compensation and retirement plans 435,742
- -----------------------------------------------------------------------------------
Other assets 44,925
- -----------------------------------------------------------------------------------
Total assets 2,080,017,511
- -----------------------------------------------------------------------------------
LIABILITIES:
Payables for:
Investments purchased 14,180,532
- -----------------------------------------------------------------------------------
Fund shares reacquired 16,250,088
- -----------------------------------------------------------------------------------
Trustee deferred compensation and retirement plans 578,730
- -----------------------------------------------------------------------------------
Collateral upon return of securities loaned 9,532,450
- -----------------------------------------------------------------------------------
Accrued distribution fees 408,955
- -----------------------------------------------------------------------------------
Accrued trustees' and officer's fees and benefits 3,444
- -----------------------------------------------------------------------------------
Accrued transfer agent fees 1,050,986
- -----------------------------------------------------------------------------------
Accrued operating expenses 139,597
- -----------------------------------------------------------------------------------
Total liabilities 42,144,782
- -----------------------------------------------------------------------------------
Net assets applicable to shares outstanding $ 2,037,872,729
- -----------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
Shares of beneficial interest $ 4,395,279,453
- -----------------------------------------------------------------------------------
Undistributed net investment income (loss) (740,047)
- -----------------------------------------------------------------------------------
Undistributed net realized gain (loss) from investment securities,
foreign currencies and futures contracts (2,727,786,696)
- -----------------------------------------------------------------------------------
Unrealized appreciation of investment securities and foreign
currencies 371,120,019
- -----------------------------------------------------------------------------------
$ 2,037,872,729
- -----------------------------------------------------------------------------------
NET ASSETS:
Class A $ 15,894,629
-------------------------------------------------------------
Class B $ 2,907,694
-------------------------------------------------------------
Class C $ 9,080,798
-------------------------------------------------------------
Class K $ 14,997,481
-------------------------------------------------------------
Investor Class $1,984,687,436
-------------------------------------------------------------
Institutional Class $ 10,304,691
-------------------------------------------------------------
SHARES OUTSTANDING, $0.01 PAR VALUE PER SHARE,
UNLIMITED NUMBER OF SHARES AUTHORIZED:
Class A 897,491
-------------------------------------------------------------
Class B 168,402
-------------------------------------------------------------
Class C 536,261
-------------------------------------------------------------
Class K 855,539
-------------------------------------------------------------
Investor Class 112,087,948
-------------------------------------------------------------
Institutional Class 569,883
-------------------------------------------------------------
Class A:
Net asset value per share $ 17.71
-------------------------------------------------------------
Offering price per share:
(Net asset value of $17.71 / 94.50%) $ 18.74
-------------------------------------------------------------
Class B:
Net asset value and offering price per share $ 17.27
-------------------------------------------------------------
Class C:
Net asset value and offering price per share $ 16.93
-------------------------------------------------------------
Class K:
Net asset value and offering price per share $ 17.53
-------------------------------------------------------------
Investor Class:
Net asset value and offering price per share $ 17.71
-------------------------------------------------------------
Institutional Class:
Net asset value and offering price per share $ 18.08
-------------------------------------------------------------
* At July 31, 2005, securities with an aggregate market value of $9,345,682
were on loan to brokers.
See accompanying Notes to Financial Statements which are an integral part of
the financial statements.
FS-6
STATEMENT OF OPERATIONS
For the year ended July 31, 2005
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $69,284) $ 15,443,395
- ----------------------------------------------------------------------------------------------
Dividends from affiliated money market funds (includes securities lending
income of $437,222, after compensation to counterparties of $533,082) 1,973,665
- ----------------------------------------------------------------------------------------------
Interest 19,274
- ----------------------------------------------------------------------------------------------
Total investment income 17,436,334
- ----------------------------------------------------------------------------------------------
EXPENSES:
Advisory fees 12,589,288
- ----------------------------------------------------------------------------------------------
Administrative services fees 519,635
- ----------------------------------------------------------------------------------------------
Custodian fees 209,256
- ----------------------------------------------------------------------------------------------
Distribution fees:
Class A 49,170
- ----------------------------------------------------------------------------------------------
Class B 26,379
- ----------------------------------------------------------------------------------------------
Class C 97,998
- ----------------------------------------------------------------------------------------------
Class K 77,194
- ----------------------------------------------------------------------------------------------
Investor Class 6,004,216
- ----------------------------------------------------------------------------------------------
Transfer agent fees -- A, B, C, K and Investor 8,278,449
- ----------------------------------------------------------------------------------------------
Transfer agent fees -- Institutional 6,810
- ----------------------------------------------------------------------------------------------
Trustees' and officer's fees and benefits 116,298
- ----------------------------------------------------------------------------------------------
Other 678,724
- ----------------------------------------------------------------------------------------------
Total expenses 28,653,417
- ----------------------------------------------------------------------------------------------
Less:Fees waived, expenses reimbursed and expense offset arrangements (277,145)
- ----------------------------------------------------------------------------------------------
Net expenses 28,376,272
- ----------------------------------------------------------------------------------------------
Net investment income (loss) (10,939,938)
- ----------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT SECURITIES, FOREIGN
CURRENCIES AND FUTURES CONTRACTS:
Net realized gain (loss) from:
Investment securities (included gains from securities sold to affiliates of
$6,863,422) 508,437,228
- ----------------------------------------------------------------------------------------------
Foreign currencies (220,364)
- ----------------------------------------------------------------------------------------------
Futures contracts 2,812,749
- ----------------------------------------------------------------------------------------------
511,029,613
- ----------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of:
Investment securities 57,118,325
- ----------------------------------------------------------------------------------------------
Foreign currencies (74)
- ----------------------------------------------------------------------------------------------
57,118,251
- ----------------------------------------------------------------------------------------------
Net gain from investment securities, foreign currencies and futures contracts 568,147,864
- ----------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $557,207,926
- ----------------------------------------------------------------------------------------------
See accompanying Notes to Financial Statements which are an integral part of
the financial statements.
FS-7
STATEMENT OF CHANGES IN NET ASSETS
For the years ended July 31, 2005 and 2004
2005
- ----------------------------------------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (10,939,938)
- ----------------------------------------------------------------------------------------------------------------------------------
Net realized gain from investment securities, foreign currencies and futures contracts 511,029,613
- ----------------------------------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of investment securities and foreign currencies 57,118,251
- ----------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 557,207,926
- ----------------------------------------------------------------------------------------------------------------------------------
Share transactions-net:
Class A 190,494
- ----------------------------------------------------------------------------------------------------------------------------------
Class B 56,868
- ----------------------------------------------------------------------------------------------------------------------------------
Class C (4,299,521)
- ----------------------------------------------------------------------------------------------------------------------------------
Class K (14,531,829)
- ----------------------------------------------------------------------------------------------------------------------------------
Investor Class (1,552,723,956)
- ----------------------------------------------------------------------------------------------------------------------------------
Institutional Class (5,831,140)
- ----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from share transactions (1,577,139,084)
- ----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets (1,019,931,158)
- ----------------------------------------------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of year 3,057,803,887
- ----------------------------------------------------------------------------------------------------------------------------------
End of year (including undistributed net investment income (loss) of $(740,047) and $(568,370), respectively) $ 2,037,872,729
- ----------------------------------------------------------------------------------------------------------------------------------
2004
- ---------------------------------------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (30,738,446)
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized gain from investment securities, foreign currencies and futures contracts 945,225,491
- ---------------------------------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of investment securities and foreign currencies (434,937,006)
- ---------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 479,550,039
- ---------------------------------------------------------------------------------------------------------------------------------
Share transactions-net:
Class A 5,426,087
- ---------------------------------------------------------------------------------------------------------------------------------
Class B 723,339
- ---------------------------------------------------------------------------------------------------------------------------------
Class C (3,772,353)
- ---------------------------------------------------------------------------------------------------------------------------------
Class K (24,547,120)
- ---------------------------------------------------------------------------------------------------------------------------------
Investor Class (1,337,770,199)
- ---------------------------------------------------------------------------------------------------------------------------------
Institutional Class (22,726,179)
- ---------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from share transactions (1,382,666,425)
- ---------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets (903,116,386)
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of year 3,960,920,273
- ---------------------------------------------------------------------------------------------------------------------------------
End of year (including undistributed net investment income (loss) of $(740,047) and $(568,370), respectively) $ 3,057,803,887
- ---------------------------------------------------------------------------------------------------------------------------------
See accompanying Notes to Financial Statements which are an integral part of
the financial statements.
FS-8
NOTES TO FINANCIAL STATEMENTS
July 31, 2005
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Dynamics Fund, formerly INVESCO Dynamics Fund, (the "Fund") is a series
portfolio of AIM Stock Funds (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
three 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 as of the close of business on August 15, 2005, the Fund is
limiting public sales of its Class K shares to certain investors.
Effective as of the close of business on April 1, 2002, the Fund limited
public sales of its Investor Class shares to certain investors.
The Fund's investment objective is to seek long-term capital growth. 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 including
estimates and assumptions related to taxation. 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, which may be
considered fair valued, 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 and domestic
and foreign index futures.
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.
FS-9
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions are
accounted for on a trade date basis. Realized gains or losses on sales are
computed on the basis of specific identification of the securities sold.
Interest income is recorded on the accrual basis from settlement date.
Dividend income is recorded on the ex-dividend date. Bond premiums and
discounts are amortized and/or accreted for financial reporting purposes.
Brokerage commissions and mark ups are considered transaction costs and
are recorded as an increase to the cost basis of securities purchased and/or
a reduction of proceeds on a sale of securities. Such transaction costs are
included in the determination of realized and unrealized gain (loss) from
investment securities reported in the Statement of Operations and the
Statement of Changes in Net Assets and the realized and unrealized net gains
(losses) on securities per share in the Financial Highlights. Transaction
costs are included in the calculation of the Fund's net asset value and,
accordingly, they reduce the Fund's total returns. These transaction costs
are not considered operating expenses and are not reflected in net
investment income reported in the Statement of Operations and Statement of
Changes in Net Assets, or the net investment income per share and ratios of
expenses and net investment income reported in the Financial Highlights, nor
are they limited by any expense limitation arrangements between the Fund and
the advisor.
The Fund allocates income and realized and unrealized capital gains and
losses to a class based on the relative net assets of each class.
C. DISTRIBUTIONS -- Distributions from income and net realized capital gain, if
any, are generally paid annually and recorded on ex-dividend date. The Fund
may elect to use a portion of the proceeds from redemptions as distributions
for federal income tax purposes.
D. FEDERAL INCOME TAXES -- The Fund intends to comply with the requirements of
Subchapter M of the Internal Revenue Code necessary to qualify as a
regulated investment company and, as such, will not be subject to federal
income taxes on otherwise taxable income (including net realized capital
gain) which is distributed to shareholders. Therefore, no provision for
federal income taxes is recorded in the financial statements.
E. EXPENSES -- Fees provided for under the Rule 12b-1 plan of a particular
class of the Fund are charged to the operations of such class. Transfer
agency fees and expenses and other shareholder recordkeeping fees and
expenses attributable to the Institutional Class are charged to such class.
Transfer agency fees and expenses and other shareholder recordkeeping fees
and expenses relating to all other classes are allocated among those classes
based on relative net assets. All other expenses are allocated among the
classes based on relative net assets.
F. FOREIGN CURRENCY TRANSLATIONS -- 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. 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.
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 received or made depending upon whether
unrealized gains or losses are incurred. When the contracts are closed, the
Fund recognizes a realized gain or loss equal to the difference between the
proceeds from, or cost of, the closing transaction and the Fund's basis in
the contract. If the Fund were unable to liquidate a futures contract and/or
enter into an offsetting closing transaction, the Fund would continue to be
subject to market risk with respect to the value of the contracts and
continue to be required to maintain the margin deposits on the futures
contracts.
J. COLLATERAL -- To the extent the Fund has pledged or segregated a security as
collateral and that security is subsequently sold, it is the Fund's practice
to replace such collateral no later than the next business day. This
practice does not apply to securities pledged as collateral for securities
lending transactions.
FS-10
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 based on the annual rate of the Fund's
average daily net assets as follows:
AVERAGE NET ASSETS RATE
----------------------------------------------------
First $350 million 0.60%
----------------------------------------------------
Next $350 million 0.55%
----------------------------------------------------
Next $1.3 billion 0.50%
----------------------------------------------------
Next $2 billion 0.45%
----------------------------------------------------
Next $2 billion 0.40%
----------------------------------------------------
Next $2 billion 0.375%
----------------------------------------------------
Over $8 billion 0.35%
----------------------------------------------------
Effective July 1, 2005, AIM 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 K, Investor Class and Institutional Class shares to 1.20%, 1.95%,
1.95%, 1.40%, 1.20% and 0.95% of average daily net assets, respectively. Prior
to July 1, 2005, AIM had 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 to 1.30%. Also,
AIM has contractually agreed to waive advisory fees and/or reimburse expenses
to the extent necessary to limit total annual operating expenses (excluding
certain items discussed below) of Class A, Class B, Class C, Class K, Investor
Class and Institutional Class shares to 1.90%, 2.65%, 2.65%, 2.10%, 1.90% and
1.65% of average daily net assets, respectively, through July 31, 2006. 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, in
addition to the expense reimbursement arrangement with AMVESCAP PLC
("AMVESCAP") described more fully below, the expense offset arrangements from
which the Fund may benefit 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). AIM is also voluntarily waiving
a portion of the advisory fee payable by the Fund equal to the difference
between the income earned from investing in the affiliated money market fund
and the hypothetical income earned from investing in an appropriate comparative
benchmark. 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 July 31, 2005, AIM waived fees of $26,054.
At the request of the Trustees of the Trust, AMVESCAP agreed to reimburse
expenses incurred by the Fund in connection with market timing matters in the
AIM Funds, which may include legal, audit, shareholder reporting,
communications and trustee expenses. These expenses along with the related
expense reimbursement, are included in the Statement of Operations. For the
year ended July 31, 2005, AMVESCAP reimbursed expenses of the Fund in the
amount of $188,952.
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
July 31, 2005, AIM was paid $519,635.
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. AISI may make
payments to intermediaries that provide omnibus account services,
sub-accounting services and/or networking services. For the year ended July 31,
2005, the Fund paid AISI $8,278,449 for Class A, Class B, Class C, Class K and
Investor Class shares and $6,810 for Institutional Class shares.
The Trust has entered into master distribution agreements with A I M
Distributors, Inc. ("ADI") to serve as the distributor for the Class A, Class
B, Class C, Class K, Investor Class 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, Class K and Investor Class
shares (collectively the "Plans"). The Fund, pursuant to the Class A, Class B,
Class C and Class K Plans, pays ADI 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 0.45% of the average daily
net assets of Class K shares. Prior to July 1, 2005, the Fund paid ADI 0.35% of
the average daily net assets of Class A shares. The Fund, pursuant to the
Investor Class Plan, pays ADI for its allocated share of expenses incurred
pursuant to the Investor Class Plan for the period, up to a maximum annual rate
of 0.25% of the average daily net assets of the Investor Class shares. Of these
amounts, up to 0.25% of the average daily net assets of the Class A, Class B,
Class C, Class K or Investor Class 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. National Association of Securities Dealers
("NASD") Rules 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 July 31, 2005, the Class A, Class B, Class C,
Class K and Investor Class shares paid $49,170, $26,379, $97,998, $77,194 and
$6,004,216, 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. For the year
ended July 31, 2005 ADI advised the Fund that it retained $4,005 in front-end
sales commissions from the sale of Class A shares and $0, $2,284, $678 and $0
from Class A, Class B, Class C and Class K 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 ADI.
FS-11
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 fund 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 an affiliated money market
fund for the year ended July 31, 2005.
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
CHANGE IN
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 07/31/04 AT COST FROM SALES (DEPRECIATION) 07/31/05 INCOME GAIN (LOSS)
- ---------------------------------------------------------------------------------------------------------------------------
Premier
Portfolio -- Institutional
Class $154,798,045 $1,259,349,201 $(1,387,651,893) $-- $26,495,353 $1,536,443 $--
- ---------------------------------------------------------------------------------------------------------------------------
INVESTMENTS OF CASH COLLATERAL FROM SECURITIES LENDING TRANSACTIONS:
CHANGE IN
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS FROM APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 07/31/04 AT COST SALES (DEPRECIATION) 07/31/05 INCOME* GAIN (LOSS)
- ---------------------------------------------------------------------------------------------------------------------
Premier
Portfolio -- Institutional
Class $21,329,950 $599,452,522 $(611,250,022) $-- $9,532,450 $437,222 $--
- ---------------------------------------------------------------------------------------------------------------------
* Net of compensation to counterparties.
INVESTMENTS IN OTHER AFFILIATES:
The Investment Company Act of 1940 defines affiliates as those companies in
which a fund holds 5% or more of the outstanding voting securities. The Fund
has not owned enough of the outstanding voting securities of the issuer to have
control (as defined in the Investment Company Act of 1940) of that issuer. The
following is a summary of the transactions with affiliates for the year ended
July 31, 2005.
CHANGE IN
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS FROM APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 07/31/04 AT COST SALES (DEPRECIATION) 07/31/05 INCOME GAIN (LOSS)
- --------------------------------------------------------------------------------------------------------------------
Aames Investment
Corp. $ -- $ 14,182,844 $ -- $ 996,628 $15,179,472 $ -- $--
- --------------------------------------------------------------------------------------------------------------------
Centennial Bank
Holdings, Inc. -- 21,749,700 -- 621,420 22,371,120 -- --
- --------------------------------------------------------------------------------------------------------------------
Subtotal $ -- $ 35,932,544 $(1,998,901,915) $1,618,048 $37,550,592 $ -- $--
- --------------------------------------------------------------------------------------------------------------------
Total $176,127,995 $1,894,734,267 $(1,998,901,915) $1,618,048 $73,578,395 $1,973,665 $--
- --------------------------------------------------------------------------------------------------------------------
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 July 31,
2005, the Fund engaged in securities purchases of $30,028,354 and sales of
$56,540,930, which resulted in net realized gains of $6,863,422.
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 July 31, 2005, the Fund received credits from these arrangements,
which resulted in the reduction of the Fund's total expenses of $62,139.
NOTE 6--TRUSTEES' AND OFFICER'S FEES AND BENEFITS
"Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund
to pay remuneration to each Trustee and Officer of the Fund who is not an
"interested person" of AIM. Trustees have the option to defer compensation
payable by the Fund, and "Trustees' and Officer's Fees and Benefits" also
include amounts accrued by the Fund to fund such deferred compensation amounts.
Those Trustees who defer compensation have the option to select various AIM
Funds in which their deferral accounts shall be deemed to be invested. Finally,
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
who also participate in a retirement plan and receive benefits under such plan.
"Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund
to fund such retirement benefits. Obligations under the deferred compensation
and retirement plans represent unsecured claims against the general assets of
the Fund.
During the year ended July 31, 2005, the Fund paid legal fees of $14,047 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.
FS-12
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.
During the year ended July 31, 2005, the average interfund borrowings for the
five days the borrowings were outstanding was $34,690,200 with a weighted
average interest rate of 2.44% and interest expense of $11,587. During the year
ended July 31, 2005, the Fund did not lend under the interfund lending facility.
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 July 31, 2005, the
Fund did not 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 as a compensating balance in the account so the custodian can be
compensated by earning the additional interest; or (ii) compensate by paying
the custodian bank at a rate agreed upon by the custodian bank and AIM not to
exceed the rate contractually agreed upon.
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 July 31, 2005, securities with an aggregate value of $9,345,682 were on
loan to brokers. The loans were secured by cash collateral of $9,532,450
received by the Fund and subsequently invested in an affiliated money market
fund. For the year ended July 31, 2005, the Fund received dividends on cash
collateral of $437,222 for securities lending transactions, which are net of
compensation to counterparties.
NOTE 9--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
DISTRIBUTIONS TO SHAREHOLDERS:
There were no ordinary income or long term capital gain distributions paid
during the years ended July 31, 2005 and 2004.
TAX COMPONENTS OF NET ASSETS:
As of July 31, 2005, the components of net assets on a tax basis were as
follows:
2005
-------------------------------------------------------
Unrealized appreciation -- investments $ 368,235,792
-------------------------------------------------------
Temporary book/tax differences (340,182)
-------------------------------------------------------
Capital loss carryforward (2,724,902,469)
-------------------------------------------------------
Post-October currency loss deferral (399,865)
-------------------------------------------------------
Shares of beneficial interest 4,395,279,453
-------------------------------------------------------
Total net assets $ 2,037,872,729
-------------------------------------------------------
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 and the deferral of losses on certain straddle transactions. The
tax-basis unrealized appreciation on investments amount includes appreciation
on foreign currencies of $132.
The temporary book/tax differences are a result of timing differences between
book and tax recognition of income and/or expenses. The Fund's temporary
book/tax differences are the result of the trustee deferral of compensation and
retirement plan expenses.
Capital loss carryforward is calculated and reported as of a specific date.
Results of transactions and other activity after that date may affect the
amount of capital loss carryforward actually available for the Fund to utilize.
The ability to utilize capital loss carryforward in the future may be limited
under the Internal Revenue Code and related regulations based on the results of
future transactions. Under these limitation rules, the Fund is limited as of
July 31, 2005 to utilizing $2,715,789,603 of capital loss carryforward in the
fiscal year ended July 31, 2006.
FS-13
The Fund has a capital loss carryforward as of July 31, 2005 which expires as
follows:
CAPITAL LOSS
EXPIRATION CARRYFORWARD*
----------------------------------------------
July 31, 2010 $ 434,677,619
----------------------------------------------
July 31, 2011 2,290,224,850
----------------------------------------------
Total capital loss carryforward $2,724,902,469
----------------------------------------------
* Capital loss carryforward as of the date listed above is reduced for
limitations, if any, to the extent required by the Internal Revenue Code.
NOTE 10--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities
and money market funds) purchased and sold by the Fund during the year ended
July 31, 2005 was $2,087,380,483 and $3,551,423,964, respectively.
At the request of the Trustees, AIM recovered third party research credits
during the year ended July 31, 2005, in the amount of $281,607. These research
credits were recorded as realized gains.
UNREALIZED APPRECIATION (DEPRECIATION) OF
INVESTMENT SECURITIES ON A TAX BASIS
--------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $390,422,458
--------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (22,186,798)
--------------------------------------------------------------------------
Net unrealized appreciation of investment securities $368,235,660
--------------------------------------------------------------------------
Cost of investments for tax purposes is $1,679,606,581.
NOTE 11--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of foreign currency
transactions and net operating losses, on July 31, 2005, undistributed net
investment income (loss) was increased by $10,768,261, undistributed net
realized gain (loss) was increased by $220,364 and shares of beneficial
interest decreased by $10,988,625. This reclassification had no effect on the
net assets of the Fund.
FS-14
NOTE 12--SHARE INFORMATION
The Fund currently consists of six different classes of shares: Class A shares,
Class B shares, Class C shares, Class K shares, Investor Class 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 K shares,
Investor Class shares and Institutional Class shares are sold at net asset
value. Under certain circumstances, Class A shares and Class K 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.
CHANGES IN SHARES OUTSTANDING
- -----------------------------------------------------------------------------------------------------------------------
YEAR ENDED JULY 31,
------------------------------------------------------------
2005/(a)/ 2004
----------------------------- -----------------------------
SHARES AMOUNT SHARES AMOUNT
- -----------------------------------------------------------------------------------------------------------------------
Sold:
Class A 556,506 $ 8,770,684 1,979,317 $ 26,579,934
- -----------------------------------------------------------------------------------------------------------------------
Class B 34,067 514,425 75,305 1,053,608
- -----------------------------------------------------------------------------------------------------------------------
Class C 36,385 551,988 288,214 3,834,257
- -----------------------------------------------------------------------------------------------------------------------
Class K/(b)/ 332,020 5,201,768 1,293,894 18,384,954
- -----------------------------------------------------------------------------------------------------------------------
Investor Class 18,984,016 295,473,845 76,753,034 1,091,080,896
- -----------------------------------------------------------------------------------------------------------------------
Institutional Class 703,280 11,182,991 1,246,049 18,319,642
- -----------------------------------------------------------------------------------------------------------------------
Automatic conversion of Class B shares to Class A shares:
Class A 866 14,656 602 6,639
- -----------------------------------------------------------------------------------------------------------------------
Class B (887) (14,656) (611) (6,639)
- -----------------------------------------------------------------------------------------------------------------------
Reacquired:
Class A (553,184) (8,594,846) (1,562,509) (21,160,486)
- -----------------------------------------------------------------------------------------------------------------------
Class B (28,466) (442,901) (22,032) (323,630)
- -----------------------------------------------------------------------------------------------------------------------
Class C (325,607) (4,851,509) (550,924) (7,606,610)
- -----------------------------------------------------------------------------------------------------------------------
Class K/(b)/ (1,322,033) (19,733,597) (3,002,001) (42,932,074)
- -----------------------------------------------------------------------------------------------------------------------
Investor Class (117,767,645) (1,848,197,801) (167,434,476) (2,428,851,095)
- -----------------------------------------------------------------------------------------------------------------------
Institutional Class (1,034,172) (17,014,131) (2,721,217) (41,045,821)
- -----------------------------------------------------------------------------------------------------------------------
(100,384,854) $(1,577,139,084) (93,657,355) $(1,382,666,425)
- -----------------------------------------------------------------------------------------------------------------------
/(a)/There are three entities that are each record owners of more than 5% of
the outstanding shares of the Fund and in the aggregate they own 23% of
the outstanding shares of the Fund. AIM Distributors has an agreement with
these entities to sell Fund shares. The Fund, AIM and/or AIM affiliates
may make payments to these entities, which are considered to be related to
the Fund, for providing services to the Fund, AIM and/or AIM affiliates
including but not limited to services such as securities brokerage,
distribution, third party record keeping and account servicing. The Trust
has no knowledge as to whether all or any portion of the shares owned of
record by these entities are also owned beneficially.
/(b)/Effective October 21, 2005, Class K shares will convert to Class A shares.
FS-15
NOTE 13--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
CLASS A
----------------------------------------------------
MARCH 28, 2002
(DATE SALES
COMMENCED) TO
YEAR ENDED JULY 31, JULY 31,
----------------------------------- 2002
2005 2004 2003 --------------
- -------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 14.21 $ 12.84 $10.82 $ 15.30
- ------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.08)/(a)/ (0.13)/(a)/ (0.09)/(b)/ (0.03)/(a)/
- ------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and unrealized) 3.58 1.50 2.11 (4.45)
- ------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 3.50 1.37 2.02 (4.48)
- ------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 17.71 $ 14.21 $12.84 $ 10.82
- ------------------------------------------------------------------------------------------------------------------------------
Total return/(c)/ 24.63% 10.67% 18.56% (29.22)%
- ------------------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $15,895 $12,692 $6,108 $ 2,006
- ------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.24%/(d)/ 1.30% 1.24% 1.11%/(e)/
- ------------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.25%/(d)/ 1.31% 1.24% 1.11%/(e)/
- ------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net assets (0.53)%/(d)/ (0.89)% (0.81)% (0.76)%/(e)/
- ------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate/(f)/ 87% 95% 91% 81%
- ------------------------------------------------------------------------------------------------------------------------------
/(a)/Calculated using average shares outstanding.
/(b)/The net investment income (loss) per share was calculated after permanent
book tax differences, such as net operating losses, were reclassified from
accumulated net investment income (loss) to paid in capital. Had net
investment income (loss) per share been calculated using the current
method, which is before reclassification of net operating losses, net
investment income (loss) per share would have been $(0.18) for the year
ended July 31, 2003.
/(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 $14,421,408.
/(e)/Annualized.
/(f)/Not annualized for periods less than one year.
FS-16
NOTE 13--FINANCIAL HIGHLIGHTS-(CONTINUED)
CLASS B
--------------------------------------------------
MARCH 28, 2002
(DATE SALES
COMMENCED) TO
YEAR ENDED JULY 31, JULY 31,
--------------------------------- 2002
2005 2004 2003 --------------
- -------------------------------------------------------------------------------------------
Net asset value, beginning of period $13.94 $12.69 $10.78 $ 15.30
- ------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.18)/(a)/ (0.22)/(a)/ (0.08)/(b)/ (0.06)/(a)/
- ------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized
and unrealized) 3.51 1.47 1.99 (4.46)
- ------------------------------------------------------------------------------------------------------------
Total from investment operations 3.33 1.25 1.91 (4.52)
- ------------------------------------------------------------------------------------------------------------
Net asset value, end of period $17.27 $13.94 $12.69 $ 10.78
- ------------------------------------------------------------------------------------------------------------
Total return/(c)/ 23.89% 9.85% 17.72% (29.54)%
- ------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $2,908 $2,282 $1,409 $ 390
- ------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.90%/(d)/ 1.95% 1.96% 2.09%/(e)/
- ------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.91%/(d)/ 2.26% 2.52% 2.09%/(e)/
- ------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average
net assets (1.19)%/(d)/ (1.54)% (1.53)% (1.71)%/(e)/
- ------------------------------------------------------------------------------------------------------------
Portfolio turnover rate/(f)/ 87% 95% 91% 81%
- ------------------------------------------------------------------------------------------------------------
/(a)/Calculated using average shares outstanding.
/(b)/The net investment income (loss) per share was calculated after permanent
book tax differences, such as net operating losses, were reclassified from
accumulated net investment income (loss) to paid in capital. Had net
investment income (loss) per share been calculated using the current
method, which is before reclassification of net operating losses, net
investment income (loss) per share would have been $(0.17) for the year
ended July 31, 2003.
/(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 $2,637,924.
/(e)/Annualized.
/(f)/Not annualized for periods less than one year.
FS-17
NOTE 13--FINANCIAL HIGHLIGHTS-(CONTINUED)
CLASS C
---------------------------------------------------------------
YEAR ENDED JULY 31,
---------------------------------------------------------------
2005 2004 2003 2002 2001
- --------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $13.67 $ 12.44 $ 10.60 $ 17.04 $ 27.78
- --------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.18)/(a)/ (0.22)/(a)/ (0.18)/(b)/ (0.25)/(b)/ (0.06)/(b)/
- --------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) 3.44 1.45 2.02 (6.17) (10.60)
- --------------------------------------------------------------------------------------------------------------
Total from investment operations 3.26 1.23 1.84 (6.42) (10.66)
- --------------------------------------------------------------------------------------------------------------
Less distributions from net realized
gains -- -- -- (0.02) (0.08)
- --------------------------------------------------------------------------------------------------------------
Net asset value, end of period $16.93 $ 13.67 $ 12.44 $ 10.60 $ 17.04
- --------------------------------------------------------------------------------------------------------------
Total return/(c)/ 23.85% 9.89% 17.47% (37.76)% (38.45)%
- --------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $9,081 $11,287 $13,537 $13,440 $28,887
- --------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets:
With fee waivers and/or expense
reimbursements 1.90%/(d)/ 1.95% 1.96% 1.96% 1.86%
- --------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense
reimbursements 1.91%/(d)/ 2.67% 3.05% 2.16% 1.86%
- --------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss)
to average net assets (1.19)%/(d)/ (1.54)% (1.54)% (1.59)% (1.34)%
- --------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 87% 95% 91% 81% 55%
- --------------------------------------------------------------------------------------------------------------
/(a)/Calculated using average shares outstanding.
/(b)/The net investment income (loss) per share was calculated after permanent
book tax differences, such as net operating losses, were reclassified from
accumulated net investment income (loss) to paid in capital. Had net
investment income (loss) per share been calculated using the current
method, which is before reclassification of net operating losses, net
investment income (loss) per share would have been $(0.27), $(0.38), and
$(0.10) for the year ended July 31, 2003, 2002, and 2001, 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 $9,799,764.
FS-18
NOTE 13--FINANCIAL HIGHLIGHTS-(CONTINUED)
CLASS K
---------------------------------------------------------------------
NOVEMBER 30, 2000
(DATE SALES
COMMENCED) TO
YEAR ENDED JULY 31, JULY 31,
-------------------------------------------------- 2001
2005 2004 2003 2002 -----------------
- ------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 14.08 $ 12.74 $ 10.76 $ 17.19 $ 22.50
- -------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.10)/(a)/ (0.14)/(a)/ (0.02)/(b)/ (0.15)/(a)/ (0.03)
- -------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized
and unrealized) 3.55 1.48 2.00 (6.26) (5.28)
- -------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 3.45 1.34 1.98 (6.41) (5.31)
- -------------------------------------------------------------------------------------------------------------------------------
Less distributions from net realized gains -- -- -- (0.02) --
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 17.53 $ 14.08 $ 12.74 $ 10.76 $ 17.19
- -------------------------------------------------------------------------------------------------------------------------------
Total return/(c)/ 24.50% 10.52% 18.40% (37.32)% (23.60)%
- -------------------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $14,997 $25,977 $45,258 $44,745 $ 6
- -------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.35%/(d)/ 1.40% 1.41% 1.36% 1.48%/(e)/
- -------------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.36%/(d)/ 1.54% 1.61% 1.36% 3.06%/(e)/
- -------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average
net assets (0.64)%/(d)/ (0.99)% (0.98)% (1.05)% (1.03)%/(e)/
- -------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate/(f)/ 87% 95% 91% 81% 55%
- -------------------------------------------------------------------------------------------------------------------------------
/(a)/Calculated using average shares outstanding.
/(b)/The net investment income (loss) per share was calculated after permanent
book tax differences, such as net operating losses, were reclassified from
accumulated net investment income (loss) to paid in capital. Had net
investment income (loss) per share been calculated using the current
method, which is before reclassification of net operating losses, net
investment income (loss) per share would have been $(0.11) for the year
ended July 31, 2003.
/(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. Not annualized for periods less than one year.
/(d)/Ratios are based on average daily net assets of $17,154,120.
/(e)/Annualized.
/(f)/Not annualized for periods less than one year.
INVESTOR CLASS
-------------------------------------------------------------------------------
YEAR ENDED JULY 31,
-------------------------------------------------------------------------------
2005 2004 2003 2002 2001
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 14.19 $ 12.81 $ 10.81 $ 17.23 $ 27.86
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.07)/(a)/ (0.11)/(a)/ (0.00)/(b)/ (0.00)/(b)/ (0.12)/(a)(b)/
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) 3.59 1.49 2.00 (6.40) (10.43)
- ---------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 3.52 1.38 2.00 (6.40) (10.55)
- ---------------------------------------------------------------------------------------------------------------------------------
Less distributions from net realized
gains -- -- -- (0.02) (0.08)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 17.71 $ 14.19 $ 12.81 $ 10.81 $ 17.23
- ---------------------------------------------------------------------------------------------------------------------------------
Total return/(c)/ 24.81% 10.77% 18.50% (37.17)% (37.94)%
- ---------------------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $1,984,687 $2,992,578 $3,863,821 $3,688,213 $6,562,467
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets:
With fee waivers and/or expense
reimbursements 1.15%/(d)/ 1.19% 1.21% 1.21% 1.00%
- ---------------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense
reimbursements 1.16%/(d)/ 1.29% 1.46% 1.23% 1.00%
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss)
to average net assets (0.44)%/(d)/ (0.78)% (0.78)% (0.86)% (0.49)%
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 87% 95% 91% 81% 55%
- ---------------------------------------------------------------------------------------------------------------------------------
/(a)/Calculated using average shares outstanding.
/(b)/The net investment income (loss) per share was calculated after permanent
book tax differences, such as net operating losses, were reclassified from
accumulated net investment income (loss) to paid in capital. Had net
investment income (loss) per share been calculated using the current
method, which is before reclassification of net operating losses, net
investment income (loss) per share would have been $(0.09), $(0.14), and
$(0.06) for the year ended July 31, 2003, 2002 and 2001, 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.
/(d)/Ratios are based on average daily net assets of $2,404,496,829.
FS-19
NOTE 13--FINANCIAL HIGHLIGHTS-(CONTINUED)
INSTITUTIONAL CLASS
-----------------------------------------------------------
YEAR ENDED JULY 31,
-----------------------------------------------------------
2005 2004 2003 2002 2001
- ----------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 14.42 $ 12.96 $ 10.88 $ 17.28 $ 27.87
- ----------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.01/(a)/ (0.04)/(a)/ (0.04) (0.08)/(a)/ (0.07)/(a)/
- ----------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both
realized and unrealized) 3.65 1.50 2.12 (6.30) (10.44)
- ----------------------------------------------------------------------------------------------------------
Total from investment operations 3.66 1.46 2.08 (6.38) (10.51)
- ----------------------------------------------------------------------------------------------------------
Less distributions from net realized
gains -- -- -- (0.02) (0.08)
- ----------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 18.08 $ 14.42 $ 12.96 $ 10.88 $ 17.28
- ----------------------------------------------------------------------------------------------------------
Total return/(b)/ 25.38% 11.26% 19.12% (36.95)% (37.78)%
- ----------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $10,305 $12,987 $30,788 $25,133 $11,622
- ----------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets:
With fee waivers and/or expense
reimbursements 0.63%/(c)/ 0.71% 0.78% 0.84% 0.77%
- ----------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense
reimbursements 0.64%/(c)/ 0.72% 0.78% 0.84% 0.77%
- ----------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss)
to average net assets 0.08%/(c)/ (0.30)% (0.34)% (0.53)% (0.26)%
- ----------------------------------------------------------------------------------------------------------
Portfolio turnover rate 87% 95% 91% 81% 55%
- ----------------------------------------------------------------------------------------------------------
/(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.
/(c)/Ratios are based on average daily net assets of $10,220,518.
FS-20
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), AIM and A I M Distributors, Inc. ("ADI") (the
distributor of the retail AIM Funds) reached final settlements with certain
regulators, including the Securities and Exchange Commission ("SEC"), the New
York Attorney General and the Colorado Attorney General, to resolve civil
enforcement actions and/or investigations related to market timing and related
activity in the AIM Funds, including those formerly advised by IFG. As part of
the settlements, a $325 million fair fund ($110 million of which is civil
penalties) has been created to compensate shareholders harmed by market timing
and related activity in funds formerly advised by IFG. Half of this amount has
already been paid to the fair fund pursuant to the terms of the settlement with
the remainder due December 31, 2005. Additionally, AIM and ADI created a $50
million fair fund ($30 million of which is civil penalties) to compensate
shareholders harmed by market timing and related activity in funds advised by
AIM, which was done pursuant to the terms of the settlement. These two fair
funds may increase as a result of contributions from third parties who reach
final settlements with the SEC or other regulators to resolve allegations of
market timing and/or late trading that also may have harmed applicable AIM
Funds. These two fair funds will be distributed in accordance with a
methodology to be determined by AIM's independent distribution consultant, in
consultation with AIM and the independent trustees of the AIM Funds and
acceptable to the staff of the SEC. As the methodology is unknown at the
present time, management of AIM and the Fund are unable to estimate the impact,
if any, that the distribution of these two fair funds may have on the Fund or
whether such distribution will have an impact on the Fund's financial
statements in the future.
At the request of the trustees of the AIM Funds, AMVESCAP PLC ("AMVESCAP"),
the parent company of IFG and AIM, has agreed to reimburse expenses incurred by
the AIM Funds related to market timing matters.
REGULATORY INQUIRIES AND PENDING LITIGATION
IFG, AIM, ADI and/or related entities and individuals have received inquiries
from numerous regulators 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. IFG, AIM and ADI are providing full cooperation with respect
to these inquiries. As described more fully below, the AIM Funds, IFG, AIM, ADI
and/or related entities and individuals are defendants in numerous civil
lawsuits related to one or more of these issues. Regulatory actions and/or
additional civil lawsuits related to these or other issues may be filed against
the AIM Funds, IFG, AIM and/or related entities and individuals in the future.
On April 12, 2005, the Attorney General of the State of West Virginia
("WVAG") filed a civil lawsuit against AIM, IFG and ADI, as well as numerous
unrelated mutual fund complexes and financial institutions. None of the AIM
Funds has been named as a defendant in this lawsuit. The WVAG complaint, filed
in the Circuit Court of Marshall County, West Virginia [Civil Action
No. 05-C-81], alleges, in substance, that AIM, IFG and ADI engaged in unfair
competition and/or unfair or deceptive trade practices by failing to disclose
in the prospectuses for the AIM Funds, including those formerly advised by IFG,
that they had entered into certain arrangements permitting market timing of
such Funds. As a result of the foregoing, the WVAG alleges violations of W. Va.
Code (S) 46A-1-101, et seq. (the West Virginia Consumer Credit and Protection
Act). The WVAG complaint is seeking, among other things, injunctive relief,
civil monetary penalties and a writ of quo warranto against the defendants. If
AIM is unsuccessful in its defense of the WVAG lawsuit, it could be barred from
serving as an investment advisor for any investment company registered under
the Investment Company Act of 1940, as amended (a "registered investment
company"). Such results could affect the ability of AIM or any other investment
advisor directly or indirectly owned by AMVESCAP, from serving as an investment
advisor to any registered investment company, including the Fund. The Fund has
been informed by AIM that, if these results occur, AIM will seek exemptive
relief from the SEC to permit it to continue to serve as the Fund's investment
advisor. There is no assurance that such exemptive relief will be granted. On
July 7, 2005, the Supreme Court of West Virginia ruled in the context of a
separate lawsuit that the WVAG does not have authority pursuant to W. Va. Code
Section 46A-6-104 of the West Virginia Consumer Credit and Protection Act to
bring an action based upon conduct that is ancillary to the purchase or sale of
securities. AIM intends to seek dismissal of the WVAG's lawsuit against it, IFG
and ADI in light of this ruling.
On August 30, 2005, the West Virginia Office of the State Auditor--Securities
Commission ("WVASC") issued a Summary Order to Cease and Desist and Notice of
Right to Hearing to AIM and ADI. The WVASC makes findings of fact that
essentially mirror the WVAG's allegations mentioned above and conclusions of
law to the effect that AIM and ADI violated the West Virginia securities laws.
The WVASC orders AIM and ADI to cease any further violations and seeks to
impose monetary sanctions to be determined by the Commissioner. AIM and ADI
have the right to contest the WVASC's findings and conclusions, which they
intend to do.
Civil lawsuits, including purported class action and shareholder derivative
suits, have been filed against certain of the AIM Funds, IFG, AIM, ADI and/or
related entities and individuals, depending on the lawsuit, alleging:
. that the defendants permitted improper market timing and related
activity in the AIM Funds;
. that certain AIM Funds inadequately employed fair value pricing;
. 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 and that the defendants adopted
unlawful distribution plans;
. that the defendants breached their fiduciary duties by charging
distribution fees while AIM Funds and/or specific share classes were
closed generally to new investors and/or while other share classes of
the same AIM Fund were not charged the same distribution fees;
. 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; and
FS-21
NOTE 14--LEGAL PROCEEDINGS-(CONTINUED)
. that the defendants breached their fiduciary duties by failing to
ensure that the AIM Funds participated in class action settlements in
which they were eligible to participate (this lawsuit was dismissed by
the Court on August 12, 2005).
These lawsuits allege as theories of recovery, depending on the lawsuit,
violations of various provisions of the Federal and state securities laws and
ERISA, negligence, breach of fiduciary duty and/or breach of contract. These
lawsuits seek remedies that include, depending on the lawsuit, damages,
restitution, injunctive relief, imposition of a constructive trust, removal of
certain directors and/or employees, various corrective measures under ERISA,
rescission of certain AIM Funds' advisory agreements and/or distribution plans
and recovery of all fees paid, an accounting of all fund-related fees,
commissions and soft dollar payments, restitution of all commissions and fees
paid, and prospective relief in the form of reduced fees.
All lawsuits based on allegations of market timing, late trading and related
activity have been transferred to the United States District Court for the
District of Maryland. On August 25, 2005, the Court issued rulings on the
common issues of law presented in defendants' motions to dismiss the
shareholder class and derivative complaints. These rulings were issued in the
context of the Janus lawsuits, but the Court's legal determinations apply at
the omnibus level to all cases within his track, including the AIM and IFG
cases. The Court dismissed for failure to make pre-suit demand on the fund
board all derivative causes of action but one: the excessive fee claim under
Section 36(b) of the Investment Company Act of 1940 (the "1940 Act"), as to
which the demand requirement does not apply. The Court dismissed all claims
asserted in the class complaint but two: (i) the securities fraud claims under
Section 10(b) of the Securities Exchange Act of 1934, and (ii) the excessive
fee claim under Section 36(b) of the 1940 Act. In addition, the Court limited
plaintiffs' potential recovery on the 36(b) claim to fees attributable to
timing assets, as opposed to all fees on funds in which any timing occurred.
The question whether the duplicative Section 36(b) claim properly belongs in
the derivative complaint or in the class action complaint will be decided at a
later date. The Court will subsequently issue an order applying his legal
rulings to the allegations in the AIM and IFG complaints.
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 above may have on AIM, ADI or the Fund.
* * * * * * * * * * * * * * * *
As a result of the matters discussed above, investors in the AIM Funds might
react by redeeming their investments. This might require the AIM Funds to sell
investments to provide for sufficient liquidity and could also have an adverse
effect on the investment performance of the AIM Funds.
FS-22
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees
and Shareholders of AIM Small Company Growth Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of AIM Small Company Growth Fund,
formerly known as INVESCO Small Company Growth Fund, (one of the funds
constituting AIM Stock Funds, hereafter referred to as the "Fund") at July 31,
2005, 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 July 31, 2005 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
/S/ PRICEWATERHOUSECOOPERS LLP
September 21, 2005
Houston, Texas
FS-23
FINANCIALS
SCHEDULE OF INVESTMENTS
July 31, 2005
MARKET
SHARES VALUE
--------------------------------------------------------------
COMMON STOCKS-91.88%
AEROSPACE & DEFENSE-2.60%
Ceradyne, Inc./(a)/ 175,000 $ 5,577,250
--------------------------------------------------------------
Engineered Support Systems, Inc. 80,000 2,958,400
--------------------------------------------------------------
Essex Corp./(a)/ 157,000 3,289,150
--------------------------------------------------------------
11,824,800
--------------------------------------------------------------
AGRICULTURAL PRODUCTS-0.66%
Corn Products International, Inc. 125,000 3,008,750
--------------------------------------------------------------
ALTERNATIVE CARRIERS-0.59%
Cogent Communications Group, Inc./(a)/ 367,900 2,667,275
--------------------------------------------------------------
APPAREL RETAIL-2.21%
Aeropostale, Inc./(a)/ 105,000 3,134,250
--------------------------------------------------------------
DSW Inc. -- Class A/(a)/ 19,900 527,350
--------------------------------------------------------------
Gymboree Corp. (The)/(a)/ 120,000 2,025,600
--------------------------------------------------------------
Hot Topic, Inc./(a)/ 160,000 2,726,400
--------------------------------------------------------------
Maidenform Brands, Inc./(a)/ 90,600 1,653,450
--------------------------------------------------------------
10,067,050
--------------------------------------------------------------
APPLICATION SOFTWARE-4.23%
Catapult Communications Corp./(a)/ 75,000 1,222,500
--------------------------------------------------------------
Henry (Jack) & Associates, Inc. 300,000 5,778,000
--------------------------------------------------------------
Hyperion Solutions Corp./(a)/ 50,000 2,353,000
--------------------------------------------------------------
Open Solutions Inc./(a)/ 75,000 1,797,000
--------------------------------------------------------------
Sonic Solutions/(a)(b)/ 125,000 2,400,000
--------------------------------------------------------------
TIBCO Software Inc./(a)/ 303,100 2,330,839
--------------------------------------------------------------
Ulticom, Inc./(a)/ 275,000 3,368,750
--------------------------------------------------------------
19,250,089
--------------------------------------------------------------
ASSET MANAGEMENT & CUSTODY
BANKS-3.71%
Affiliated Managers Group, Inc./(a)/ 45,000 3,208,500
--------------------------------------------------------------
Investors Financial Services Corp./(b)/ 175,000 6,023,500
--------------------------------------------------------------
National Financial Partners Corp. 70,000 3,167,500
--------------------------------------------------------------
Nuveen Investments -- Class A 118,000 4,484,000
--------------------------------------------------------------
16,883,500
--------------------------------------------------------------
AUTO PARTS & EQUIPMENT-1.19%
Keystone Automotive Industries, Inc./(a)/ 139,000 3,668,210
--------------------------------------------------------------
Midas, Inc./(a)/ 75,000 1,734,750
--------------------------------------------------------------
5,402,960
--------------------------------------------------------------
BIOTECHNOLOGY-4.90%
Amylin Pharmaceuticals, Inc./(a)(b)/ 98,400 1,836,144
--------------------------------------------------------------
CV Therapeutics, Inc./(a)/ 75,000 2,112,750
--------------------------------------------------------------
Digene Corp./(a)(c)/ 115,000 3,345,350
--------------------------------------------------------------
Incyte Corp./(a)/ 200,000 1,594,000
--------------------------------------------------------------
MARKET
SHARES VALUE
--------------------------------------------------------------
BIOTECHNOLOGY-(CONTINUED)
Martek Biosciences Corp./(a)(c)/ 50,000 $ 2,179,500
--------------------------------------------------------------
Neurocrine Biosciences, Inc./(a)/ 43,300 2,146,814
--------------------------------------------------------------
Nuvelo, Inc./(a)/ 200,000 1,830,000
--------------------------------------------------------------
Orchid Cellmark, Inc./(a)/ 265,000 2,268,400
--------------------------------------------------------------
QLT Inc. (Canada)/(a)/ 332,000 2,831,960
--------------------------------------------------------------
Rigel Pharmaceuticals, Inc./(a)/ 100,000 2,164,500
--------------------------------------------------------------
22,309,418
--------------------------------------------------------------
BROADCASTING & CABLE TV-1.22%
New Frontier Media, Inc./(a)/ 375,000 2,568,750
--------------------------------------------------------------
Radio One, Inc. -- Class D/(a)/ 225,000 2,972,250
--------------------------------------------------------------
5,541,000
--------------------------------------------------------------
BUILDING PRODUCTS-1.06%
Quixote Corp. 132,637 2,696,510
--------------------------------------------------------------
York International Corp. 49,400 2,110,862
--------------------------------------------------------------
4,807,372
--------------------------------------------------------------
CASINOS & GAMING-0.34%
Multimedia Games, Inc./(a)(b)/ 150,000 1,572,000
--------------------------------------------------------------
COMPUTER STORAGE & PERIPHERALS-0.34%
Brocade Communications Systems, Inc./(a)/ 350,000 1,568,000
--------------------------------------------------------------
CONSTRUCTION & ENGINEERING-1.34%
Infrasource Services Inc./(a)/ 160,000 2,144,000
--------------------------------------------------------------
Perini Corp./(a)/ 225,000 3,962,250
--------------------------------------------------------------
6,106,250
--------------------------------------------------------------
CONSTRUCTION & FARM MACHINERY & HEAVY
TRUCKS-1.75%
Astec Industries, Inc./(a)/ 162,200 4,702,178
--------------------------------------------------------------
Terex Corp./(a)/ 67,400 3,263,508
--------------------------------------------------------------
7,965,686
--------------------------------------------------------------
CONSUMER FINANCE-0.39%
ACE Cash Express, Inc./(a)/ 75,000 1,764,750
--------------------------------------------------------------
DATA PROCESSING & OUTSOURCED
SERVICES-2.53%
Alliance Data Systems Corp./(a)/ 180,000 7,662,600
--------------------------------------------------------------
iPayment Holdings, Inc./(a)/ 100,000 3,871,000
--------------------------------------------------------------
11,533,600
--------------------------------------------------------------
DISTRIBUTORS-1.15%
Design Within Reach Inc./(a)/ 115,000 2,144,750
--------------------------------------------------------------
Source Interlink Cos., Inc./(a)/ 250,000 3,110,000
--------------------------------------------------------------
5,254,750
--------------------------------------------------------------
FS-24
MARKET
SHARES VALUE
------------------------------------------------------------
DIVERSIFIED COMMERCIAL & PROFESSIONAL
SERVICES-3.18%
CoStar Group Inc./(a)/ 60,000 $ 2,850,000
------------------------------------------------------------
G & K Services, Inc. -- Class A 75,000 2,985,000
------------------------------------------------------------
Navigant Consulting, Inc./(a)/ 123,000 2,460,000
------------------------------------------------------------
Pike Electric Corp./(a)/ 225,000 3,246,750
------------------------------------------------------------
Sirva Inc./(a)(b)/ 275,000 2,926,000
------------------------------------------------------------
14,467,750
------------------------------------------------------------
ELECTRICAL COMPONENTS &
EQUIPMENT-1.42%
EnerSys/(a)/ 209,500 2,928,810
------------------------------------------------------------
Ultralife Batteries, Inc./(a)/ 217,900 3,523,443
------------------------------------------------------------
6,452,253
------------------------------------------------------------
ELECTRONIC EQUIPMENT
MANUFACTURERS-3.56%
Aeroflex Inc./(a)/ 400,000 3,872,000
------------------------------------------------------------
Cogent Inc./(a)/ 100,000 3,007,000
------------------------------------------------------------
FARO Technologies, Inc./(a)(b)/ 130,000 3,078,400
------------------------------------------------------------
Lipman (Israel) 120,000 3,888,000
------------------------------------------------------------
Photon Dynamics, Inc./(a)(b)/ 125,000 2,366,875
------------------------------------------------------------
16,212,275
------------------------------------------------------------
ELECTRONIC MANUFACTURING SERVICES-0.51%
Staktek Holdings Inc./(a)/ 650,000 2,346,500
------------------------------------------------------------
ENVIRONMENTAL & FACILITIES
SERVICES-0.86%
Standard Parking Corp./(a)/ 225,000 3,933,000
------------------------------------------------------------
FOOTWEAR-0.65%
Reebok International Ltd./(b)/ 70,000 2,961,000
------------------------------------------------------------
GENERAL MERCHANDISE STORES-0.71%
Tuesday Morning Corp./(a)/ 91,800 3,241,458
------------------------------------------------------------
HEALTH CARE EQUIPMENT-5.18%
Advanced Medical Optics, Inc./(a)/ 125,000 5,196,250
------------------------------------------------------------
Cantel Medical Corp./(a)(b)/ 120,000 2,101,200
------------------------------------------------------------
Conceptus Inc./(a)/ 150,000 1,198,500
------------------------------------------------------------
Cytyc Corp./(a)/ 250,000 6,240,000
------------------------------------------------------------
Dionex Corp./(a)/ 45,000 2,077,200
------------------------------------------------------------
PerkinElmer, Inc. 87,500 1,835,750
------------------------------------------------------------
Vnus Medical Technologies/(a)(b)/ 193,210 2,403,532
------------------------------------------------------------
Wright Medical Group, Inc./(a)/ 98,000 2,534,280
------------------------------------------------------------
23,586,712
------------------------------------------------------------
HEALTH CARE FACILITIES-0.95%
AmSurg Corp./(a)/ 85,000 2,380,850
------------------------------------------------------------
HealthSouth Corp./(a)/ 365,000 1,956,400
------------------------------------------------------------
4,337,250
------------------------------------------------------------
HEALTH CARE SERVICES-2.44%
DaVita, Inc./(a)/ 50,000 2,362,000
------------------------------------------------------------
MARKET
SHARES VALUE
----------------------------------------------------------
HEALTH CARE SERVICES-(CONTINUED)
Eclipsys Corp./(a)/ 95,000 $ 1,612,150
----------------------------------------------------------
Emageon Inc./(a)/ 160,000 2,224,000
----------------------------------------------------------
Gentiva Health Services, Inc./(a)/ 140,000 2,700,600
----------------------------------------------------------
HealthExtras, Inc./(a)/ 110,000 2,187,900
----------------------------------------------------------
11,086,650
----------------------------------------------------------
HEALTH CARE SUPPLIES-1.62%
Align Technology, Inc./(a)(b)/ 287,400 1,873,848
----------------------------------------------------------
ev3 Inc./(a)/ 100,000 1,940,000
----------------------------------------------------------
Gen-Probe Inc./(a)(c)/ 80,500 3,549,245
----------------------------------------------------------
7,363,093
----------------------------------------------------------
HOME FURNISHINGS-0.76%
Tempur-Pedic International Inc./(a)/ 200,000 3,442,000
----------------------------------------------------------
HOMEFURNISHING RETAIL-1.07%
Cost Plus, Inc./(a)/ 100,000 2,253,000
----------------------------------------------------------
Linens 'n Things, Inc./(a)(b)/ 100,000 2,625,000
----------------------------------------------------------
4,878,000
----------------------------------------------------------
HOTELS, RESORTS & CRUISE LINES-0.73%
Four Seasons Hotels, Inc. (Canada) 50,000 3,325,000
----------------------------------------------------------
HOUSEHOLD APPLIANCES-0.97%
Blount International, Inc./(a)/ 250,000 4,395,000
----------------------------------------------------------
INDUSTRIAL GASES-0.49%
Airgas, Inc. 75,000 2,212,500
----------------------------------------------------------
INDUSTRIAL MACHINERY-0.88%
Kadant Inc./(a)/ 175,000 3,998,750
----------------------------------------------------------
INTEGRATED TELECOMMUNICATION
SERVICES-0.88%
Iowa Telecommunications Services Inc. 175,000 3,321,500
----------------------------------------------------------
NeuStar, Inc.-- Class A/(a)/ 24,400 683,200
----------------------------------------------------------
4,004,700
----------------------------------------------------------
INTERNET RETAIL-0.93%
Blue Nile, Inc./(a)(b)/ 50,000 1,663,000
----------------------------------------------------------
FTD Group, Inc./(a)/ 225,000 2,576,250
----------------------------------------------------------
4,239,250
----------------------------------------------------------
INTERNET SOFTWARE & SERVICES-1.31%
CyberSource Corp./(a)/ 250,000 1,750,000
----------------------------------------------------------
Kintera Inc./(a)/ 498,156 2,042,440
----------------------------------------------------------
Websense, Inc./(a)/ 43,200 2,153,088
----------------------------------------------------------
5,945,528
----------------------------------------------------------
IT CONSULTING & OTHER SERVICES-1.30%
Perot Systems Corp. -- Class A/(a)/ 175,500 2,471,040
----------------------------------------------------------
TNS Inc./(a)/ 150,000 3,450,000
----------------------------------------------------------
5,921,040
----------------------------------------------------------
FS-25
MARKET
SHARES VALUE
--------------------------------------------------------------
LEISURE FACILITIES-0.78%
Speedway Motorsports, Inc. 90,000 $ 3,554,100
--------------------------------------------------------------
LEISURE PRODUCTS-0.44%
K2 Inc./(a)/ 150,000 1,995,000
--------------------------------------------------------------
MANAGED HEALTH CARE-0.26%
Molina Healthcare Inc./(a)/ 50,100 1,199,394
--------------------------------------------------------------
METAL & GLASS CONTAINERS-0.51%
Crown Holdings, Inc./(a)/ 146,000 2,305,340
--------------------------------------------------------------
MOVIES & ENTERTAINMENT-1.38%
Regal Entertainment Group -- Class A/(b)/ 325,000 6,275,750
--------------------------------------------------------------
OFFICE SERVICES & SUPPLIES-0.92%
Mine Safety Appliances Co. 69,100 3,378,990
--------------------------------------------------------------
PeopleSupport, Inc./(a)/ 86,500 829,535
--------------------------------------------------------------
4,208,525
--------------------------------------------------------------
OIL & GAS DRILLING-1.88%
Atwood Oceanics, Inc./(a)(c)/ 40,000 2,726,800
--------------------------------------------------------------
Rowan Cos., Inc./(c)/ 70,000 2,391,200
--------------------------------------------------------------
Todco -- Class A/(a)(c)/ 50,000 1,535,500
--------------------------------------------------------------
Unit Corp./(a)(c)/ 40,000 1,900,000
--------------------------------------------------------------
8,553,500
--------------------------------------------------------------
OIL & GAS EQUIPMENT & SERVICES-1.71%
Input/Output, Inc./(a)(b)/ 525,000 3,801,000
--------------------------------------------------------------
Key Energy Services, Inc./(a)/ 176,200 2,308,220
--------------------------------------------------------------
Maverick Tube Corp./(a)/ 50,000 1,658,500
--------------------------------------------------------------
7,767,720
--------------------------------------------------------------
OIL & GAS EXPLORATION & PRODUCTION-1.66%
Barrett (Bill) Corp./(a)/ 150,000 4,798,500
--------------------------------------------------------------
Spinnaker Exploration Co./(a)(c)/ 70,000 2,746,800
--------------------------------------------------------------
7,545,300
--------------------------------------------------------------
OIL & GAS REFINING & MARKETING -0.44%
Alon USA Energy, Inc./(a)/ 112,700 2,000,425
--------------------------------------------------------------
PACKAGED FOODS & MEATS-1.90%
Diamond Foods, Inc./(a)/ 90,100 1,995,715
--------------------------------------------------------------
Premium Standard Farms, Inc. 175,000 2,625,000
--------------------------------------------------------------
Sanderson Farms, Inc. 45,000 1,939,050
--------------------------------------------------------------
TreeHouse Foods, Inc./(a)/ 68,000 2,079,440
--------------------------------------------------------------
8,639,205
--------------------------------------------------------------
PHARMACEUTICALS-4.09%
Andrx Corp./(a)/ 165,000 3,060,750
--------------------------------------------------------------
Medicis Pharmaceutical Corp. -- Class A 143,100 4,853,952
--------------------------------------------------------------
MGI Pharma, Inc./(a)/ 164,000 4,477,200
--------------------------------------------------------------
Par Pharmaceutical Cos. Inc./(a)/ 67,500 1,580,850
--------------------------------------------------------------
Salix Pharmaceuticals, Ltd./(a)/ 100,000 1,930,000
--------------------------------------------------------------
Valeant Pharmaceuticals International 138,500 2,732,605
--------------------------------------------------------------
18,635,357
--------------------------------------------------------------
MARKET
SHARES VALUE
------------------------------------------------------------
REGIONAL BANKS-2.55%
East West Bancorp, Inc. 110,000 $ 3,795,000
------------------------------------------------------------
Nara Bancorp, Inc. 165,600 2,573,424
------------------------------------------------------------
South Financial Group, Inc. (The) 54,300 1,572,528
------------------------------------------------------------
UCBH Holdings, Inc. 200,000 3,654,000
------------------------------------------------------------
11,594,952
------------------------------------------------------------
RESTAURANTS-1.15%
CKE Restaurants, Inc. 260,000 3,369,600
------------------------------------------------------------
Ruby Tuesday, Inc. 75,000 1,876,500
------------------------------------------------------------
5,246,100
------------------------------------------------------------
SEMICONDUCTOR EQUIPMENT-1.20%
Mattson Technology, Inc./(a)(b)/ 375,000 3,187,500
------------------------------------------------------------
Rudolph Technologies, Inc./(a)/ 150,000 2,286,000
------------------------------------------------------------
5,473,500
------------------------------------------------------------
SEMICONDUCTORS-2.30%
Hittite Microwave Corp./(a)/ 112,600 2,182,188
------------------------------------------------------------
Integrated Device Technology, Inc./(a)/ 350,000 4,046,000
------------------------------------------------------------
Semtech Corp./(a)/ 125,000 2,295,000
------------------------------------------------------------
Sigmatel Inc./(a)/ 97,100 1,944,913
------------------------------------------------------------
10,468,101
------------------------------------------------------------
SPECIALIZED CONSUMER SERVICES-1.11%
Jackson Hewitt Tax Service Inc. 200,000 5,062,000
------------------------------------------------------------
SPECIALIZED FINANCE-1.18%
Marlin Business Services Inc./(a)/ 120,000 2,670,000
------------------------------------------------------------
Primus Guaranty, Ltd. (Bermuda)/(a)(b)/ 200,000 2,718,000
------------------------------------------------------------
5,388,000
------------------------------------------------------------
SPECIALTY STORES-1.25%
Gander Mountain Co./(a)(b)/ 125,000 1,433,750
------------------------------------------------------------
Golf Galaxy, Inc./(a)/ 42,100 783,481
------------------------------------------------------------
PETCO Animal Supplies, Inc./(a)/ 125,000 3,483,750
------------------------------------------------------------
5,700,981
------------------------------------------------------------
SYSTEMS SOFTWARE-0.39%
Micromuse Inc./(a)/ 310,600 1,754,890
------------------------------------------------------------
TECHNOLOGY DISTRIBUTORS-0.49%
PC Connection, Inc./(a)/ 405,600 2,238,912
------------------------------------------------------------
THRIFTS & MORTGAGE FINANCE-2.33%
BankUnited Financial Corp. -- Class A 113,300 2,991,120
------------------------------------------------------------
Commercial Capital Bancorp, Inc. 175,000 3,472,000
------------------------------------------------------------
Franklin Bank Corp./(a)/ 225,000 4,133,250
------------------------------------------------------------
10,596,370
------------------------------------------------------------
TRADING COMPANIES &
DISTRIBUTORS-1.35%
Watsco, Inc. 60,000 2,841,600
------------------------------------------------------------
WESCO International, Inc./(a)/ 97,000 3,303,820
------------------------------------------------------------
6,145,420
------------------------------------------------------------
Total Common Stocks
(Cost $386,767,176) 418,225,801
------------------------------------------------------------
FS-26
MARKET
SHARES VALUE
-----------------------------------------------------------------------------
MONEY MARKET FUNDS-8.96%
Premier Portfolio-Institutional Class
(Cost $40,793,489)/(d)/ 40,793,489 $ 40,793,489
-----------------------------------------------------------------------------
TOTAL INVESTMENTS-100.84% (excluding
investments purchased with cash collateral from
securities loaned) (Cost $427,560,665) 459,019,290
-----------------------------------------------------------------------------
INVESTMENTS PURCHASED WITH CASH
COLLATERAL FROM SECURITIES LOANED
MONEY MARKET FUNDS-4.03%
Premier Portfolio-Institutional Class/(d)(e)/ 18,334,224 18,334,224
-----------------------------------------------------------------------------
Total Money Market Funds (purchased with cash
collateral from securities loaned)
(Cost $18,334,224) 18,334,224
-----------------------------------------------------------------------------
TOTAL INVESTMENTS-104.87% (Cost $445,894,889) 477,353,514
-----------------------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES-(4.87%) (22,146,898)
-----------------------------------------------------------------------------
NET ASSETS-100.00% $455,206,616
-----------------------------------------------------------------------------
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 July 31, 2005.
/(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 to Financial Statements which are an integral part of
the financial statements.
FS-27
STATEMENT OF ASSETS AND LIABILITIES
July 31, 2005
ASSETS:
Investments, at market value (cost $386,767,176)* $ 418,225,801
- ------------------------------------------------------------------------------------
Investments in affiliated money market funds (cost $59,127,713) 59,127,713
- ------------------------------------------------------------------------------------
Total investments (cost $445,894,889) 477,353,514
- ------------------------------------------------------------------------------------
Receivables for:
Investments sold 14,148,869
- ------------------------------------------------------------------------------------
Fund shares sold 3,320,336
- ------------------------------------------------------------------------------------
Dividends 121,519
- ------------------------------------------------------------------------------------
Investment for trustee deferred compensation and retirement plans 102,159
- ------------------------------------------------------------------------------------
Other assets 50,123
- ------------------------------------------------------------------------------------
Total assets 495,096,520
- ------------------------------------------------------------------------------------
LIABILITIES:
Payables for:
Investments purchased 18,629,183
- ------------------------------------------------------------------------------------
Fund shares reacquired 1,764,804
- ------------------------------------------------------------------------------------
Options written, at market value (premiums received $514,313) 656,930
- ------------------------------------------------------------------------------------
Trustee deferred compensation and retirement plans 134,627
- ------------------------------------------------------------------------------------
Collateral upon return of securities loaned 18,334,224
- ------------------------------------------------------------------------------------
Accrued distribution fees 88,850
- ------------------------------------------------------------------------------------
Accrued trustees' and officer's fees and benefits 1,393
- ------------------------------------------------------------------------------------
Accrued transfer agent fees 187,387
- ------------------------------------------------------------------------------------
Accrued operating expenses 92,506
- ------------------------------------------------------------------------------------
Total liabilities 39,889,904
- ------------------------------------------------------------------------------------
Net assets applicable to shares outstanding $ 455,206,616
- ------------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
Shares of beneficial interest $ 839,723,188
- ------------------------------------------------------------------------------------
Undistributed net investment income (loss) (136,814)
- ------------------------------------------------------------------------------------
Undistributed net realized gain (loss) from investment securities,
futures contracts and option contracts (415,695,766)
- ------------------------------------------------------------------------------------
Unrealized appreciation of investment securities and option contracts 31,316,008
- ------------------------------------------------------------------------------------
$ 455,206,616
- ------------------------------------------------------------------------------------
NET ASSETS:
Class A $ 16,593,630
------------------------------------------------------------
Class B $ 5,368,764
------------------------------------------------------------
Class C $ 2,853,337
------------------------------------------------------------
Class K $ 4,200,543
------------------------------------------------------------
Investor Class $407,557,179
------------------------------------------------------------
Institutional Class $ 18,633,163
------------------------------------------------------------
SHARES OUTSTANDING, $0.01 PAR VALUE PER SHARE, UNLIMITED
NUMBER OF SHARES AUTHORIZED:
Class A 1,254,290
------------------------------------------------------------
Class B 414,329
------------------------------------------------------------
Class C 230,281
------------------------------------------------------------
Class K 318,529
------------------------------------------------------------
Investor Class 30,769,597
------------------------------------------------------------
Institutional Class 1,404,605
------------------------------------------------------------
Class A:
Net asset value per share $ 13.23
------------------------------------------------------------
Offering price per share:
(Net asset value of $13.23 / 94.50%) $ 14.00
------------------------------------------------------------
Class B:
Net asset value and offering price per share $ 12.96
------------------------------------------------------------
Class C:
Net asset value and offering price per share $ 12.39
------------------------------------------------------------
Class K:
Net asset value and offering price per share $ 13.19
------------------------------------------------------------
Investor Class:
Net asset value and offering price per share $ 13.25
------------------------------------------------------------
Institutional Class:
Net asset value and offering price per share $ 13.27
------------------------------------------------------------
* At July 31, 2005, securities with an aggregate market value of $17,833,426
were on loan to brokers.
See accompanying Notes to Financial Statements which are an integral part of
the financial statements.
FS-28
STATEMENT OF OPERATIONS
For the year ended July 31, 2005
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $1,386) $ 1,366,889
- ----------------------------------------------------------------------------------------------
Dividends from affiliated money market funds (includes securities lending
income of $114,364 after compensation to counterparties of $443,344) 760,994
- ----------------------------------------------------------------------------------------------
Total investment income 2,127,883
- ----------------------------------------------------------------------------------------------
EXPENSES:
Advisory fees 3,721,889
- ----------------------------------------------------------------------------------------------
Administrative services fees 159,834
- ----------------------------------------------------------------------------------------------
Custodian fees 65,587
- ----------------------------------------------------------------------------------------------
Distribution fees:
Class A 41,427
- ----------------------------------------------------------------------------------------------
Class B 47,089
- ----------------------------------------------------------------------------------------------
Class C 26,101
- ----------------------------------------------------------------------------------------------
Class K 306,133
- ----------------------------------------------------------------------------------------------
Investor Class 1,074,521
- ----------------------------------------------------------------------------------------------
Transfer agent fees -- A, B, C, K & Investor 1,924,229
- ----------------------------------------------------------------------------------------------
Transfer agent fees -- Institutional 397
- ----------------------------------------------------------------------------------------------
Trustees' and officer's fees and benefits 33,304
- ----------------------------------------------------------------------------------------------
Other 376,389
- ----------------------------------------------------------------------------------------------
Total expenses 7,776,900
- ----------------------------------------------------------------------------------------------
Less:Fees waived, expenses reimbursed and expense offset arrangements (88,653)
- ----------------------------------------------------------------------------------------------
Net expenses 7,688,247
- ----------------------------------------------------------------------------------------------
Net investment income (loss) (5,560,364)
- ----------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT SECURITIES, FUTURES
CONTRACTS AND OPTION CONTRACTS:
Net realized gain (loss) from:
Investment securities (includes gains from securities sold to affiliates of
$4,428,748) 111,953,751
- ----------------------------------------------------------------------------------------------
Futures contracts (2,227,061)
- ----------------------------------------------------------------------------------------------
Option contracts written 875,120
- ----------------------------------------------------------------------------------------------
110,601,810
- ----------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of:
Investment securities 9,089,237
- ----------------------------------------------------------------------------------------------
Option contracts written (142,617)
- ----------------------------------------------------------------------------------------------
8,946,620
- ----------------------------------------------------------------------------------------------
Net gain from investment securities, futures contracts and option contracts 119,548,430
- ----------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $113,988,066
- ----------------------------------------------------------------------------------------------
See accompanying Notes to Financial Statements which are an integral part of
the financial statements.
FS-29
STATEMENT OF CHANGES IN NET ASSETS
For the years ended July 31, 2005 and 2004
2005
- -------------------------------------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (5,560,364)
- -------------------------------------------------------------------------------------------------------------------------------
Net realized gain from investment securities, futures contracts and option contracts 110,601,810
- -------------------------------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of investment securities and option contracts 8,946,620
- -------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 113,988,066
- -------------------------------------------------------------------------------------------------------------------------------
Share transactions-net:
Class A 8,749,357
- -------------------------------------------------------------------------------------------------------------------------------
Class B 2,794,627
- -------------------------------------------------------------------------------------------------------------------------------
Class C 395,145
- -------------------------------------------------------------------------------------------------------------------------------
Class K (99,670,690)
- -------------------------------------------------------------------------------------------------------------------------------
Investor Class (191,876,676)
- -------------------------------------------------------------------------------------------------------------------------------
Institutional Class 18,196,801
- -------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from share transactions (261,411,436)
- -------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets (147,423,370)
- -------------------------------------------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of year 602,629,986
- -------------------------------------------------------------------------------------------------------------------------------
End of year (including undistributed net investment income (loss) of $(136,814) and $(74,383), respectively) $ 455,206,616
- -------------------------------------------------------------------------------------------------------------------------------
2004
- ------------------------------------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (11,521,342)
- ------------------------------------------------------------------------------------------------------------------------------
Net realized gain from investment securities, futures contracts and option contracts 220,313,063
- ------------------------------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of investment securities and option contracts (127,383,246)
- ------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 81,408,475
- ------------------------------------------------------------------------------------------------------------------------------
Share transactions-net:
Class A (1,089,987)
- ------------------------------------------------------------------------------------------------------------------------------
Class B 1,459,096
- ------------------------------------------------------------------------------------------------------------------------------
Class C (110,783)
- ------------------------------------------------------------------------------------------------------------------------------
Class K (4,481,287)
- ------------------------------------------------------------------------------------------------------------------------------
Investor Class (468,340,735)
- ------------------------------------------------------------------------------------------------------------------------------
Institutional Class --
- ------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from share transactions (472,563,696)
- ------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets (391,155,221)
- ------------------------------------------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of year 993,785,207
- ------------------------------------------------------------------------------------------------------------------------------
End of year (including undistributed net investment income (loss) of $(136,814) and $(74,383), respectively) $ 602,629,986
- ------------------------------------------------------------------------------------------------------------------------------
See accompanying Notes to Financial Statements which are an integral part of
the financial statements.
FS-30
NOTES TO FINANCIAL STATEMENTS
July 31, 2005
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Small Company Growth Fund, formerly INVESCO Small Company Growth Fund, (the
"Fund") is a series portfolio of AIM Stock Funds (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 three 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 as of the close of business on April 1, 2002, the Fund
limited public sales of its Investor Class shares to certain investors.
Effective as of the close of business on August 15, 2005, the Fund is limiting
public sales of its Class K shares to certain investors.
The Fund's investment objective is to seek long-term capital growth. 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 including
estimates and assumptions related to taxation. 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, which may be
considered fair valued, 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 and domestic
and foreign index futures.
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.
FS-31
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. 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. 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.
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
I. COLLATERAL -- To the extent the Fund has pledged or segregated a security as
collateral and that security is subsequently sold, it is the Fund's practice
to replace such collateral no later than the next business day. This
practice does not apply to securities pledged as collateral for securities
lending transactions.
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 based on the annual rate of the Fund's
average net assets as follows:
AVERAGE NET ASSETS RATE
----------------------------------------------------
First $350 million 0.75%
----------------------------------------------------
Next $350 million 0.65%
----------------------------------------------------
Next $1.3 billion 0.55%
----------------------------------------------------
Next $2 billion 0.45%
----------------------------------------------------
Next $2 billion 0.40%
----------------------------------------------------
Next $2 billion 0.375%
----------------------------------------------------
Over $8 billion 0.35%
----------------------------------------------------
FS-32
Under the terms of a master sub-advisory agreement between AIM with INVESCO
Institutional (N.A.), Inc. ("INVESCO"), AIM paid INVESCO 40% of the fee paid by
the Fund to AIM. This sub-advisory agreement expired on September 30, 2004.
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 K, Investor
Class and Institutional Class shares to 1.50%, 2.25%, 2.25%, 1.70%, 1.50% and
1.25% of average daily net assets, respectively. Also, AIM has contractually
agreed to waive advisory fees and/or reimburse expenses to the extent necessary
to limit total annual operating expenses (excluding certain items discussed
below) of Class A, Class B, Class C, Class K, Investor Class and Institutional
Class shares to 1.90%, 2.65%, 2.65%, 2.10%, 1.90% and 1.65% of average daily
net assets, respectively, through July 31, 2006. 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, in addition to the
expense reimbursement arrangement with AMVESCAP PLC ("AMVESCAP") described more
fully below, the expense offset arrangements from which the Fund may benefit
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). AIM is also voluntarily waiving
a portion of the advisory fee payable by the Fund equal to the difference
between the income earned from investing in the affiliated money market fund
and the hypothetical income earned from investing in an appropriate comparative
benchmark. 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 July 31, 2005, AIM waived fees of $10,627.
At the request of the Trustees of the Trust, AMVESCAP agreed to reimburse
expenses incurred by the Fund in connection with market timing matters in the
AIM Funds, which may include legal, audit, shareholder reporting,
communications and trustee expenses. These expenses along with the related
expense reimbursement, are included in the Statement of Operations. For the
year ended July 31, 2005, AMVESCAP reimbursed expenses of the Fund in the
amount of $63,733.
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
July 31, 2005, AIM was paid $159,834.
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. AISI may make
payments to intermediaries that provide omnibus account services,
sub-accounting services and/or networking services. For the year ended July 31,
2005, the Fund paid AISI $1,924,229 for Class A, Class B, Class C, Class K and
Investor Class share classes and $397 for Institutional Class shares.
The Trust has entered into master distribution agreements with A I M
Distributors, Inc. ("ADI") to serve as the distributor for the Class A, Class
B, Class C, Class K, Investor Class 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, Class K and Investor Class
shares (collectively the "Plans"). The Fund, pursuant to the Class A, Class B,
Class C and Class K Plans, pays ADI 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 0.45% of the average daily
net assets of Class K shares. Prior to July 1, 2005, the Fund paid ADI 0.35% of
the average daily net assets of Class A shares. The Fund, pursuant to the
Investor Class Plan, pays ADI for its allocated share of expenses incurred
pursuant to the Investor Class Plan for the period, up to a maximum annual rate
of 0.25% of the average daily net assets of the Investor Class shares. Of these
amounts, up to 0.25% of the average daily net assets of the Class A, Class B,
Class C, Class K or Investor Class 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. National Association of Securities Dealers
("NASD") Rules 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 July 31, 2005, the Class A, Class B, Class C,
Class K and Investor Class shares paid $41,427, $47,089, $26,101, $306,133 and
$1,074,521, 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. For the year
ended July 31, 2005 ADI advised the Fund that it retained $8,395 in front-end
sales commissions from the sale of Class A shares and $0, $2,587, $236 and $0
from Class A, Class B, Class C and Class K 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 ADI.
FS-33
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 July 31, 2005.
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
CHANGE IN
MARKET UNREALIZED MARKET
VALUE PURCHASES PROCEEDS APPRECIATION VALUE DIVIDEND REALIZED
FUND 07/31/04 AT COST FROM SALES (DEPRECIATION) 07/31/05 INCOME GAIN (LOSS)
- -------------------------------------------------------------------------------------------------------------------------------
Premier Portfolio -- Institutional Class $3,265,874 $423,014,846 $(385,487,231) $-- $40,793,489 $646,630 $--
- -------------------------------------------------------------------------------------------------------------------------------
INVESTMENTS OF CASH COLLATERAL FROM SECURITIES LENDING TRANSACTIONS:
CHANGE IN
MARKET UNREALIZED MARKET
VALUE PURCHASES PROCEEDS APPRECIATION VALUE DIVIDEND REALIZED
FUND 07/31/04 AT COST FROM SALES (DEPRECIATION) 07/31/05 INCOME* GAIN (LOSS)
- --------------------------------------------------------------------------------------------------------------------------------
Premier Portfolio -- Institutional Class $20,058,609 $360,398,301 $(362,122,686) $-- $18,334,224 $114,364 $--
- --------------------------------------------------------------------------------------------------------------------------------
Total $23,324,483 $783,413,147 $(747,609,917) $-- $59,127,713 $760,994 $--
- --------------------------------------------------------------------------------------------------------------------------------
* Net of compensation to 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 July 31,
2005, the Fund engaged in securities purchases of $21,947,561 and sales of
$21,773,491, which resulted in net realized gains of $4,428,748.
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 July 31, 2005, the Fund received credits from these arrangements,
which resulted in the reduction of the Fund's total expenses of $14,293.
NOTE 6--TRUSTEES' AND OFFICER'S FEES AND BENEFITS
"Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund
to pay remuneration to each Trustee and Officer of the Fund who is not an
"interested person" of AIM. Trustees have the option to defer compensation
payable by the Fund, and "Trustees' and Officer's Fees and Benefits" also
include amounts accrued by the Fund to fund such deferred compensation amounts.
Those Trustees who defer compensation have the option to select various AIM
Funds in which their deferral accounts shall be deemed to be invested. Finally,
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
who also participate in a retirement plan and receive benefits under such plan.
"Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund
to fund such retirement benefits. Obligations under the deferred compensation
and retirement plans represent unsecured claims against the general assets of
the Fund.
During the year ended July 31, 2005, the Fund paid legal fees of $6,039 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 July 31, 2005, the Fund did not borrow or lend under
the interfund lending facility or borrow under the uncommitted unsecured
revolving credit facility.
FS-34
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 as a compensating balance in the account so the custodian can be
compensated by earning the additional interest; or (ii) compensate by paying
the custodian bank at a rate agreed upon by the custodian bank and AIM not to
exceed the rate contractually agreed upon.
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 July 31, 2005, securities with an aggregate value of $17,833,426 were on
loan to brokers. The loans were secured by cash collateral of $18,334,224
received by the Fund and subsequently invested in an affiliated money market
fund. For the year ended July 31, 2005, the Fund received dividends on cash
collateral of $114,364 for securities lending transactions, which are net of
compensation to counterparties.
NOTE 9--OPTION CONTRACTS WRITTEN
TRANSACTIONS DURING THE PERIOD
---------------------------------------
CALL OPTION CONTRACTS
--------------------
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
---------------------------------------
Beginning of year -- $ --
---------------------------------------
Written 16,583 1,705,672
---------------------------------------
Closed (3,003) (329,139)
---------------------------------------
Exercised (450) (73,137)
---------------------------------------
Expired (9,209) (789,083)
---------------------------------------
End of year 3,921 $ 514,313
---------------------------------------
OPEN CALLS OPTIONS WRITTEN AT PERIOD END
- ------------------------------------------------------------------------------------------------
CHANGE IN
UNREALIZED
CONTRACT STRIKE NUMBER OF PREMIUMS MARKET VALUE APPRECIATION
MONTH PRICE CONTRACTS RECEIVED 07/31/05 (DEPRECIATION)
- ------------------------------------------------------------------------------------------------
Digene Corp. Aug-05 $30.0 600 $ 91,220 $ 60,000 $ 31,220
- ------------------------------------------------------------------------------------------------
Atwood Oceanics, Inc. Sep-05 70.0 400 65,797 89,000 (23,203)
- ------------------------------------------------------------------------------------------------
Gen-Probe Inc. Sep-05 45.0 400 84,265 94,000 (9,735)
- ------------------------------------------------------------------------------------------------
Market Biosciences Corp. Sep-05 50.0 321 31,145 25,680 5,465
- ------------------------------------------------------------------------------------------------
Rowan Cos., Inc. Sep-05 35.0 600 43,798 97,500 (53,702)
- ------------------------------------------------------------------------------------------------
Spinnaker Exploration Co. Sep-05 40.0 700 110,259 120,750 (10,491)
- ------------------------------------------------------------------------------------------------
Todco -- Class A Sep-05 30.0 500 40,003 120,000 (79,997)
- ------------------------------------------------------------------------------------------------
Unit Corp. Sep-05 50.0 400 47,826 50,000 (2,174)
- ------------------------------------------------------------------------------------------------
Total outstanding options written 3,921 $514,313 $656,930 $(142,617)
- ------------------------------------------------------------------------------------------------
FS-35
NOTE 10--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
DISTRIBUTIONS TO SHAREHOLDERS:
The fund paid no distributions during the years ended July 31, 2005 and July
31, 2004.
TAX COMPONENTS OF NET ASSETS:
As of July 31, 2005, the components of net assets on a tax basis were as
follows:
2005
-----------------------------------------------------
Unrealized appreciation -- investments $ 30,853,493
-----------------------------------------------------
Temporary book/tax differences (79,848)
-----------------------------------------------------
Capital loss carryforward (415,290,217)
-----------------------------------------------------
Shares of beneficial interest 839,723,188
-----------------------------------------------------
Total net assets $ 455,206,616
-----------------------------------------------------
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 recognition for tax purposes of unrealized gains on passive
foreign investment companies. The tax-basis unrealized appreciation
(depreciation) on investments amount includes appreciation (depreciation) on
option contracts written of $(142,617).
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 $106,684,898 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 July 31, 2005 which expires as
follows:
CAPITAL LOSS
EXPIRATION CARRYFORWARD*
---------------------------------------------
July 31, 2010 $108,383,074
---------------------------------------------
July 31, 2011 306,907,143
---------------------------------------------
Total capital loss carryforward $415,290,217
---------------------------------------------
* 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
July 31, 2005 was $978,130,711 and $1,278,328,340, respectively.
At the request of the Trustees, AIM recovered third party research credits
during the year ended July 31, 2005, in the amount of $110,888. These research
credits were recorded as realized gains.
UNREALIZED APPRECIATION (DEPRECIATION) OF
INVESTMENT SECURITIES ON A TAX BASIS
--------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $ 45,800,364
--------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (14,804,254)
--------------------------------------------------------------------------
Net unrealized appreciation of investment securities $ 30,996,110
--------------------------------------------------------------------------
Cost of investments for tax purposes is $446,357,404.
NOTE 12--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of net operating losses,
on July 31, 2005, undistributed net investment income (loss) was increased by
$5,497,933, undistributed net realized gain (loss) was decreased by $619,196
and shares of beneficial interest decreased by $4,878,737. This
reclassification had no effect on the net assets of the Fund.
FS-36
NOTE 13--SHARE INFORMATION
The Fund currently consists of six different classes of shares: Class A shares,
Class B shares, Class C shares, Class K shares, Investor Class 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 K shares,
Investor Class shares and Institutional Class shares are sold at net asset
value. Under certain circumstances, Class A shares and Class K 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.
CHANGES IN SHARES OUTSTANDING
- -----------------------------------------------------------------------------------------------------------------
YEAR ENDED JULY 31,
------------------------------------------------------
2005/(A)/ 2004
-------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
- -----------------------------------------------------------------------------------------------------------------
Sold:
Class A 1,585,421 $ 19,110,253 864,587 $ 9,154,173
- -----------------------------------------------------------------------------------------------------------------
Class B 556,041 6,418,657 164,324 1,842,822
- -----------------------------------------------------------------------------------------------------------------
Class C 223,636 2,445,311 1,766,802 17,696,411
- -----------------------------------------------------------------------------------------------------------------
Class K/(b)/ 428,614 5,100,249 3,093,782 34,174,395
- -----------------------------------------------------------------------------------------------------------------
Investor Class 7,478,089 86,925,322 41,851,952 458,943,231
- -----------------------------------------------------------------------------------------------------------------
Institutional Class/(c)/ 1,405,160 18,204,038 -- --
- -----------------------------------------------------------------------------------------------------------------
Automatic conversion of Class B shares to Class A shares:
Class A 22,064 263,439 8,189 92,775
- -----------------------------------------------------------------------------------------------------------------
Class B (22,476) (263,439) (8,305) (92,775)
- -----------------------------------------------------------------------------------------------------------------
Reacquired:
Class A (900,158) (10,624,335) (962,897) (10,336,935)
- -----------------------------------------------------------------------------------------------------------------
Class B (289,813) (3,360,591) (26,636) (290,951)
- -----------------------------------------------------------------------------------------------------------------
Class C (186,295) (2,050,166) (1,750,220) (17,807,194)
- -----------------------------------------------------------------------------------------------------------------
Class K/(b)/ (9,261,321) (104,770,939) (3,463,825) (38,655,682)
- -----------------------------------------------------------------------------------------------------------------
Investor Class (24,140,390) (278,801,998) (83,507,791) (927,283,966)
- -----------------------------------------------------------------------------------------------------------------
Institutional Class/(c)/ (555) (7,237) -- --
- -----------------------------------------------------------------------------------------------------------------
(23,101,983) $(261,411,436) (41,970,038) $(472,563,696)
- -----------------------------------------------------------------------------------------------------------------
/(a)/There are five entities that are each record owners of more than 5% of the
outstanding shares of the Fund and in the aggregate they own 39% of the
outstanding shares of the Fund. ADI has an agreement with these entities
to sell Fund shares. The Fund, AIM and/or AIM affiliates may make payments
to these entities, which are considered to be related to the Fund, for
providing services to the Fund, AIM and/or AIM affiliates including but
not limited to services such as, securities brokerage, distribution, third
party record keeping and account servicing. The Trust has no knowledge as
to whether all or any portion of the shares owned of record by these
shareholders are also owned beneficially.
/(b)/Effective October 21, 2005, Class K shares will convert to Class A shares.
/(c)/Institutional Class shares commenced sales on July 13, 2005.
FS-37
NOTE 14--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
CLASS A
-----------------------------------------------
MARCH 28, 2002
(DATE SALES
COMMENCED) TO
YEAR ENDED JULY 31, JULY 31,
---------------------------------- 2002
2005 2004 2003 --------------
- --------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 10.49 $10.00 $ 8.41 $ 11.25
- -------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.13)/(a)/ (0.14)/(a)/ (0.01) (0.02)/(a)/
- -------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and unrealized) 2.87 0.63 1.60 (2.82)
- -------------------------------------------------------------------------------------------------------------------------
Total from investment operations 2.74 0.49 1.59 (2.84)
- -------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 13.23 $10.49 $10.00 $ 8.41
- -------------------------------------------------------------------------------------------------------------------------
Total return/(b)/ 26.12% 4.90% 18.91% (25.24)%
- -------------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $16,594 $5,737 $6,372 $ 2,607
- -------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.54%/(c)/ 1.60% 1.38% 1.24%/(d)/
- -------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.55%/(c)/ 1.63% 1.38% 1.24%/(d)/
- -------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net assets (1.13)%/(c)/ (1.32)% (0.69)% (0.74)%/(d)/
- -------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate/(e)/ 199% 130% 119% 99%
- -------------------------------------------------------------------------------------------------------------------------
/(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 $12,152,828.
/(d)/Annualized.
/(e)/Not annualized for periods less than one year.
FS-38
NOTE 14--FINANCIAL HIGHLIGHTS-(CONTINUED)
CLASS B
----------------------------------------------
MARCH 28, 2002
(DATE SALES
COMMENCED) TO
YEAR ENDED JULY 31, JULY 31,
--------------------------------- 2002
2005 2004 2003 --------------
- -------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $10.33 $ 9.91 $ 8.41 $ 11.25
- ------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.21)/(a)/ (0.22)/(a)/ (0.07) (0.04)/(a)/
- ------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and unrealized) 2.84 0.64 1.57 (2.80)
- ------------------------------------------------------------------------------------------------------------------------
Total from investment operations 2.63 0.42 1.50 (2.84)
- ------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $12.96 $10.33 $ 9.91 $ 8.41
- ------------------------------------------------------------------------------------------------------------------------
Total return/(b)/ 25.46% 4.24% 17.84% (25.24)%
- ------------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $5,369 $1,762 $ 408 $ 67
- ------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 2.20%/(c)/ 2.25% 2.25% 2.14%/(d)/
- ------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 2.21%/(c)/ 2.89% 4.00% 2.14%/(d)/
- ------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net assets (1.79)%/(c)/ (1.97)% (1.61)% (1.68)%/(d)/
- ------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate/(e)/ 199% 130% 119% 99%
- ------------------------------------------------------------------------------------------------------------------------
/(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 $4,708,862.
/(d)/Annualized.
/(e)/Not annualized for periods less than one year.
FS-39
NOTE 14--FINANCIAL HIGHLIGHTS-(CONTINUED)
CLASS C
---------------------------------------------------------
YEAR ENDED JULY 31,
---------------------------------------------------------
2005 2004 2003 2002 2001
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 9.88 $ 9.49 $ 8.09 $ 12.54 $ 18.37
- ----------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.20)/(a)/ (0.20)/(a)/ (0.18) (0.18)/(a)/ (0.12)/(b)/
- ----------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 2.71 0.59 1.58 (4.27) (4.78)
- ----------------------------------------------------------------------------------------------------------------------------
Total from investment operations 2.51 0.39 1.40 (4.45) (4.90)
- ----------------------------------------------------------------------------------------------------------------------------
Less distributions from net realized gains -- -- -- -- (0.93)
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $12.39 $ 9.88 $ 9.49 $ 8.09 $ 12.54
- ----------------------------------------------------------------------------------------------------------------------------
Total return/(c)/ 25.41% 4.11% 17.45% (35.57)% (27.24)%
- ----------------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $2,853 $1,907 $1,673 $ 1,087 $ 2,034
- ----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 2.20%/(d)/ 2.25% 2.25% 2.25% 2.13%
- ----------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 2.21%/(d)/ 3.48% 3.55% 2.70% 2.13%
- ----------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net assets (1.79)%/(d)/ (1.97)% (1.73)% (1.81)% (1.12)%
- ----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 199% 130% 119% 99% 112%
- ----------------------------------------------------------------------------------------------------------------------------
/(a)/Calculated using average shares outstanding.
/(b)/The net investment income (loss) per share was calculated after permanent
book tax differences, such as net operating losses, were reclassified from
accumulated net investment income (loss) to paid in capital. Had net
investment income (loss) per share been calculated using the current
method, which is before reclassification of net operating losses, net
investment income (loss) per share would have been $(0.16) for the year
ended July 31, 2001.
/(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 $2,610,087.
FS-40
NOTE 14--FINANCIAL HIGHLIGHTS-(CONTINUED)
CLASS K
--------------------------------------------------
DECEMBER 14, 2001
(DATE SALES
COMMENCED) TO
YEAR ENDED JULY 31, JULY 31,
----------------------------------- 2002
2005 2004 2003 -----------------
- ---------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $10.46 $ 9.99 $ 8.43 $ 11.76
- ----------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.14)/(a)/ (0.16)/(a)/ (0.01) (0.05)/(a)/
- ----------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and unrealized) 2.87 0.63 1.57 (3.28)
- ----------------------------------------------------------------------------------------------------------------------------
Total from investment operations 2.73 0.47 1.56 (3.33)
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $13.19 $ 10.46 $ 9.99 $ 8.43
- ----------------------------------------------------------------------------------------------------------------------------
Total return/(b)/ 26.10% 4.70% 18.51% (28.32)%
- ----------------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $4,201 $95,752 $95,105 $66,451
- ----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.65%/(c)/ 1.70% 1.70% 1.17%/(d)/
- ----------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.66%/(c)/ 1.98% 3.12% 1.17%/(d)/
- ----------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net assets (1.24)%/(c)/ (1.42)% (1.12)% (0.80)%/(d)/
- ----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate/(e)/ 199% 130% 119% 99%
- ----------------------------------------------------------------------------------------------------------------------------
/(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 $68,029,547.
/(d)/Annualized.
/(e)/Not annualized for periods less than one year.
FS-41
NOTE 14--FINANCIAL HIGHLIGHTS-(CONTINUED)
INVESTOR CLASS
-------------------------------------------------------------------
YEAR ENDED JULY 31,
-------------------------------------------------------------------
2005 2004 2003 2002 2001
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 10.49 $ 9.99 $ 8.41 $ 12.76 $ 18.50
- ----------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.12)/(a)/ (0.13)/(a)/ (0.00) (0.01)/(b)/ (0.04)/(a)/
- ----------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized
and unrealized) 2.88 0.63 1.58 (4.34) (4.77)
- ----------------------------------------------------------------------------------------------------------------------------
Total from investment operations 2.76 0.50 1.58 (4.35) (4.81)
- ----------------------------------------------------------------------------------------------------------------------------
Less distributions from net realized gains -- -- -- -- (0.93)
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 13.25 $ 10.49 $ 9.99 $ 8.41 $ 12.76
- ----------------------------------------------------------------------------------------------------------------------------
Total return/(c)/ 26.31% 5.00% 18.79% (34.09)% (26.53)%
- ----------------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $407,557 $497,472 $890,227 $800,520 $1,395,113
- ----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.45%/(d)/ 1.49% 1.50% 1.45% 1.29%
- ----------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.46%/(d)/ 1.59% 1.67% 1.45% 1.29%
- ----------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average
net assets (1.04)%/(d)/ (1.21)% (0.94)% (1.01)% (0.28)%
- ----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 199% 130% 119% 99% 112%
- ----------------------------------------------------------------------------------------------------------------------------
/(a)/Calculated using average shares outstanding.
/(b)/The net investment income (loss) per share was calculated after permanent
book tax differences, such as net operating losses, were reclassified from
accumulated net investment income (loss) to paid in capital. Had net
investment income (loss) per share been calculated using the current
method, which is before reclassification of net operating losses, net
investment income (loss) per share would have been $(0.12) for the year
ended July 31, 2002.
/(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.
/(d)/Ratios are based on average daily net assets of $430,553,031.
INSTITUTIONAL CLASS
-------------------
JULY 13, 2005
(DATE SALES
COMMENCED) TO
JULY 31,
2005
- --------------------------------------------------------------------------------
Net asset value, beginning of period $ 12.98
- --------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.00)/(a)/
- --------------------------------------------------------------------------------
Net gains on securities (both realized and unrealized) 0.29
- --------------------------------------------------------------------------------
Total from investment operations 0.29
- --------------------------------------------------------------------------------
Net asset value, end of period $ 13.27
- --------------------------------------------------------------------------------
Total return/(b)/ 2.23%
- --------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $18,633
- --------------------------------------------------------------------------------
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 0.77%/(c)/
- --------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 0.78%/(c)/
- --------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net assets (0.36)%/(c)/
- --------------------------------------------------------------------------------
Portfolio turnover rate/(d)/ 199%
- --------------------------------------------------------------------------------
/(a)/Calculated using average shares outstanding.
/(b)/Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset value
for financial reporting purposes and the returns based upon those net
asset values may differ from the net asset value and returns for
shareholder transactions. Not annualized for periods less than one year.
/(c)/Ratios are annualized and based on average daily net assets of $13,405,741.
/(d)/Not annualized for periods less than one year.
FS-42
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), AIM and A I M Distributors, Inc. ("ADI") (the
distributor of the retail AIM Funds) reached final settlements with certain
regulators, including the Securities and Exchange Commission ("SEC"), the New
York Attorney General and the Colorado Attorney General, to resolve civil
enforcement actions and/or investigations related to market timing and related
activity in the AIM Funds, including those formerly advised by IFG. As part of
the settlements, a $325 million fair fund ($110 million of which is civil
penalties) has been created to compensate shareholders harmed by market timing
and related activity in funds formerly advised by IFG. Half of this amount has
already been paid to the fair fund pursuant to the terms of the settlement with
the remainder due December 31, 2005. Additionally, AIM and ADI created a $50
million fair fund ($30 million of which is civil penalties) to compensate
shareholders harmed by market timing and related activity in funds advised by
AIM, which was done pursuant to the terms of the settlement. These two fair
funds may increase as a result of contributions from third parties who reach
final settlements with the SEC or other regulators to resolve allegations of
market timing and/or late trading that also may have harmed applicable AIM
Funds. These two fair funds will be distributed in accordance with a
methodology to be determined by AIM's independent distribution consultant, in
consultation with AIM and the independent trustees of the AIM Funds and
acceptable to the staff of the SEC. As the methodology is unknown at the
present time, management of AIM and the Fund are unable to estimate the impact,
if any, that the distribution of these two fair funds may have on the Fund or
whether such distribution will have an impact on the Fund's financial
statements in the future.
At the request of the trustees of the AIM Funds, AMVESCAP PLC ("AMVESCAP"),
the parent company of IFG and AIM, has agreed to reimburse expenses incurred by
the AIM Funds related to market timing matters.
REGULATORY INQUIRIES AND PENDING LITIGATION
IFG, AIM, ADI and/or related entities and individuals have received inquiries
from numerous regulators 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. IFG, AIM and ADI are providing full cooperation with respect
to these inquiries. As described more fully below, the AIM Funds, IFG, AIM, ADI
and/or related entities and individuals are defendants in numerous civil
lawsuits related to one or more of these issues. Regulatory actions and/or
additional civil lawsuits related to these or other issues may be filed against
the AIM Funds, IFG, AIM and/or related entities and individuals in the future.
On April 12, 2005, the Attorney General of the State of West Virginia
("WVAG") filed a civil lawsuit against AIM, IFG and ADI, as well as numerous
unrelated mutual fund complexes and financial institutions. None of the AIM
Funds has been named as a defendant in this lawsuit. The WVAG complaint, filed
in the Circuit Court of Marshall County, West Virginia [Civil Action
No. 05-C-81], alleges, in substance, that AIM, IFG and ADI engaged in unfair
competition and/or unfair or deceptive trade practices by failing to disclose
in the prospectuses for the AIM Funds, including those formerly advised by IFG,
that they had entered into certain arrangements permitting market timing of
such Funds. As a result of the foregoing, the WVAG alleges violations of W. Va.
Code (S) 46A-1-101, et seq. (the West Virginia Consumer Credit and Protection
Act). The WVAG complaint is seeking, among other things, injunctive relief,
civil monetary penalties and a writ of quo warranto against the defendants. If
AIM is unsuccessful in its defense of the WVAG lawsuit, it could be barred from
serving as an investment advisor for any investment company registered under
the Investment Company Act of 1940, as amended (a "registered investment
company"). Such results could affect the ability of AIM or any other investment
advisor directly or indirectly owned by AMVESCAP, from serving as an investment
advisor to any registered investment company, including the Fund. The Fund has
been informed by AIM that, if these results occur, AIM will seek exemptive
relief from the SEC to permit it to continue to serve as the Fund's investment
advisor. There is no assurance that such exemptive relief will be granted. On
July 7, 2005, the Supreme Court of West Virginia ruled in the context of a
separate lawsuit that the WVAG does not have authority pursuant to W. Va. Code
Section 46A-6-104 of the West Virginia Consumer Credit and Protection Act to
bring an action based upon conduct that is ancillary to the purchase or sale of
securities. AIM intends to seek dismissal of the WVAG's lawsuit against it, IFG
and ADI in light of this ruling.
On August 30, 2005, the West Virginia Office of the State Auditor--Securities
Commission ("WVASC") issued a Summary Order to Cease and Desist and Notice of
Right to Hearing to AIM and ADI. The WVASC makes findings of fact that
essentially mirror the WVAG's allegations mentioned above and conclusions of
law to the effect that AIM and ADI violated the West Virginia securities laws.
The WVASC orders AIM and ADI to cease any further violations and seeks to
impose monetary sanctions to be determined by the Commissioner. AIM and ADI
have the right to contest the WVASC's findings and conclusions, which they
intend to do.
Civil lawsuits, including purported class action and shareholder derivative
suits, have been filed against certain of the AIM Funds, IFG, AIM, ADI and/or
related entities and individuals, depending on the lawsuit, alleging:
. that the defendants permitted improper market timing and related
activity in the AIM Funds;
. that certain AIM Funds inadequately employed fair value pricing;
. 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 and that the defendants adopted
unlawful distribution plans;
. that the defendants breached their fiduciary duties by charging
distribution fees while AIM Funds and/or specific share classes were
closed generally to new investors and/or while other share classes of
the same AIM Fund were not charged the same distribution fees;
. 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; and
FS-43
NOTE 15--LEGAL PROCEEDINGS-(CONTINUED)
. that the defendants breached their fiduciary duties by failing to
ensure that the AIM Funds participated in class action settlements in
which they were eligible to participate (this lawsuit was dismissed by
the Court on August 12, 2005).
These lawsuits allege as theories of recovery, depending on the lawsuit,
violations of various provisions of the Federal and state securities laws and
ERISA, negligence, breach of fiduciary duty and/or breach of contract. These
lawsuits seek remedies that include, depending on the lawsuit, damages,
restitution, injunctive relief, imposition of a constructive trust, removal of
certain directors and/or employees, various corrective measures under ERISA,
rescission of certain AIM Funds' advisory agreements and/or distribution plans
and recovery of all fees paid, an accounting of all fund-related fees,
commissions and soft dollar payments, restitution of all commissions and fees
paid, and prospective relief in the form of reduced fees.
All lawsuits based on allegations of market timing, late trading and related
activity have been transferred to the United States District Court for the
District of Maryland. On August 25, 2005, the Court issued rulings on the
common issues of law presented in defendants' motions to dismiss the
shareholder class and derivative complaints. These rulings were issued in the
context of the Janus lawsuits, but the Court's legal determinations apply at
the omnibus level to all cases within his track, including the AIM and IFG
cases. The Court dismissed for failure to make pre-suit demand on the fund
board all derivative causes of action but one: the excessive fee claim under
Section 36(b) of the Investment Company Act of 1940 (the "1940 Act"), as to
which the demand requirement does not apply. The Court dismissed all claims
asserted in the class complaint but two: (i) the securities fraud claims under
Section 10(b) of the Securities Exchange Act of 1934, and (ii) the excessive
fee claim under Section 36(b) of the 1940 Act. In addition, the Court limited
plaintiffs' potential recovery on the 36(b) claim to fees attributable to
timing assets, as opposed to all fees on funds in which any timing occurred.
The question whether the duplicative Section 36(b) claim properly belongs in
the derivative complaint or in the class action complaint will be decided at a
later date. The Court will subsequently issue an order applying his legal
rulings to the allegations in the AIM and IFG complaints.
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 above may have on AIM, ADI or the Fund.
* * * * * * * * * * * * * * * *
As a result of the matters discussed above, investors in the AIM Funds might
react by redeeming their investments. This might require the AIM Funds to sell
investments to provide for sufficient liquidity and could also have an adverse
effect on the investment performance of the AIM Funds.
FS-44
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees and Shareholders of AIM S&P 500 Index 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 S&P 500 Index Fund, formerly
known as INVESCO S&P 500 Index Fund, (one of the funds constituting AIM Stock
Funds, hereafter referred to as the "Fund") at July 31, 2005, 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 July 31, 2005 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
/S/ PRICEWATERHOUSECOOPERS LLP
September 21, 2005
Houston, Texas
FS-45
FINANCIALS
SCHEDULE OF INVESTMENTS
July 31, 2005
MARKET
SHARES VALUE
--------------------------------------------------------------------
COMMON STOCKS & OTHER EQUITY
INTERESTS-97.82%
ADVERTISING-0.18%
Interpublic Group of Cos., Inc. (The)/(a)/ 8,650 $ 108,125
--------------------------------------------------------------------
Omnicom Group Inc. 3,761 319,196
--------------------------------------------------------------------
427,321
--------------------------------------------------------------------
AEROSPACE & DEFENSE-2.16%
Boeing Co. (The) 16,951 1,118,936
--------------------------------------------------------------------
General Dynamics Corp. 4,109 473,316
--------------------------------------------------------------------
Goodrich Corp. 2,456 108,653
--------------------------------------------------------------------
Honeywell International Inc. 17,506 687,636
--------------------------------------------------------------------
L-3 Communications Holdings, Inc. 2,434 190,412
--------------------------------------------------------------------
Lockheed Martin Corp. 8,288 517,171
--------------------------------------------------------------------
Northrop Grumman Corp. 7,366 408,445
--------------------------------------------------------------------
Raytheon Co. 9,268 364,510
--------------------------------------------------------------------
Rockwell Collins, Inc. 3,665 178,852
--------------------------------------------------------------------
United Technologies Corp. 20,998 1,064,599
--------------------------------------------------------------------
5,112,530
--------------------------------------------------------------------
AGRICULTURAL PRODUCTS-0.12%
Archer-Daniels-Midland Co. 12,747 292,416
--------------------------------------------------------------------
AIR FREIGHT & LOGISTICS-0.94%
FedEx Corp. 6,196 521,022
--------------------------------------------------------------------
Ryder System, Inc. 1,296 50,531
--------------------------------------------------------------------
United Parcel Service, Inc. -- Class B 22,851 1,667,437
--------------------------------------------------------------------
2,238,990
--------------------------------------------------------------------
AIRLINES-0.09%
Delta Air Lines, Inc./(a)/ 2,946 8,720
--------------------------------------------------------------------
Southwest Airlines Co. 15,172 215,291
--------------------------------------------------------------------
224,011
--------------------------------------------------------------------
ALUMINUM-0.21%
Alcoa Inc. 17,930 502,936
--------------------------------------------------------------------
APPAREL RETAIL-0.31%
Gap, Inc. (The) 15,544 328,134
--------------------------------------------------------------------
Limited Brands, Inc. 7,814 190,505
--------------------------------------------------------------------
TJX Cos., Inc. (The) 9,649 226,848
--------------------------------------------------------------------
745,487
--------------------------------------------------------------------
APPAREL, ACCESSORIES & LUXURY
GOODS-0.24%
Coach, Inc./(a)/ 7,722 271,119
--------------------------------------------------------------------
Jones Apparel Group, Inc. 2,504 76,547
--------------------------------------------------------------------
Liz Claiborne, Inc. 2,220 92,374
--------------------------------------------------------------------
V. F. Corp. 2,045 120,737
--------------------------------------------------------------------
560,777
--------------------------------------------------------------------
MARKET
SHARES VALUE
----------------------------------------------------------------
APPLICATION SOFTWARE-0.29%
Autodesk, Inc./(a)/ 4,706 $ 160,898
----------------------------------------------------------------
Citrix Systems, Inc./(a)/ 3,506 83,548
----------------------------------------------------------------
Compuware Corp./(a)/ 7,923 66,791
----------------------------------------------------------------
Intuit Inc./(a)/ 3,792 182,016
----------------------------------------------------------------
Mercury Interactive Corp./(a)/ 1,776 69,921
----------------------------------------------------------------
Parametric Technology Corp./(a)/ 5,533 38,178
----------------------------------------------------------------
Siebel Systems, Inc. 10,631 89,300
----------------------------------------------------------------
690,652
----------------------------------------------------------------
ASSET MANAGEMENT & CUSTODY
BANKS-0.82%
Bank of New York Co., Inc. (The) 15,968 491,495
----------------------------------------------------------------
Federated Investors, Inc. -- Class B 1,946 62,155
----------------------------------------------------------------
Franklin Resources, Inc. 4,064 328,452
----------------------------------------------------------------
Janus Capital Group Inc. 4,653 69,888
----------------------------------------------------------------
Mellon Financial Corp. 8,668 264,027
----------------------------------------------------------------
Northern Trust Corp. 4,160 211,328
----------------------------------------------------------------
State Street Corp. 6,789 337,685
----------------------------------------------------------------
T. Rowe Price Group Inc. 2,531 167,932
----------------------------------------------------------------
1,932,962
----------------------------------------------------------------
AUTO PARTS & EQUIPMENT-0.15%
Dana Corp. 3,107 48,811
----------------------------------------------------------------
Delphi Corp. 11,479 60,839
----------------------------------------------------------------
Johnson Controls, Inc. 3,931 225,797
----------------------------------------------------------------
Visteon Corp./(a)/ 2,609 23,220
----------------------------------------------------------------
358,667
----------------------------------------------------------------
AUTOMOBILE MANUFACTURERS-0.35%
Ford Motor Co. 37,753 405,467
----------------------------------------------------------------
General Motors Corp. 11,600 427,112
----------------------------------------------------------------
832,579
----------------------------------------------------------------
AUTOMOTIVE RETAIL-0.10%
AutoNation, Inc./(a)/ 4,619 99,724
----------------------------------------------------------------
AutoZone, Inc./(a)/ 1,346 131,154
----------------------------------------------------------------
230,878
----------------------------------------------------------------
BIOTECHNOLOGY-1.45%
Amgen Inc./(a)/ 25,385 2,024,454
----------------------------------------------------------------
Applera Corp.-Applied Biosystems Group 4,035 84,009
----------------------------------------------------------------
Biogen Idec Inc./(a)/ 7,069 277,741
----------------------------------------------------------------
Chiron Corp./(a)/ 3,019 109,378
----------------------------------------------------------------
Genzyme Corp./(a)/ 5,174 384,997
----------------------------------------------------------------
Gilead Sciences, Inc./(a)/ 9,268 415,299
----------------------------------------------------------------
MedImmune, Inc./(a)/ 5,119 145,431
----------------------------------------------------------------
3,441,309
----------------------------------------------------------------
FS-46
MARKET
SHARES VALUE
--------------------------------------------------------------------
BREWERS-0.34%
Anheuser-Busch Cos., Inc. 15,926 $ 706,318
--------------------------------------------------------------------
Molson Coors Brewing Co. -- Class B 1,610 100,947
--------------------------------------------------------------------
807,265
--------------------------------------------------------------------
BROADCASTING & CABLE TV-0.80%
Clear Channel Communications, Inc. 10,459 341,382
--------------------------------------------------------------------
Comcast Corp. -- Class A/(a)/ 45,249 1,390,502
--------------------------------------------------------------------
Univision Communications Inc. -- Class A/(a)/ 5,970 168,832
--------------------------------------------------------------------
1,900,716
--------------------------------------------------------------------
BUILDING PRODUCTS-0.20%
American Standard Cos. Inc. 3,685 163,172
--------------------------------------------------------------------
Masco Corp. 8,896 301,663
--------------------------------------------------------------------
464,835
--------------------------------------------------------------------
CASINOS & GAMING-0.20%
Harrah's Entertainment, Inc. 3,713 292,362
--------------------------------------------------------------------
International Game Technology 7,058 193,107
--------------------------------------------------------------------
485,469
--------------------------------------------------------------------
COMMERCIAL PRINTING-0.07%
Donnelley (R.R.) & Sons Co. 4,374 157,683
--------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT-2.67%
ADC Telecommunications, Inc./(a)/ 2,369 61,926
--------------------------------------------------------------------
Andrew Corp./(a)/ 3,338 36,685
--------------------------------------------------------------------
Avaya Inc./(a)/ 9,819 101,430
--------------------------------------------------------------------
Ciena Corp./(a)/ 11,827 26,492
--------------------------------------------------------------------
Cisco Systems, Inc./(a)/ 131,101 2,510,584
--------------------------------------------------------------------
Comverse Technology, Inc./(a)/ 4,143 104,776
--------------------------------------------------------------------
Corning Inc./(a)/ 29,730 566,356
--------------------------------------------------------------------
JDS Uniphase Corp./(a)/ 29,707 44,858
--------------------------------------------------------------------
Lucent Technologies Inc./(a)/ 90,882 266,284
--------------------------------------------------------------------
Motorola, Inc. 50,306 1,065,481
--------------------------------------------------------------------
QUALCOMM Inc. 33,512 1,323,389
--------------------------------------------------------------------
Scientific-Atlanta, Inc. 3,125 120,312
--------------------------------------------------------------------
Tellabs, Inc./(a)/ 9,195 89,375
--------------------------------------------------------------------
6,317,948
--------------------------------------------------------------------
COMPUTER & ELECTRONICS RETAIL-0.26%
Best Buy Co., Inc. 6,107 467,796
--------------------------------------------------------------------
Circuit City Stores, Inc. 3,902 71,211
--------------------------------------------------------------------
RadioShack Corp. 3,215 75,456
--------------------------------------------------------------------
614,463
--------------------------------------------------------------------
COMPUTER HARDWARE-3.11%
Apple Computer, Inc./(a)/ 16,902 720,870
--------------------------------------------------------------------
Dell Inc./(a)/ 49,667 2,010,023
--------------------------------------------------------------------
Gateway, Inc./(a)/ 6,115 24,338
--------------------------------------------------------------------
Hewlett-Packard Co. 59,231 1,458,267
--------------------------------------------------------------------
International Business Machines Corp. 33,096 2,762,192
--------------------------------------------------------------------
MARKET
SHARES VALUE
-------------------------------------------------------------------------
COMPUTER HARDWARE-(CONTINUED)
NCR Corp./(a)/ 3,809 $ 132,210
-------------------------------------------------------------------------
Sun Microsystems, Inc./(a)/ 69,872 268,308
-------------------------------------------------------------------------
7,376,208
-------------------------------------------------------------------------
COMPUTER STORAGE & PERIPHERALS-0.46%
EMC Corp./(a)/ 49,315 675,122
-------------------------------------------------------------------------
Lexmark International, Inc. -- Class A/(a)/ 2,591 162,456
-------------------------------------------------------------------------
Network Appliance, Inc./(a)/ 7,489 191,044
-------------------------------------------------------------------------
QLogic Corp./(a)/ 1,860 57,753
-------------------------------------------------------------------------
1,086,375
-------------------------------------------------------------------------
CONSTRUCTION & ENGINEERING-0.05%
Fluor Corp. 1,775 113,245
-------------------------------------------------------------------------
CONSTRUCTION & FARM MACHINERY & HEAVY
TRUCKS-0.64%
Caterpillar Inc. 14,030 756,357
-------------------------------------------------------------------------
Cummins Inc. 894 76,383
-------------------------------------------------------------------------
Deere & Co. 5,050 371,326
-------------------------------------------------------------------------
Navistar International Corp./(a)/ 1,345 45,932
-------------------------------------------------------------------------
PACCAR Inc. 3,553 256,598
-------------------------------------------------------------------------
1,506,596
-------------------------------------------------------------------------
CONSTRUCTION MATERIALS-0.06%
Vulcan Materials Co. 2,105 147,855
-------------------------------------------------------------------------
CONSUMER FINANCE-1.25%
American Express Co. 24,025 1,321,375
-------------------------------------------------------------------------
Capital One Financial Corp. 5,171 426,607
-------------------------------------------------------------------------
MBNA Corp. 26,004 654,261
-------------------------------------------------------------------------
Providian Financial Corp./(a)/ 5,995 113,305
-------------------------------------------------------------------------
SLM Corp. 8,606 443,123
-------------------------------------------------------------------------
2,958,671
-------------------------------------------------------------------------
DATA PROCESSING & OUTSOURCED
SERVICES-1.03%
Affiliated Computer Services, Inc. -- Class A/(a)/ 2,577 128,773
-------------------------------------------------------------------------
Automatic Data Processing, Inc. 11,966 531,410
-------------------------------------------------------------------------
Computer Sciences Corp./(a)/ 3,776 172,865
-------------------------------------------------------------------------
Convergys Corp./(a)/ 2,870 41,759
-------------------------------------------------------------------------
Electronic Data Systems Corp. 10,689 219,873
-------------------------------------------------------------------------
First Data Corp. 15,972 657,088
-------------------------------------------------------------------------
Fiserv, Inc./(a)/ 3,932 174,463
-------------------------------------------------------------------------
Paychex, Inc. 7,274 253,935
-------------------------------------------------------------------------
Sabre Holdings Corp. -- Class A 2,664 51,149
-------------------------------------------------------------------------
SunGard Data Systems Inc./(a)/ 5,954 213,689
-------------------------------------------------------------------------
2,445,004
-------------------------------------------------------------------------
DEPARTMENT STORES-0.73%
Dillard's, Inc. -- Class A 1,444 33,010
-------------------------------------------------------------------------
Federated Department Stores, Inc. 3,495 265,166
-------------------------------------------------------------------------
J.C. Penney Co., Inc. 5,400 303,156
-------------------------------------------------------------------------
FS-47
MARKET
SHARES VALUE
----------------------------------------------------------------------
DEPARTMENT STORES-(CONTINUED)
Kohl's Corp./(a)/ 6,692 $ 377,094
----------------------------------------------------------------------
May Department Stores Co. (The) 6,142 252,129
----------------------------------------------------------------------
Nordstrom, Inc. 5,040 186,530
----------------------------------------------------------------------
Sears Holdings Corp./(a)/ 2,097 323,420
----------------------------------------------------------------------
1,740,505
----------------------------------------------------------------------
DISTILLERS & VINTNERS-0.09%
Brown-Forman Corp. -- Class B 1,843 107,723
----------------------------------------------------------------------
Constellation Brands, Inc. -- Class A/(a)/ 4,013 109,956
----------------------------------------------------------------------
217,679
----------------------------------------------------------------------
DISTRIBUTORS-0.07%
Genuine Parts Co. 3,573 163,608
----------------------------------------------------------------------
DIVERSIFIED BANKS-3.67%
Bank of America Corp. 82,501 3,597,044
----------------------------------------------------------------------
Comerica Inc. 3,481 212,689
----------------------------------------------------------------------
U.S. Bancorp 37,597 1,130,166
----------------------------------------------------------------------
Wachovia Corp. 32,333 1,628,937
----------------------------------------------------------------------
Wells Fargo & Co. 34,614 2,123,223
----------------------------------------------------------------------
8,692,059
----------------------------------------------------------------------
DIVERSIFIED CHEMICALS-0.98%
Ashland Inc. 1,375 84,494
----------------------------------------------------------------------
Dow Chemical Co. (The) 19,719 945,526
----------------------------------------------------------------------
E. I. du Pont de Nemours and Co. 20,433 872,080
----------------------------------------------------------------------
Eastman Chemical Co. 1,648 91,283
----------------------------------------------------------------------
Engelhard Corp. 2,499 71,696
----------------------------------------------------------------------
Hercules Inc./(a)/ 2,350 32,900
----------------------------------------------------------------------
PPG Industries, Inc. 3,520 228,906
----------------------------------------------------------------------
2,326,885
----------------------------------------------------------------------
DIVERSIFIED COMMERCIAL & PROFESSIONAL
SERVICES-0.29%
Cendant Corp. 21,584 461,034
----------------------------------------------------------------------
Cintas Corp. 3,056 135,472
----------------------------------------------------------------------
Equifax Inc. 2,643 96,205
----------------------------------------------------------------------
692,711
----------------------------------------------------------------------
DIVERSIFIED METALS & MINING-0.15%
Freeport-McMoRan Copper & Gold, Inc. -- Class B 3,665 147,626
----------------------------------------------------------------------
Phelps Dodge Corp. 1,977 210,452
----------------------------------------------------------------------
358,078
----------------------------------------------------------------------
DRUG RETAIL-0.64%
CVS Corp. 16,618 515,657
----------------------------------------------------------------------
Walgreen Co. 20,996 1,004,869
----------------------------------------------------------------------
1,520,526
----------------------------------------------------------------------
EDUCATION SERVICES-0.11%
Apollo Group, Inc. -- Class A/(a)/ 3,352 251,903
----------------------------------------------------------------------
MARKET
SHARES VALUE
-------------------------------------------------------------------
ELECTRIC UTILITIES-2.09%
Allegheny Energy, Inc./(a)/ 3,373 $ 96,131
-------------------------------------------------------------------
Ameren Corp. 4,170 231,935
-------------------------------------------------------------------
American Electric Power Co., Inc. 7,877 304,840
-------------------------------------------------------------------
CenterPoint Energy, Inc. 5,918 81,313
-------------------------------------------------------------------
Cinergy Corp. 4,067 179,558
-------------------------------------------------------------------
Consolidated Edison, Inc. 4,962 238,970
-------------------------------------------------------------------
DTE Energy Co. 3,558 167,226
-------------------------------------------------------------------
Edison International 6,664 272,424
-------------------------------------------------------------------
Entergy Corp. 4,360 339,818
-------------------------------------------------------------------
Exelon Corp. 13,726 734,616
-------------------------------------------------------------------
FirstEnergy Corp. 6,747 335,866
-------------------------------------------------------------------
FPL Group, Inc. 8,040 346,685
-------------------------------------------------------------------
PG&E Corp. 7,591 285,649
-------------------------------------------------------------------
Pinnacle West Capital Corp. 2,017 92,379
-------------------------------------------------------------------
PPL Corp. 3,892 239,669
-------------------------------------------------------------------
Progress Energy, Inc. 5,100 227,511
-------------------------------------------------------------------
Southern Co. (The) 15,297 535,242
-------------------------------------------------------------------
TECO Energy, Inc. 4,224 80,087
-------------------------------------------------------------------
Xcel Energy, Inc. 8,301 161,122
-------------------------------------------------------------------
4,951,041
-------------------------------------------------------------------
ELECTRICAL COMPONENTS &
EQUIPMENT-0.41%
American Power Conversion Corp. 3,677 103,360
-------------------------------------------------------------------
Cooper Industries, Ltd. -- Class A (Bermuda) 1,895 122,379
-------------------------------------------------------------------
Emerson Electric Co. 8,547 562,393
-------------------------------------------------------------------
Rockwell Automation, Inc. 3,579 184,354
-------------------------------------------------------------------
972,486
-------------------------------------------------------------------
ELECTRONIC EQUIPMENT
MANUFACTURERS-0.14%
Agilent Technologies, Inc./(a)/ 8,841 231,988
-------------------------------------------------------------------
Symbol Technologies, Inc. 4,963 57,769
-------------------------------------------------------------------
Tektronix, Inc. 1,806 45,258
-------------------------------------------------------------------
335,015
-------------------------------------------------------------------
ELECTRONIC MANUFACTURING SERVICES-0.14%
Jabil Circuit, Inc./(a)/ 3,754 117,087
-------------------------------------------------------------------
Molex Inc. 3,430 96,863
-------------------------------------------------------------------
Sanmina-SCI Corp./(a)/ 10,807 51,657
-------------------------------------------------------------------
Solectron Corp./(a)/ 19,966 76,669
-------------------------------------------------------------------
342,276
-------------------------------------------------------------------
ENVIRONMENTAL & FACILITIES
SERVICES-0.16%
Allied Waste Industries, Inc./(a)/ 5,550 47,619
-------------------------------------------------------------------
Waste Management, Inc. 11,628 326,979
-------------------------------------------------------------------
374,598
-------------------------------------------------------------------
FS-48
MARKET
SHARES VALUE
-----------------------------------------------------------------
FERTILIZERS & AGRICULTURAL CHEMICALS-0.16%
Monsanto Co. 5,501 $ 370,602
-----------------------------------------------------------------
FOOD DISTRIBUTORS-0.20%
Sysco Corp. 12,986 468,275
-----------------------------------------------------------------
FOOD RETAIL-0.33%
Albertson's, Inc. 7,528 160,422
-----------------------------------------------------------------
Kroger Co. (The)/(a)/ 14,986 297,472
-----------------------------------------------------------------
Safeway Inc. 9,154 222,442
-----------------------------------------------------------------
SUPERVALU Inc. 2,794 98,908
-----------------------------------------------------------------
779,244
-----------------------------------------------------------------
FOOTWEAR-0.19%
NIKE, Inc. -- Class B 4,684 392,519
-----------------------------------------------------------------
Reebok International Ltd. 1,146 48,476
-----------------------------------------------------------------
440,995
-----------------------------------------------------------------
FOREST PRODUCTS-0.17%
Louisiana-Pacific Corp. 2,300 61,686
-----------------------------------------------------------------
Weyerhaeuser Co. 5,022 346,418
-----------------------------------------------------------------
408,104
-----------------------------------------------------------------
GAS UTILITIES-0.15%
KeySpan Corp. 3,537 143,921
-----------------------------------------------------------------
Nicor Inc. 902 36,820
-----------------------------------------------------------------
NiSource Inc. 5,548 134,761
-----------------------------------------------------------------
Peoples Energy Corp. 754 32,535
-----------------------------------------------------------------
348,037
-----------------------------------------------------------------
GENERAL MERCHANDISE STORES-0.55%
Big Lots, Inc./(a)/ 2,318 30,064
-----------------------------------------------------------------
Dollar General Corp. 6,166 125,293
-----------------------------------------------------------------
Family Dollar Stores, Inc. 3,430 88,494
-----------------------------------------------------------------
Target Corp. 18,121 1,064,609
-----------------------------------------------------------------
1,308,460
-----------------------------------------------------------------
GOLD-0.15%
Newmont Mining Corp. 9,147 343,470
-----------------------------------------------------------------
HEALTH CARE DISTRIBUTORS-0.40%
AmerisourceBergen Corp. 2,155 154,707
-----------------------------------------------------------------
Cardinal Health, Inc. 8,769 522,457
-----------------------------------------------------------------
McKesson Corp. 6,038 271,710
-----------------------------------------------------------------
948,874
-----------------------------------------------------------------
HEALTH CARE EQUIPMENT-2.16%
Bard (C.R.), Inc. 2,142 143,064
-----------------------------------------------------------------
Baxter International Inc. 12,733 500,025
-----------------------------------------------------------------
Becton, Dickinson and Co. 5,185 287,093
-----------------------------------------------------------------
Biomet, Inc. 5,182 197,590
-----------------------------------------------------------------
Boston Scientific Corp./(a)/ 15,381 445,280
-----------------------------------------------------------------
Fisher Scientific International Inc./(a)/ 2,463 165,144
-----------------------------------------------------------------
MARKET
SHARES VALUE
--------------------------------------------------------------------
HEALTH CARE EQUIPMENT-(CONTINUED)
Guidant Corp. 6,667 $ 458,690
--------------------------------------------------------------------
Hospira, Inc./(a)/ 3,242 124,007
--------------------------------------------------------------------
Medtronic, Inc. 24,812 1,338,359
--------------------------------------------------------------------
PerkinElmer, Inc. 2,680 56,226
--------------------------------------------------------------------
St. Jude Medical, Inc./(a)/ 7,432 352,351
--------------------------------------------------------------------
Stryker Corp. 7,690 415,952
--------------------------------------------------------------------
Thermo Electron Corp./(a)/ 3,287 98,150
--------------------------------------------------------------------
Waters Corp./(a)/ 2,407 108,989
--------------------------------------------------------------------
Zimmer Holdings, Inc./(a)/ 5,065 417,153
--------------------------------------------------------------------
5,108,073
--------------------------------------------------------------------
HEALTH CARE FACILITIES-0.31%
HCA Inc. 8,597 423,402
--------------------------------------------------------------------
Health Management Associates, Inc. -- Class A 5,101 121,404
--------------------------------------------------------------------
Manor Care, Inc. 1,761 66,848
--------------------------------------------------------------------
Tenet Healthcare Corp./(a)/ 9,579 116,289
--------------------------------------------------------------------
727,943
--------------------------------------------------------------------
HEALTH CARE SERVICES-0.55%
Caremark Rx, Inc./(a)/ 9,305 414,817
--------------------------------------------------------------------
Express Scripts, Inc./(a)/ 3,042 159,097
--------------------------------------------------------------------
IMS Health Inc. 4,644 126,456
--------------------------------------------------------------------
Laboratory Corp. of America Holdings/(a)/ 2,776 140,660
--------------------------------------------------------------------
Medco Health Solutions, Inc./(a)/ 5,685 275,381
--------------------------------------------------------------------
Quest Diagnostics Inc. 3,734 191,704
--------------------------------------------------------------------
1,308,115
--------------------------------------------------------------------
HEALTH CARE SUPPLIES-0.07%
Bausch & Lomb Inc. 1,097 92,861
--------------------------------------------------------------------
Millipore Corp./(a)/ 1,024 62,740
--------------------------------------------------------------------
155,601
--------------------------------------------------------------------
HOME ENTERTAINMENT SOFTWARE-0.15%
Electronic Arts Inc./(a)/ 6,299 362,822
--------------------------------------------------------------------
HOME FURNISHINGS-0.04%
Leggett & Platt, Inc. 3,903 98,707
--------------------------------------------------------------------
HOME IMPROVEMENT RETAIL-1.30%
Home Depot, Inc. (The) 44,031 1,915,789
--------------------------------------------------------------------
Lowe's Cos., Inc. 15,846 1,049,322
--------------------------------------------------------------------
Sherwin-Williams Co. (The) 2,589 123,262
--------------------------------------------------------------------
3,088,373
--------------------------------------------------------------------
HOMEBUILDING-0.33%
Centex Corp. 2,623 194,050
--------------------------------------------------------------------
D.R. Horton, Inc. 5,572 228,898
--------------------------------------------------------------------
KB HOME 1,704 139,575
--------------------------------------------------------------------
Pulte Homes, Inc. 2,423 226,841
--------------------------------------------------------------------
789,364
--------------------------------------------------------------------
FS-49
MARKET
SHARES VALUE
---------------------------------------------------------------------
HOMEFURNISHING RETAIL-0.12%
Bed Bath & Beyond Inc./(a)/ 6,060 $ 278,154
---------------------------------------------------------------------
HOTELS, RESORTS & CRUISE LINES-0.56%
Carnival Corp. (Panama)/(b)/ 10,809 566,392
---------------------------------------------------------------------
Hilton Hotels Corp. 7,869 194,758
---------------------------------------------------------------------
Marriott International, Inc. -- Class A 4,071 278,741
---------------------------------------------------------------------
Starwood Hotels & Resorts Worldwide, Inc./(c)/ 4,446 281,521
---------------------------------------------------------------------
1,321,412
---------------------------------------------------------------------
HOUSEHOLD APPLIANCES-0.17%
Black & Decker Corp. (The) 1,641 148,199
---------------------------------------------------------------------
Maytag Corp. 1,589 26,806
---------------------------------------------------------------------
Snap-on Inc. 1,164 42,696
---------------------------------------------------------------------
Stanley Works (The) 1,537 75,205
---------------------------------------------------------------------
Whirlpool Corp. 1,367 109,333
---------------------------------------------------------------------
402,239
---------------------------------------------------------------------
HOUSEHOLD PRODUCTS-1.77%
Clorox Co. (The) 3,154 176,151
---------------------------------------------------------------------
Colgate-Palmolive Co. 10,749 569,052
---------------------------------------------------------------------
Kimberly-Clark Corp. 9,813 625,677
---------------------------------------------------------------------
Procter & Gamble Co. (The) 50,764 2,824,001
---------------------------------------------------------------------
4,194,881
---------------------------------------------------------------------
HOUSEWARES & SPECIALTIES-0.18%
Fortune Brands, Inc. 2,983 282,043
---------------------------------------------------------------------
Newell Rubbermaid Inc. 5,636 140,167
---------------------------------------------------------------------
422,210
---------------------------------------------------------------------
HUMAN RESOURCE & EMPLOYMENT
SERVICES-0.08%
Monster Worldwide Inc./(a)/ 2,488 75,561
---------------------------------------------------------------------
Robert Half International Inc. 3,292 111,566
---------------------------------------------------------------------
187,127
---------------------------------------------------------------------
HYPERMARKETS & SUPER CENTERS-1.62%
Costco Wholesale Corp. 9,798 450,414
---------------------------------------------------------------------
Wal-Mart Stores, Inc. 68,633 3,387,039
---------------------------------------------------------------------
3,837,453
---------------------------------------------------------------------
INDEPENDENT POWER PRODUCERS & ENERGY
TRADERS-0.63%
AES Corp. (The)/(a)/ 13,399 215,054
---------------------------------------------------------------------
Calpine Corp./(a)/ 11,037 36,643
---------------------------------------------------------------------
Constellation Energy Group 3,633 218,743
---------------------------------------------------------------------
Duke Energy Corp. 19,010 561,555
---------------------------------------------------------------------
Dynegy Inc. -- Class A/(a)/ 6,774 37,663
---------------------------------------------------------------------
TXU Corp. 4,922 426,442
---------------------------------------------------------------------
1,496,100
---------------------------------------------------------------------
MARKET
SHARES VALUE
-------------------------------------------------------------------
INDUSTRIAL CONGLOMERATES-4.29%
3M Co. 15,800 $ 1,185,000
-------------------------------------------------------------------
General Electric Co. 217,576 7,506,372
-------------------------------------------------------------------
Textron Inc. 2,760 204,709
-------------------------------------------------------------------
Tyco International Ltd. (Bermuda) 41,429 1,262,342
-------------------------------------------------------------------
10,158,423
-------------------------------------------------------------------
INDUSTRIAL GASES-0.26%
Air Products and Chemicals, Inc. 4,702 280,992
-------------------------------------------------------------------
Praxair, Inc. 6,635 327,703
-------------------------------------------------------------------
608,695
-------------------------------------------------------------------
INDUSTRIAL MACHINERY-0.79%
Danaher Corp. 5,629 312,128
-------------------------------------------------------------------
Dover Corp. 4,194 173,044
-------------------------------------------------------------------
Eaton Corp. 3,091 201,966
-------------------------------------------------------------------
Illinois Tool Works Inc. 5,599 479,554
-------------------------------------------------------------------
Ingersoll-Rand Co. Ltd. -- Class A (Bermuda) 3,457 270,234
-------------------------------------------------------------------
ITT Industries, Inc. 1,887 200,777
-------------------------------------------------------------------
Pall Corp. 2,519 78,013
-------------------------------------------------------------------
Parker Hannifin Corp. 2,458 161,540
-------------------------------------------------------------------
1,877,256
-------------------------------------------------------------------
INSURANCE BROKERS-0.20%
Aon Corp. 6,473 164,673
-------------------------------------------------------------------
Marsh & McLennan Cos., Inc. 10,931 316,671
-------------------------------------------------------------------
481,344
-------------------------------------------------------------------
INTEGRATED OIL & GAS-5.60%
Amerada Hess Corp. 1,760 207,434
-------------------------------------------------------------------
Chevron Corp. 43,048 2,497,214
-------------------------------------------------------------------
ConocoPhillips 28,571 1,788,259
-------------------------------------------------------------------
Exxon Mobil Corp. 130,590 7,672,163
-------------------------------------------------------------------
Marathon Oil Corp. 7,482 436,650
-------------------------------------------------------------------
Occidental Petroleum Corp. 8,169 672,145
-------------------------------------------------------------------
13,273,865
-------------------------------------------------------------------
INTEGRATED TELECOMMUNICATION
SERVICES-2.79%
ALLTEL Corp. 7,797 518,501
-------------------------------------------------------------------
AT&T Corp. 16,474 326,185
-------------------------------------------------------------------
BellSouth Corp. 37,572 1,036,987
-------------------------------------------------------------------
CenturyTel, Inc. 2,719 93,452
-------------------------------------------------------------------
Citizens Communications Co. 6,986 91,796
-------------------------------------------------------------------
Qwest Communications International Inc./(a)/ 34,303 131,037
-------------------------------------------------------------------
SBC Communications Inc. 67,762 1,656,781
-------------------------------------------------------------------
Sprint Corp. 30,355 816,550
-------------------------------------------------------------------
Verizon Communications Inc. 56,772 1,943,306
-------------------------------------------------------------------
6,614,595
-------------------------------------------------------------------
FS-50
MARKET
SHARES VALUE
-----------------------------------------------------------
INTERNET RETAIL-0.44%
eBay Inc./(a)/ 24,920 $ 1,041,158
-----------------------------------------------------------
INTERNET SOFTWARE & SERVICES-0.38%
Yahoo! Inc./(a)/ 26,928 897,780
-----------------------------------------------------------
INVESTMENT BANKING & BROKERAGE-1.93%
Bear Stearns Cos. Inc. (The) 2,331 238,018
-----------------------------------------------------------
E*TRADE Financial Corp./(a)/ 7,581 117,581
-----------------------------------------------------------
Goldman Sachs Group, Inc. (The) 9,059 973,661
-----------------------------------------------------------
Lehman Brothers Holdings Inc. 5,674 596,508
-----------------------------------------------------------
Merrill Lynch & Co., Inc. 19,393 1,139,921
-----------------------------------------------------------
Morgan Stanley 22,475 1,192,299
-----------------------------------------------------------
Schwab (Charles) Corp. (The) 23,375 320,238
-----------------------------------------------------------
4,578,226
-----------------------------------------------------------
IT CONSULTING & OTHER SERVICES-0.02%
Unisys Corp./(a)/ 7,000 45,290
-----------------------------------------------------------
LEISURE PRODUCTS-0.14%
Brunswick Corp. 1,981 92,235
-----------------------------------------------------------
Hasbro, Inc. 3,414 74,903
-----------------------------------------------------------
Mattel, Inc. 8,423 157,089
-----------------------------------------------------------
324,227
-----------------------------------------------------------
LIFE & HEALTH INSURANCE-1.04%
AFLAC Inc. 10,265 462,952
-----------------------------------------------------------
Jefferson-Pilot Corp. 2,792 140,075
-----------------------------------------------------------
Lincoln National Corp. 3,566 172,238
-----------------------------------------------------------
MetLife, Inc. 15,043 739,213
-----------------------------------------------------------
Prudential Financial, Inc. 10,718 717,034
-----------------------------------------------------------
Torchmark Corp. 2,135 111,596
-----------------------------------------------------------
UnumProvident Corp. 6,086 116,547
-----------------------------------------------------------
2,459,655
-----------------------------------------------------------
MANAGED HEALTH CARE-1.32%
Aetna Inc. 5,958 461,149
-----------------------------------------------------------
CIGNA Corp. 2,694 287,585
-----------------------------------------------------------
Humana Inc./(a)/ 3,309 131,864
-----------------------------------------------------------
UnitedHealth Group Inc. 25,974 1,358,440
-----------------------------------------------------------
WellPoint, Inc./(a)/ 12,578 889,768
-----------------------------------------------------------
3,128,806
-----------------------------------------------------------
METAL & GLASS CONTAINERS-0.06%
Ball Corp. 2,262 85,843
-----------------------------------------------------------
Pactiv Corp./(a)/ 3,026 66,633
-----------------------------------------------------------
152,476
-----------------------------------------------------------
MOTORCYCLE MANUFACTURERS-0.13%
Harley-Davidson, Inc. 5,839 310,576
-----------------------------------------------------------
MOVIES & ENTERTAINMENT-2.02%
Disney (Walt) Co. (The) 41,880 1,073,803
-----------------------------------------------------------
News Corp. -- Class A 59,168 969,172
-----------------------------------------------------------
MARKET
SHARES VALUE
--------------------------------------------------------------------
MOVIES & ENTERTAINMENT-(CONTINUED)
Time Warner Inc. 96,125 $ 1,636,048
--------------------------------------------------------------------
Viacom Inc. -- Class B 33,086 1,108,050
--------------------------------------------------------------------
4,787,073
--------------------------------------------------------------------
MULTI-LINE INSURANCE-1.67%
American International Group, Inc. 53,233 3,204,627
--------------------------------------------------------------------
Hartford Financial Services Group, Inc. (The) 6,085 490,268
--------------------------------------------------------------------
Loews Corp. 3,265 273,052
--------------------------------------------------------------------
3,967,947
--------------------------------------------------------------------
MULTI-UTILITIES-0.47%
CMS Energy Corp./(a)/ 4,532 71,787
--------------------------------------------------------------------
Dominion Resources, Inc. 6,984 515,838
--------------------------------------------------------------------
Public Service Enterprise Group Inc. 4,877 313,591
--------------------------------------------------------------------
Sempra Energy 4,907 208,548
--------------------------------------------------------------------
1,109,764
--------------------------------------------------------------------
OFFICE ELECTRONICS-0.11%
Xerox Corp./(a)/ 19,686 260,052
--------------------------------------------------------------------
OFFICE SERVICES & SUPPLIES-0.14%
Avery Dennison Corp. 2,078 117,760
--------------------------------------------------------------------
Pitney Bowes Inc. 4,721 210,462
--------------------------------------------------------------------
328,222
--------------------------------------------------------------------
OIL & GAS DRILLING-0.35%
Nabors Industries, Ltd. (Bermuda)/(a)/ 3,041 199,033
--------------------------------------------------------------------
Noble Corp. (Cayman Islands) 2,773 186,290
--------------------------------------------------------------------
Rowan Cos., Inc. 2,193 74,913
--------------------------------------------------------------------
Transocean Inc. (Cayman Islands)/(a)/ 6,689 377,460
--------------------------------------------------------------------
837,696
--------------------------------------------------------------------
OIL & GAS EQUIPMENT & SERVICES-1.08%
Baker Hughes Inc. 6,950 392,953
--------------------------------------------------------------------
BJ Services Co. 3,323 202,670
--------------------------------------------------------------------
Halliburton Co. 10,374 581,463
--------------------------------------------------------------------
National-Oilwell Varco Inc./(a)/ 3,532 184,900
--------------------------------------------------------------------
Schlumberger Ltd. (Netherlands) 12,086 1,012,082
--------------------------------------------------------------------
Weatherford International Ltd. (Bermuda)/(a)/ 2,838 179,589
--------------------------------------------------------------------
2,553,657
--------------------------------------------------------------------
OIL & GAS EXPLORATION & PRODUCTION-1.29%
Anadarko Petroleum Corp. 4,844 427,967
--------------------------------------------------------------------
Apache Corp. 6,732 460,469
--------------------------------------------------------------------
Burlington Resources Inc. 7,914 507,367
--------------------------------------------------------------------
Devon Energy Corp. 9,706 544,410
--------------------------------------------------------------------
EOG Resources, Inc. 4,888 298,657
--------------------------------------------------------------------
Kerr-McGee Corp. 2,382 191,060
--------------------------------------------------------------------
Unocal Corp. 5,575 361,539
--------------------------------------------------------------------
XTO Energy, Inc. 7,404 259,806
--------------------------------------------------------------------
3,051,275
--------------------------------------------------------------------
FS-51
MARKET
SHARES VALUE
-----------------------------------------------------------
OIL & GAS REFINING & MARKETING-0.26%
Sunoco, Inc. 1,418 $ 178,285
-----------------------------------------------------------
Valero Energy Corp. 5,265 435,837
-----------------------------------------------------------
614,122
-----------------------------------------------------------
OIL & GAS STORAGE &
TRANSPORTATION-0.26%
El Paso Corp. 13,259 159,108
-----------------------------------------------------------
Kinder Morgan, Inc. 2,225 197,714
-----------------------------------------------------------
Williams Cos., Inc. (The) 11,664 247,743
-----------------------------------------------------------
604,565
-----------------------------------------------------------
OTHER DIVERSIFIED FINANCIAL
SERVICES-3.14%
Citigroup Inc. 106,720 4,642,320
-----------------------------------------------------------
JPMorgan Chase & Co. 72,185 2,536,581
-----------------------------------------------------------
Principal Financial Group, Inc. 6,026 264,843
-----------------------------------------------------------
7,443,744
-----------------------------------------------------------
PACKAGED FOODS & MEATS-1.01%
Campbell Soup Co. 6,660 205,461
-----------------------------------------------------------
ConAgra Foods, Inc. 10,646 241,771
-----------------------------------------------------------
General Mills, Inc. 7,583 359,434
-----------------------------------------------------------
Heinz (H.J.) Co. 7,160 263,345
-----------------------------------------------------------
Hershey Co. (The) 4,475 285,818
-----------------------------------------------------------
Kellogg Co. 7,179 325,280
-----------------------------------------------------------
McCormick & Co., Inc. 2,760 95,993
-----------------------------------------------------------
Sara Lee Corp. 16,146 321,790
-----------------------------------------------------------
Wrigley Jr. (Wm.) Co. 4,000 284,560
-----------------------------------------------------------
2,383,452
-----------------------------------------------------------
PAPER PACKAGING-0.11%
Bemis Co., Inc. 2,197 59,319
-----------------------------------------------------------
Sealed Air Corp./(a)/ 1,716 91,051
-----------------------------------------------------------
Temple-Inland Inc. 2,546 101,305
-----------------------------------------------------------
251,675
-----------------------------------------------------------
PAPER PRODUCTS-0.26%
Georgia-Pacific Corp. 5,315 181,507
-----------------------------------------------------------
International Paper Co. 10,030 316,948
-----------------------------------------------------------
MeadWestvaco Corp. 3,823 111,708
-----------------------------------------------------------
610,163
-----------------------------------------------------------
PERSONAL PRODUCTS-0.63%
Alberto-Culver Co. 1,726 77,877
-----------------------------------------------------------
Avon Products, Inc. 9,682 316,698
-----------------------------------------------------------
Gillette Co. (The) 20,465 1,098,357
-----------------------------------------------------------
1,492,932
-----------------------------------------------------------
PHARMACEUTICALS-6.65%
Abbott Laboratories 31,789 1,482,321
-----------------------------------------------------------
Allergan, Inc. 2,675 239,065
-----------------------------------------------------------
Bristol-Myers Squibb Co. 40,090 1,001,448
-----------------------------------------------------------
MARKET
SHARES VALUE
-----------------------------------------------------------------------
PHARMACEUTICALS-(CONTINUED)
Forest Laboratories, Inc./(a)/ 6,984 $ 278,801
-----------------------------------------------------------------------
Johnson & Johnson 61,001 3,901,624
-----------------------------------------------------------------------
King Pharmaceuticals, Inc./(a)/ 4,964 55,349
-----------------------------------------------------------------------
Lilly (Eli) and Co. 23,244 1,309,102
-----------------------------------------------------------------------
Merck & Co. Inc. 45,167 1,402,887
-----------------------------------------------------------------------
Mylan Laboratories Inc. 4,463 77,478
-----------------------------------------------------------------------
Pfizer Inc. 152,514 4,041,621
-----------------------------------------------------------------------
Schering-Plough Corp. 30,276 630,346
-----------------------------------------------------------------------
Watson Pharmaceuticals, Inc./(a)/ 2,259 75,451
-----------------------------------------------------------------------
Wyeth 27,458 1,256,204
-----------------------------------------------------------------------
15,751,697
-----------------------------------------------------------------------
PHOTOGRAPHIC PRODUCTS-0.07%
Eastman Kodak Co. 5,871 156,991
-----------------------------------------------------------------------
PROPERTY & CASUALTY INSURANCE-1.39%
ACE Ltd. (Cayman Islands) 5,920 273,563
-----------------------------------------------------------------------
Allstate Corp. (The) 13,708 839,752
-----------------------------------------------------------------------
Ambac Financial Group, Inc. 2,222 159,628
-----------------------------------------------------------------------
Chubb Corp. (The) 4,018 356,879
-----------------------------------------------------------------------
Cincinnati Financial Corp. 3,412 140,643
-----------------------------------------------------------------------
MBIA Inc. 2,777 168,675
-----------------------------------------------------------------------
Progressive Corp. (The) 4,077 406,436
-----------------------------------------------------------------------
Safeco Corp. 2,601 142,899
-----------------------------------------------------------------------
St. Paul Travelers Cos., Inc. (The) 13,821 608,400
-----------------------------------------------------------------------
XL Capital Ltd. -- Class A (Cayman Islands) 2,873 206,339
-----------------------------------------------------------------------
3,303,214
-----------------------------------------------------------------------
PUBLISHING-0.52%
Dow Jones & Co., Inc. 1,444 54,193
-----------------------------------------------------------------------
Gannett Co., Inc. 5,094 371,658
-----------------------------------------------------------------------
Knight-Ridder, Inc. 1,525 95,404
-----------------------------------------------------------------------
McGraw-Hill Cos., Inc. (The) 7,684 353,541
-----------------------------------------------------------------------
Meredith Corp. 930 46,035
-----------------------------------------------------------------------
New York Times Co. (The) -- Class A 3,012 94,938
-----------------------------------------------------------------------
Tribune Co. 6,101 222,687
-----------------------------------------------------------------------
1,238,456
-----------------------------------------------------------------------
RAILROADS-0.55%
Burlington Northern Santa Fe Corp. 7,739 419,841
-----------------------------------------------------------------------
CSX Corp. 4,426 201,560
-----------------------------------------------------------------------
Norfolk Southern Corp. 8,293 308,583
-----------------------------------------------------------------------
Union Pacific Corp. 5,394 379,252
-----------------------------------------------------------------------
1,309,236
-----------------------------------------------------------------------
REAL ESTATE-0.62%
Apartment Investment & Management Co. -- Class A 1,956 86,064
-----------------------------------------------------------------------
Archstone-Smith Trust 4,086 173,655
-----------------------------------------------------------------------
Equity Office Properties Trust 8,360 296,362
-----------------------------------------------------------------------
Equity Residential 5,885 237,754
-----------------------------------------------------------------------
FS-52
MARKET
SHARES VALUE
-------------------------------------------------------------------
REAL ESTATE-(CONTINUED)
Plum Creek Timber Co., Inc. 3,791 $ 143,489
-------------------------------------------------------------------
ProLogis 3,828 174,404
-------------------------------------------------------------------
Simon Property Group, Inc. 4,505 359,229
-------------------------------------------------------------------
1,470,957
-------------------------------------------------------------------
REGIONAL BANKS-1.84%
AmSouth Bancorp. 7,263 202,710
-------------------------------------------------------------------
BB&T Corp. 11,219 469,179
-------------------------------------------------------------------
Compass Bancshares, Inc. 2,527 121,827
-------------------------------------------------------------------
Fifth Third Bancorp 10,702 461,256
-------------------------------------------------------------------
First Horizon National Corp. 2,546 103,851
-------------------------------------------------------------------
Huntington Bancshares Inc. 4,742 118,265
-------------------------------------------------------------------
KeyCorp 8,362 286,315
-------------------------------------------------------------------
M&T Bank Corp. 2,011 218,214
-------------------------------------------------------------------
Marshall & Ilsley Corp. 4,367 200,533
-------------------------------------------------------------------
National City Corp. 12,155 448,641
-------------------------------------------------------------------
North Fork Bancorp., Inc. 9,796 268,312
-------------------------------------------------------------------
PNC Financial Services Group, Inc. 5,816 318,833
-------------------------------------------------------------------
Regions Financial Corp. 9,503 319,681
-------------------------------------------------------------------
SunTrust Banks, Inc. 6,970 506,858
-------------------------------------------------------------------
Synovus Financial Corp. 6,358 188,006
-------------------------------------------------------------------
Zions Bancorp. 1,838 131,380
-------------------------------------------------------------------
4,363,861
-------------------------------------------------------------------
RESTAURANTS-0.75%
Darden Restaurants, Inc. 3,022 104,863
-------------------------------------------------------------------
McDonald's Corp. 26,022 811,106
-------------------------------------------------------------------
Starbucks Corp./(a)/ 7,995 420,137
-------------------------------------------------------------------
Wendy's International, Inc. 2,357 121,857
-------------------------------------------------------------------
Yum! Brands, Inc. 5,943 311,116
-------------------------------------------------------------------
1,769,079
-------------------------------------------------------------------
SEMICONDUCTOR EQUIPMENT-0.41%
Applied Materials, Inc. 33,725 622,564
-------------------------------------------------------------------
KLA-Tencor Corp. 4,023 207,989
-------------------------------------------------------------------
Novellus Systems, Inc./(a)/ 2,874 82,915
-------------------------------------------------------------------
Teradyne, Inc./(a)/ 4,009 62,260
-------------------------------------------------------------------
975,728
-------------------------------------------------------------------
SEMICONDUCTORS-2.91%
Advanced Micro Devices, Inc./(a)/ 8,058 161,805
-------------------------------------------------------------------
Altera Corp./(a)/ 7,615 166,540
-------------------------------------------------------------------
Analog Devices, Inc. 7,620 298,704
-------------------------------------------------------------------
Applied Micro Circuits Corp./(a)/ 6,302 18,969
-------------------------------------------------------------------
Broadcom Corp. -- Class A/(a)/ 6,003 256,748
-------------------------------------------------------------------
Freescale Semiconductor Inc. -- Class B/(a)/ 8,214 211,511
-------------------------------------------------------------------
Intel Corp. 126,637 3,436,928
-------------------------------------------------------------------
Linear Technology Corp. 6,292 244,507
-------------------------------------------------------------------
LSI Logic Corp./(a)/ 7,975 77,836
-------------------------------------------------------------------
MARKET
SHARES VALUE
--------------------------------------------------------------
SEMICONDUCTORS-(CONTINUED)
Maxim Integrated Products, Inc. 6,727 $ 281,659
--------------------------------------------------------------
Micron Technology, Inc./(a)/ 12,658 150,377
--------------------------------------------------------------
National Semiconductor Corp. 7,160 176,924
--------------------------------------------------------------
NVIDIA Corp./(a)/ 3,465 93,763
--------------------------------------------------------------
PMC-Sierra, Inc./(a)/ 3,677 36,145
--------------------------------------------------------------
Texas Instruments Inc. 34,098 1,082,952
--------------------------------------------------------------
Xilinx, Inc. 7,230 204,971
--------------------------------------------------------------
6,900,339
--------------------------------------------------------------
SOFT DRINKS-1.77%
Coca-Cola Co. (The) 46,450 2,032,652
--------------------------------------------------------------
Coca-Cola Enterprises Inc. 7,215 169,553
--------------------------------------------------------------
Pepsi Bottling Group, Inc. (The) 4,044 117,923
--------------------------------------------------------------
PepsiCo, Inc. 34,328 1,871,906
--------------------------------------------------------------
4,192,034
--------------------------------------------------------------
SPECIALIZED CONSUMER SERVICES-0.08%
H&R Block, Inc. 3,380 192,525
--------------------------------------------------------------
SPECIALIZED FINANCE-0.19%
CIT Group Inc. 4,313 190,376
--------------------------------------------------------------
Moody's Corp. 5,665 268,011
--------------------------------------------------------------
458,387
--------------------------------------------------------------
SPECIALTY CHEMICALS-0.21%
Ecolab Inc. 4,516 151,647
--------------------------------------------------------------
International Flavors & Fragrances Inc. 1,797 68,142
--------------------------------------------------------------
Rohm and Haas Co. 3,977 183,181
--------------------------------------------------------------
Sigma-Aldrich Corp. 1,412 90,594
--------------------------------------------------------------
493,564
--------------------------------------------------------------
SPECIALTY STORES-0.28%
Office Depot, Inc./(a)/ 6,510 184,754
--------------------------------------------------------------
OfficeMax Inc. 1,449 43,035
--------------------------------------------------------------
Staples, Inc. 15,095 343,713
--------------------------------------------------------------
Tiffany & Co. 2,942 100,116
--------------------------------------------------------------
671,618
--------------------------------------------------------------
STEEL-0.14%
Allegheny Technologies, Inc. 1,818 52,849
--------------------------------------------------------------
Nucor Corp. 3,268 181,211
--------------------------------------------------------------
United States Steel Corp. 2,335 99,588
--------------------------------------------------------------
333,648
--------------------------------------------------------------
SYSTEMS SOFTWARE-3.28%
Adobe Systems Inc. 10,055 298,030
--------------------------------------------------------------
BMC Software, Inc./(a)/ 4,592 87,661
--------------------------------------------------------------
Computer Associates International, Inc. 10,887 298,848
--------------------------------------------------------------
Microsoft Corp. 206,132 5,279,041
--------------------------------------------------------------
Novell, Inc./(a)/ 7,853 47,746
--------------------------------------------------------------
Oracle Corp./(a)/ 90,707 1,231,801
--------------------------------------------------------------
Symantec Corp./(a)/ 24,471 537,628
--------------------------------------------------------------
7,780,755
--------------------------------------------------------------
FS-53
MARKET
SHARES VALUE
------------------------------------------------------------
THRIFTS & MORTGAGE FINANCE-1.64%
Countrywide Financial Corp. 12,056 $ 434,016
------------------------------------------------------------
Fannie Mae 19,855 1,109,100
------------------------------------------------------------
Freddie Mac 14,175 896,994
------------------------------------------------------------
Golden West Financial Corp. 5,798 377,566
------------------------------------------------------------
MGIC Investment Corp. 1,935 132,702
------------------------------------------------------------
Sovereign Bancorp, Inc. 7,480 179,445
------------------------------------------------------------
Washington Mutual, Inc. 17,996 764,470
------------------------------------------------------------
3,894,293
------------------------------------------------------------
TIRES & RUBBER-0.04%
Cooper Tire & Rubber Co. 1,282 25,794
------------------------------------------------------------
Goodyear Tire & Rubber Co. (The)/(a)/ 3,631 63,216
------------------------------------------------------------
89,010
------------------------------------------------------------
TOBACCO-1.35%
Altria Group, Inc. 42,484 2,844,729
------------------------------------------------------------
Reynolds American Inc. 2,381 198,361
------------------------------------------------------------
UST Inc. 3,381 155,594
------------------------------------------------------------
3,198,684
------------------------------------------------------------
MARKET
SHARES VALUE
- ----------------------------------------------------------------------------------
TRADING COMPANIES & DISTRIBUTORS-0.04%
W.W. Grainger, Inc. 1,706 $ 106,318
- ----------------------------------------------------------------------------------
WIRELESS TELECOMMUNICATION
SERVICES-0.34%
Nextel Communications, Inc. -- Class A/(a)/ 23,048 802,070
- ----------------------------------------------------------------------------------
Total Common Stocks & Other Equity Interests
(Cost $200,905,476) 231,809,028
- ----------------------------------------------------------------------------------
PRINCIPAL
AMOUNT
U.S. TREASURY BILLS-0.25%
2.96%, 09/15/05 (Cost $597,795)/(d)/ $ 600,000/(e)/ 597,697
- ----------------------------------------------------------------------------------
Total U.S. Treasury Securities
(Cost $597,795) 597,697
- ----------------------------------------------------------------------------------
SHARES
REPURCHASE AGREEMENTS-2.09%
State Street Bank & Trust 3.12%, 08/01/05
(Cost $4,965,345)/(f)/ 4,965,345 4,965,345
- ----------------------------------------------------------------------------------
TOTAL INVESTMENTS-100.16% (Cost $206,468,616) 237,372,070
- ----------------------------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES-(0.16%) (388,925)
- ----------------------------------------------------------------------------------
NET ASSETS-100.00% $ 236,983,145
- ----------------------------------------------------------------------------------
Notes to Schedule of Investments:
/(a)/Non-income producing security.
/(b)/Each unit represents one common share and one paired trust share.
/(c)/Each unit represents one common share and one paired Class B share.
/(d)/Security traded on a discount basis. The interest rate shown represents
the discount rate at the time of purchase by the Fund.
/(e)/A portion of the principal balance was pledged as collateral to cover
margin requirements for open futures contracts. See Note 1H and Note 6.
/(f)/Repurchase agreement entered into July 29, 2005 with a maturing value of
$4,966,636. Collateralized by $5,115,000 of U.S. Government obligations,
3.00% due August 15, 2007 with an aggregate market value at July 31, 2005
of $5,067,420.
See accompanying Notes to Financial Statements which are an integral part of
the financial statements.
FS-54
STATEMENT OF ASSETS AND LIABILITIES
July 31, 2005
ASSETS:
Investments, at market value (cost $206,468,616) $237,372,070
- ------------------------------------------------------------------------------------
Receivables for:
Fund shares sold 172,470
- ------------------------------------------------------------------------------------
Dividends and interest 283,870
- ------------------------------------------------------------------------------------
Investment for trustee deferred compensation and retirement plans 15,767
- ------------------------------------------------------------------------------------
Other assets 26,798
- ------------------------------------------------------------------------------------
Total assets 237,870,975
- ------------------------------------------------------------------------------------
LIABILITIES:
Payables for:
Investments purchased 73,017
- ------------------------------------------------------------------------------------
Fund shares reacquired 590,131
- ------------------------------------------------------------------------------------
Trustee deferred compensation and retirement plans 23,218
- ------------------------------------------------------------------------------------
Variation margin 47,735
- ------------------------------------------------------------------------------------
Accrued distribution fees 47,088
- ------------------------------------------------------------------------------------
Accrued trustees' and officer's fees and benefits 1,565
- ------------------------------------------------------------------------------------
Accrued transfer agent fees 52,722
- ------------------------------------------------------------------------------------
Accrued operating expenses 52,354
- ------------------------------------------------------------------------------------
Total liabilities 887,830
- ------------------------------------------------------------------------------------
Net assets applicable to shares outstanding $236,983,145
- ------------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
Shares of beneficial interest $217,127,311
- ------------------------------------------------------------------------------------
Undistributed net investment income 305,813
- ------------------------------------------------------------------------------------
Undistributed net realized gain (loss) from investment securities and
futures contracts (11,523,689)
- ------------------------------------------------------------------------------------
Unrealized appreciation of investment securities and futures contracts 31,073,710
- ------------------------------------------------------------------------------------
$236,983,145
- ------------------------------------------------------------------------------------
NET ASSETS:
Investor Class $230,083,792
------------------------------------------------------------
Institutional Class $ 6,899,353
------------------------------------------------------------
SHARES OUTSTANDING, $0.01 PAR VALUE PER SHARE, UNLIMITED
NUMBER OF SHARES AUTHORIZED:
Investor Class 17,740,361
------------------------------------------------------------
Institutional Class 555,604
------------------------------------------------------------
Investor Class:
Net asset value and offering price per share $ 12.97
------------------------------------------------------------
Institutional Class:
Net asset value and offering price per share $ 12.42
------------------------------------------------------------
See accompanying Notes to Financial Statements which are an integral part of
the financial statements.
FS-55
STATEMENT OF OPERATIONS
For the year ended July 31, 2005
INVESTMENT INCOME:
Dividends $ 4,694,672
- -------------------------------------------------------------------------------------------
Interest 214,332
- -------------------------------------------------------------------------------------------
Total investment income 4,909,004
- -------------------------------------------------------------------------------------------
EXPENSES:
Advisory fees 585,188
- -------------------------------------------------------------------------------------------
Administrative services fees 63,837
- -------------------------------------------------------------------------------------------
Custodian fees 36,908
- -------------------------------------------------------------------------------------------
Distribution fees -- Investor 569,759
- -------------------------------------------------------------------------------------------
Transfer agent fees -- Investor 479,764
- -------------------------------------------------------------------------------------------
Transfer agent fees -- Institutional 5,279
- -------------------------------------------------------------------------------------------
Trustees' and officer's fees and benefits 23,554
- -------------------------------------------------------------------------------------------
Other 165,594
- -------------------------------------------------------------------------------------------
Total expenses 1,929,883
- -------------------------------------------------------------------------------------------
Less: Expensesreimbursed and expense offset arrangements (431,463)
- -------------------------------------------------------------------------------------------
Net expenses 1,498,420
- -------------------------------------------------------------------------------------------
Net investment income 3,410,584
- -------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN FROM INVESTMENT SECURITIES AND FUTURES CONTRACTS:
Net realized gain from:
Investment securities 2,498,902
- -------------------------------------------------------------------------------------------
Futures contracts 516,605
- -------------------------------------------------------------------------------------------
3,015,507
- -------------------------------------------------------------------------------------------
Change in net unrealized appreciation of:
Investment securities 22,234,395
- -------------------------------------------------------------------------------------------
Futures contracts 424,395
- -------------------------------------------------------------------------------------------
22,658,790
- -------------------------------------------------------------------------------------------
Net gain from investment securities and futures contracts 25,674,297
- -------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $29,084,881
- -------------------------------------------------------------------------------------------
See accompanying Notes to Financial Statements which are an integral part of
the financial statements.
FS-56
STATEMENT OF CHANGES IN NET ASSETS
For the years ended July 31, 2005 and 2004
2005 2004
- ---------------------------------------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 3,410,584 $ 2,302,210
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized gain from investment securities and futures contracts 3,015,507 2,709,783
- ---------------------------------------------------------------------------------------------------------------------------------
Change in net unrealized appreciation of investment securities and futures contracts 22,658,790 20,303,101
- ---------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 29,084,881 25,315,094
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from net investment income:
Investor Class (3,187,004) (2,074,514)
- ---------------------------------------------------------------------------------------------------------------------------------
Institutional Class (104,063) (58,208)
- ---------------------------------------------------------------------------------------------------------------------------------
Decrease in net assets resulting from distributions (3,291,067) (2,132,722)
- ---------------------------------------------------------------------------------------------------------------------------------
Share transactions-net:
Investor Class (29,115,766) 15,729,074
- ---------------------------------------------------------------------------------------------------------------------------------
Institutional Class 889,650 596,232
- ---------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from share transactions (28,226,116) 16,325,306
- ---------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets (2,432,302) 39,507,678
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of year 239,415,447 199,907,769
- ---------------------------------------------------------------------------------------------------------------------------------
End of year (including undistributed net investment income of $305,813 and $186,296, respectively) $236,983,145 $239,415,447
- ---------------------------------------------------------------------------------------------------------------------------------
See accompanying Notes to Financial Statements which are an integral part of
the financial statements.
FS-57
NOTES TO FINANCIAL STATEMENTS
July 31, 2005
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM S&P 500 Index Fund, formerly INVESCO S&P 500 Index Fund, (the "Fund") is a
series portfolio of AIM Stock Funds (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 three 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 as of the close of business on April 1, 2002, the Fund limited public
sales of its Investor Class shares to certain investors.
The Fund's investment objective is to seek price performance and income
comparable to the Standard & Poor's 500 Composite Stock Price Index (the "S & P
500"). 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 including
estimates and assumptions related to taxation. 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, which may be
considered fair valued, 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 and domestic
and foreign index futures.
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.
FS-58
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 and transfer agency
fees and expenses and other shareholder recordkeeping fees of a particular
class of the Fund are charged to the operations of such class. All other
expenses are allocated between 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 procedures approved by the Board of
Trustees, 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 a 2% redemption fee 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. 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 received or made 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. COLLATERAL -- To the extent the Fund has pledged or segregated a security as
collateral and that security is subsequently sold, it is the Fund's practice
to replace such collateral no later than the next business day. This
practice does not apply to securities pledged as collateral for securities
lending transactions.
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 0.25% of the Fund's
average daily net assets. AIM has entered into a sub-advisory agreement with
INVESCO Institutional (N.A.), Inc. ("INVESCO") whereby AIM pays INVESCO 40% of
the fee paid by the Fund to AIM.
Effective July 1, 2005, 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 Investor Class
and Institutional Class shares to 0.60% and 0.35% of average daily net assets,
respectively, through July 31, 2006. Prior to July 1, 2005, AIM had 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 Investor Class and Institutional Class shares to 0.65% and 0.35% 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, in addition
to the expense reimbursement arrangement with AMVESCAP PLC ("AMVESCAP")
described more fully below, the expense offset arrangements from which the Fund
may benefit 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.
For the year ended July 31, 2005, AIM reimbursed expenses of $25,243 and
reimbursed $365,006 and $5,165 of class level expenses of Investor and
Institutional class shares respectively.
FS-59
At the request of the Trustees of the Trust, AMVESCAP agreed to reimburse
expenses incurred by the Fund in connection with market timing matters in the
AIM Funds, which may include legal, audit, shareholder reporting,
communications and trustee expenses. These expenses along with the related
expense reimbursement, are included in the Statement of Operations. For the
year ended July 31, 2005, AMVESCAP reimbursed expenses of the Fund in the
amount of $30,195.
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
July 31, 2005, AIM was paid $63,837.
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. AISI may make
payments to intermediaries that provide omnibus account services,
sub-accounting services and/or networking services. For the year ended July 31,
2005, the Fund paid AISI $479,764 for Investor Class shares and $5,279 for
Institutional Class shares.
The Trust has entered into master distribution agreements with A I M
Distributors, Inc. ("ADI") to serve as the distributor for the Investor Class
and Institutional Class shares of the Fund. The Trust has adopted a plan
pursuant to Rule 12b-1 under the 1940 Act with respect to the Fund's Investor
Class shares (the "Plan"). The Fund, pursuant to the Plan, pays ADI
compensation at the annual rate of 0.25% of the Fund's average daily net assets
of Investor Class shares. Any amounts not paid as a service fee under the Plan
would constitute an asset-based sales charge. National Association of
Securities Dealers ("NASD") Rules 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 Plan, for the year ended July 31, 2005, the Investor
Class shares paid $569,759.
Certain officers and trustees of the Trust are officers and directors of AIM,
AISI and/or ADI.
NOTE 3--EXPENSE OFFSET ARRANGEMENTS
The expense offset arrangements are comprised of (i) transfer agency credits
which result from balances in Demand Deposit Accounts (DDA) used by the
transfer agent for clearing shareholder transactions and (ii) custodian credits
which result from periodic overnight cash balances at the custodian. For the
year ended July 31, 2005, the Fund received credits from these arrangements,
which resulted in the reduction of the Fund's total expenses of $5,854.
NOTE 4--TRUSTEES' AND OFFICER'S FEES AND BENEFITS
"Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund
to pay remuneration to each Trustee and Officer of the Fund who is not an
"interested person" of AIM. Trustees have the option to defer compensation
payable by the Fund, and "Trustees' and Officer's Fees and Benefits" also
include amounts accrued by the Fund to fund such deferred compensation amounts.
Those Trustees who defer compensation have the option to select various AIM
Funds in which their deferral accounts shall be deemed to be invested. Finally,
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
who also participate in a retirement plan and receive benefits under such plan.
"Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund
to fund such retirement benefits. Obligations under the deferred compensation
and retirement plans represent unsecured claims against the general assets of
the Fund.
During the year ended July 31, 2005, the Fund paid legal fees of $4,764 for
services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the
Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 5--BORROWINGS
Pursuant to an exemptive order from the SEC, the Fund may participate in an
interfund lending facility that AIM has established for temporary borrowings by
the AIM Funds. An interfund loan will be made under this facility only if the
loan rate (an average of the rate available on bank loans and the rate
available on investments in overnight repurchase agreements) is favorable to
both the lending fund and the borrowing fund. A loan will be secured by
collateral if the Fund's aggregate borrowings from all sources exceeds 10% of
the Fund's total assets. To the extent that the loan is required to be secured
by collateral, the collateral is marked to market daily to ensure that the
market value is at least 102% of the outstanding principal value of the loan.
The Fund is a participant in an uncommitted unsecured revolving credit
facility with State Street Bank and Trust Company ("SSB"). The Fund may borrow
up to the lesser of (i) $125,000,000, or (ii) the limits set by its prospectus
for borrowings. The Fund and other funds advised by AIM which are parties to
the credit facility can borrow on a first come, first served basis. Principal
on each loan outstanding shall bear interest at the bid rate quoted by SSB at
the time of the request for the loan.
During the year ended July 31, 2005, 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 as a compensating balance in the account so the custodian can be
compensated by earning the additional interest; or (ii) compensate by paying
the custodian bank at a rate agreed upon by the custodian bank and AIM not to
exceed the rate contractually agreed upon.
FS-60
NOTE 6--FUTURES CONTRACTS
On July 31, 2005, $600,000 principal amount of U.S. Treasury obligations were
pledged as collateral to cover margin requirements for open futures contracts.
OPEN FUTURES CONTRACTS AT PERIOD END
---------------------------------------------------------------
NO. OF MONTH/ MARKET VALUE UNREALIZED
CONTRACT CONTRACTS COMMITMENT 07/31/05 APPRECIATION
---------------------------------------------------------------
S&P 500 Index 19 Sept.-05/Long $5,874,800 $170,256
---------------------------------------------------------------
NOTE 7--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
DISTRIBUTIONS TO SHAREHOLDERS:
The tax character of distributions paid during the years ended July 31, 2005
and 2004 was as follows:
2005 2004
-------------------------------------------------------------
Distributions paid from ordinary income $3,291,067 $2,132,722
-------------------------------------------------------------
TAX COMPONENTS OF NET ASSETS:
As of July 31, 2005, the components of net assets on a tax basis were as
follows:
2005
----------------------------------------------------------------
Undistributed ordinary income (accumulated losses) $ 320,773
----------------------------------------------------------------
Unrealized appreciation -- investments 24,201,568
----------------------------------------------------------------
Temporary book/tax differences (14,957)
----------------------------------------------------------------
Capital loss carryforward (4,651,550)
----------------------------------------------------------------
Shares of Beneficial Interest 217,127,311
----------------------------------------------------------------
Total net assets $236,983,145
----------------------------------------------------------------
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 realization of gains on certain futures 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.
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 $3,504,274 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 July 31, 2005 which expires as
follows:
CAPITAL LOSS
EXPIRATION CARRYFORWARD*
---------------------------------------------
July 31, 2010 $3,073,399
---------------------------------------------
July 31, 2011 1,578,151
---------------------------------------------
Total capital loss carryforward $4,651,550
---------------------------------------------
* Capital loss carryforward as of the date listed above is reduced for
limitations, if any, to the extent required by the Internal Revenue Code.
NOTE 8--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities
and money market funds) purchased and sold by the Fund during the year ended
July 31, 2005 was $9,400,887 and $27,802,629, respectively.
UNREALIZED APPRECIATION (DEPRECIATION) OF
INVESTMENT SECURITIES ON A TAX BASIS
--------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $ 45,552,179
--------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (21,350,611)
--------------------------------------------------------------------------
Net unrealized appreciation of investment securities $ 24,201,568
--------------------------------------------------------------------------
Cost of investments for tax purposes is $213,170,502.
FS-61
NOTE 9--SHARE INFORMATION
The Fund currently offers two different classes of shares: Investor Class
shares and Institutional Class shares. Investor Class shares and Institutional
Class shares are sold at net asset value.
CHANGES IN SHARES OUTSTANDING
- ----------------------------------------------------------------------------------------
YEAR ENDED JULY 31,
--------------------------------------------------
2005 2004
------------------------ ------------------------
SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------------------------------
Sold:
Investor Class 4,536,570 $ 55,848,517 8,158,662 $ 93,393,414
- ----------------------------------------------------------------------------------------
Institutional Class 139,962 1,640,099 134,129 1,499,236
- ----------------------------------------------------------------------------------------
Issued as reinvestment of dividends:
Investor Class 252,892 3,136,907 175,553 2,043,181
- ----------------------------------------------------------------------------------------
Institutional Class 8,746 104,063 5,219 58,200
- ----------------------------------------------------------------------------------------
Reacquired:/(a)/
Investor Class (7,225,743) (88,101,190) (6,947,424) (79,707,521)
- ----------------------------------------------------------------------------------------
Institutional Class (72,446) (854,512) (85,170) (961,204)
- ----------------------------------------------------------------------------------------
(2,360,019) $(28,226,116) 1,440,969 $ 16,325,306
- ----------------------------------------------------------------------------------------
/(a)/Amount is net of redemption fees of $4,356 and $121 for Investor Class and
Institutional Class shares, respectively, for the year ended July 31, 2005
and $16,385 and $373 for Investor Class and Institutional Class shares,
respectively, for the year ended July 31, 2004.
NOTE 10--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
INVESTOR CLASS
------------------------------------------------------
YEAR ENDED JULY 31,
------------------------------------------------------
2005 2004 2003 2002 2001
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 11.60 $ 10.41 $ 9.59 $ 12.78 $ 15.36
- ---------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.18 0.11 0.10 0.09 0.10
- ---------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and unrealized) 1.36 1.18 0.82 (3.19) (2.39)
- ---------------------------------------------------------------------------------------------------------------------------
Total from investment operations 1.54 1.29 0.92 (3.10) (2.29)
- ---------------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.17) (0.10) (0.10) (0.09) (0.10)
- ---------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- -- -- -- (0.19)
- ---------------------------------------------------------------------------------------------------------------------------
Total distributions (0.17) (0.10) (0.10) (0.09) (0.29)
- ---------------------------------------------------------------------------------------------------------------------------
Redemption fees added to shares of beneficial interest 0.00 0.00 0.00 0.00 0.00
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 12.97 $ 11.60 $ 10.41 $ 9.59 $ 12.78
- ---------------------------------------------------------------------------------------------------------------------------
Total return/(a)/ 13.38% 12.43% 9.73% (24.33)% (15.07)%
- ---------------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $230,084 $234,090 $195,668 $135,578 $116,309
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 0.65%/(b)/ 0.65% 0.65% 0.65% 0.63%
- ---------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 0.83%/(b)/ 1.00% 1.05% 1.01% 0.99%
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets 1.46%/(b)/ 0.99% 1.15% 0.84% 0.75%
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 4% 2% 1% 3% 43%
- ---------------------------------------------------------------------------------------------------------------------------
/(a)/Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset value
for financial reporting purposes and the returns based upon those net
asset values may differ from the net asset value and returns for
shareholder transactions.
/(b)/Ratios are based on average daily net assets of $227,903,420.
FS-62
NOTE 10--FINANCIAL HIGHLIGHTS-(CONTINUED)
INSTITUTIONAL CLASS
--------------------------------------------------
YEAR ENDED JULY 31,
--------------------------------------------------
2005 2004 2003 2002 2001
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $11.11 $ 9.97 $ 9.23 $ 12.45 $ 15.07
- --------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.21 0.13 0.13/(a)/ 0.08 0.19/(a)/
- --------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and unrealized) 1.30 1.14 0.78 (3.11) (2.44)
- --------------------------------------------------------------------------------------------------------------------------
Total from investment operations 1.51 1.27 0.91 (3.03) (2.25)
- --------------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.20) (0.13) (0.17) (0.19) (0.18)
- --------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- -- -- -- (0.19)
- --------------------------------------------------------------------------------------------------------------------------
Total distributions (0.20) (0.13) (0.17) (0.19) (0.37)
- --------------------------------------------------------------------------------------------------------------------------
Redemption fees added to shares of beneficial interest 0.00 0.00 0.00 0.00 0.00
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $12.42 $11.11 $ 9.97 $ 9.23 $ 12.45
- --------------------------------------------------------------------------------------------------------------------------
Total return/(b)/ 13.70% 12.77% 9.98% (24.50)% (15.09)%
- --------------------------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000s omitted) $6,899 $5,325 $4,239 $ 338 $ 544
- --------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 0.35%/(c)/ 0.35% 0.35% 0.35% 0.35%
- --------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 0.46%/(c)/ 0.67% 2.18% 7.36% 1.84%
- --------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets 1.76%/(c)/ 1.29% 1.35% 1.15% 1.03%
- --------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 4% 2% 1% 3% 43%
- --------------------------------------------------------------------------------------------------------------------------
/(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.
/(c)/Ratios are based on average daily net assets of $6,171,592.
NOTE 11--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), AIM and A I M Distributors, Inc. ("ADI") (the
distributor of the retail AIM Funds) reached final settlements with certain
regulators, including the Securities and Exchange Commission ("SEC"), the New
York Attorney General and the Colorado Attorney General, to resolve civil
enforcement actions and/or investigations related to market timing and related
activity in the AIM Funds, including those formerly advised by IFG. As part of
the settlements, a $325 million fair fund ($110 million of which is civil
penalties) has been created to compensate shareholders harmed by market timing
and related activity in funds formerly advised by IFG. Half of this amount has
already been paid to the fair fund pursuant to the terms of the settlement with
the remainder due December 31, 2005. Additionally, AIM and ADI created a $50
million fair fund ($30 million of which is civil penalties) to compensate
shareholders harmed by market timing and related activity in funds advised by
AIM, which was done pursuant to the terms of the settlement. These two fair
funds may increase as a result of contributions from third parties who reach
final settlements with the SEC or other regulators to resolve allegations of
market timing and/or late trading that also may have harmed applicable AIM
Funds. These two fair funds will be distributed in accordance with a
methodology to be determined by AIM's independent distribution consultant, in
consultation with AIM and the independent trustees of the AIM Funds and
acceptable to the staff of the SEC. As the methodology is unknown at the
present time, management of AIM and the Fund are unable to estimate the impact,
if any, that the distribution of these two fair funds may have on the Fund or
whether such distribution will have an impact on the Fund's financial
statements in the future.
At the request of the trustees of the AIM Funds, AMVESCAP PLC ("AMVESCAP"),
the parent company of IFG and AIM, has agreed to reimburse expenses incurred by
the AIM Funds related to market timing matters.
REGULATORY INQUIRIES AND PENDING LITIGATION
IFG, AIM, ADI and/or related entities and individuals have received inquiries
from numerous regulators 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. IFG, AIM and ADI are providing full cooperation with respect
to these inquiries. As described more fully below, the AIM
FS-63
NOTE 11--LEGAL PROCEEDINGS-(CONTINUED)
Funds, IFG, AIM, ADI and/or related entities and individuals are defendants in
numerous civil lawsuits related to one or more of these issues. Regulatory
actions and/or additional civil lawsuits related to these or other issues may
be filed against the AIM Funds, IFG, AIM and/or related entities and
individuals in the future.
On April 12, 2005, the Attorney General of the State of West Virginia
("WVAG") filed a civil lawsuit against AIM, IFG and ADI, as well as numerous
unrelated mutual fund complexes and financial institutions. None of the AIM
Funds has been named as a defendant in this lawsuit. The WVAG complaint, filed
in the Circuit Court of Marshall County, West Virginia [Civil Action
No. 05-C-81], alleges, in substance, that AIM, IFG and ADI engaged in unfair
competition and/or unfair or deceptive trade practices by failing to disclose
in the prospectuses for the AIM Funds, including those formerly advised by IFG,
that they had entered into certain arrangements permitting market timing of
such Funds. As a result of the foregoing, the WVAG alleges violations of W. Va.
Code (S) 46A-1-101, et seq. (the West Virginia Consumer Credit and Protection
Act). The WVAG complaint is seeking, among other things, injunctive relief,
civil monetary penalties and a writ of quo warranto against the defendants. If
AIM is unsuccessful in its defense of the WVAG lawsuit, it could be barred from
serving as an investment advisor for any investment company registered under
the Investment Company Act of 1940, as amended (a "registered investment
company"). Such results could affect the ability of AIM or any other investment
advisor directly or indirectly owned by AMVESCAP, from serving as an investment
advisor to any registered investment company, including the Fund. The Fund has
been informed by AIM that, if these results occur, AIM will seek exemptive
relief from the SEC to permit it to continue to serve as the Fund's investment
advisor. There is no assurance that such exemptive relief will be granted. On
July 7, 2005, the Supreme Court of West Virginia ruled in the context of a
separate lawsuit that the WVAG does not have authority pursuant to W. Va. Code
Section 46A-6-104 of the West Virginia Consumer Credit and Protection Act to
bring an action based upon conduct that is ancillary to the purchase or sale of
securities. AIM intends to seek dismissal of the WVAG's lawsuit against it, IFG
and ADI in light of this ruling.
On August 30, 2005, the West Virginia Office of the State Auditor--Securities
Commission ("WVASC") issued a Summary Order to Cease and Desist and Notice of
Right to Hearing to AIM and ADI. The WVASC makes findings of fact that
essentially mirror the WVAG's allegations mentioned above and conclusions of
law to the effect that AIM and ADI violated the West Virginia securities laws.
The WVASC orders AIM and ADI to cease any further violations and seeks to
impose monetary sanctions to be determined by the Commissioner. AIM and ADI
have the right to contest the WVASC's findings and conclusions, which they
intend to do.
Civil lawsuits, including purported class action and shareholder derivative
suits, have been filed against certain of the AIM Funds, IFG, AIM, ADI and/or
related entities and individuals, depending on the lawsuit, alleging:
. that the defendants permitted improper market timing and related
activity in the AIM Funds;
. that certain AIM Funds inadequately employed fair value pricing;
. 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 and that the defendants adopted
unlawful distribution plans;
. that the defendants breached their fiduciary duties by charging
distribution fees while AIM Funds and/or specific share classes were
closed generally to new investors and/or while other share classes of
the same AIM Fund were not charged the same distribution fees;
. 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; and
. that the defendants breached their fiduciary duties by failing to
ensure that the AIM Funds participated in class action settlements in
which they were eligible to participate (this lawsuit was dismissed by
the Court on August 12, 2005).
These lawsuits allege as theories of recovery, depending on the lawsuit,
violations of various provisions of the Federal and state securities laws and
ERISA, negligence, breach of fiduciary duty and/or breach of contract. These
lawsuits seek remedies that include, depending on the lawsuit, damages,
restitution, injunctive relief, imposition of a constructive trust, removal of
certain directors and/or employees, various corrective measures under ERISA,
rescission of certain AIM Funds' advisory agreements and/or distribution plans
and recovery of all fees paid, an accounting of all fund-related fees,
commissions and soft dollar payments, restitution of all commissions and fees
paid, and prospective relief in the form of reduced fees.
All lawsuits based on allegations of market timing, late trading and related
activity have been transferred to the United States District Court for the
District of Maryland. On August 25, 2005, the Court issued rulings on the
common issues of law presented in defendants' motions to dismiss the
shareholder class and derivative complaints. These rulings were issued in the
context of the Janus lawsuits, but the Court's legal determinations apply at
the omnibus level to all cases within his track, including the AIM and IFG
cases. The Court dismissed for failure to make pre-suit demand on the fund
board all derivative causes of action but one: the excessive fee claim under
Section 36(b) of the Investment Company Act of 1940 (the "1940 Act"), as to
which the demand requirement does not apply. The Court dismissed all claims
asserted in the class complaint but two: (i) the securities fraud claims under
Section 10(b) of the Securities Exchange Act of 1934, and (ii) the excessive
fee claim under Section 36(b) of the 1940 Act. In addition, the Court limited
plaintiffs' potential recovery on the 36(b) claim to fees attributable to
timing assets, as opposed to all fees on funds in which any timing occurred.
The question whether the duplicative Section 36(b) claim properly belongs in
the derivative complaint or in the class action complaint will be decided at a
later date. The Court will subsequently issue an order applying his legal
rulings to the allegations in the AIM and IFG complaints.
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 above may have on AIM, ADI or the Fund.
* * * * * * * * * * * * * * * *
As a result of the matters discussed above, investors in the AIM Funds might
react by redeeming their investments. This might require the AIM Funds to sell
investments to provide for sufficient liquidity and could also have an adverse
effect on the investment performance of the AIM Funds.
FS-64
APPENDIX II
AIM MID CAP GROWTH FUND
Annual Report to Shareholders o October 31, 2004
[COVER IMAGE]
YOUR GOALS. OUR SOLUTIONS. [AIM INVESTMENTS LOGO APPEARS HERE]
--Registered Trademark-- --Registered Trademark--
<Table>
====================================================================================================================================
AIM MID CAP GROWTH FUND SEEKS TO PROVIDE LONG-TERM GROWTH OF CAPITAL.
o Unless otherwise stated, information presented in this report is as of 10/31/04 and is based on total net assets.
====================================================================================================================================
ABOUT SHARE CLASSES ABOUT INDEXES USED IN THIS REPORT o The returns shown in the Management's
Discussion of Fund Performance are based
o Effective 9/30/03, Class B shares are o The unmanaged Standard & Poor's on net asset values calculated for
not available as an investment for Composite Index of 500 Stocks (the S&P shareholder transactions. Generally
retirement plans maintained pursuant to 500--Registered Trademark-- Index) is an accepted accounting principles require
Section 401 of the Internal Revenue Code, index of common stocks frequently used as adjustments to be made to the net assets
including 401(k) plans, money purchase a general measure of U.S. stock market of the fund at period end for financial
pension plans and profit sharing plans. performance. reporting purposes, and as such, the net
Plans that have existing accounts invested asset values for shareholder transactions
in Class B shares will continue to be o The unmanaged Standard & Poor's Midcap and the returns based on those net asset
allowed to make additional purchases. 400 Index (the S&P 400 Index) represents values may differ from the net asset
the performance of mid-capitalization values and returns reported in the
o Class R shares are available only to stocks. Financial Highlights.
certain retirement plans. Please see the
prospectus for more information. o The unmanaged Russell Midcap--Registered o Bloomberg, Inc. is an independent
Trademark-- Growth Index is a subset of research and reporting firm.
PRINCIPAL RISKS OF INVESTING IN THE FUND the Russell Midcap--Registered Trademark--
Index, which represents the performance of The fund files its complete schedule of
o Investing in small and mid-size the stocks of domestic mid-capitalization portfolio holdings with the Securities and
companies involves risks not associated companies; the Growth subset measures the Exchange Commission ("SEC") for the 1st
with investing in more established performance of Russell Midcap companies and 3rd quarters of each fiscal year on
companies. Also, small companies have with higher price/book ratios and higher Form N-Q. The fund's Form N-Q filings are
business risk, significant stock price forecasted growth values. available on the SEC's Web site at
fluctuations and illiquidity. http://www.sec.gov. Copies of the fund's
o The unmanaged MSCI World Index is a Forms N-Q may be reviewed and copied at
o International investing presents certain group of global securities tracked by the SEC's Public Reference Room at 450
risks not associated with investing solely Morgan Stanley Capital International. Fifth Street, N.W., Washington, D.C.
in the United States. These include risks 20549-0102. You can obtain information on
relating to fluctuations in the value of o The unmanaged Lipper Mid-Cap Growth Fund the operation of the Public Reference
the U.S. dollar relative to the values of Index represents an average of the Room, including information about
other currencies, the custody arrangements performance of the 30 largest duplicating fee charges, by calling
made for the fund's foreign holdings, mid-capitalization growth funds tracked by 1-202-942-8090 or by electronic request at
differences in accounting, political risks Lipper, Inc., an independent mutual fund the following e-mail address:
and the lesser degree of public performance monitor. publicinfo@sec.gov. The SEC file numbers
information required to be provided by for the fund are 811-1424 and 2-25469. The
non-U.S. companies. The fund may invest up o The fund is not managed to track the fund's most recent portfolio holdings, as
to 25% of its assets in the securities of performance of any particular index, filed on Form N-Q, are also available at
non-U.S. issuers. including the indexes defined here, and AIMinvestments.com.
consequently, the performance of the fund
o The fund may participate in the initial may deviate significantly from the A description of the policies and
public offering (IPO) market in some performance of the indexes. Performance of procedures that the fund uses to determine
market cycles. Because of the fund's small an index of funds reflects fund expenses; how to vote proxies relating to portfolio
asset base, any investment the fund may performance of a market index does not. securities is available without charge,
make in IPOs may significantly affect the upon request, from our Client Services
fund's total return. As the fund's assets o A direct investment cannot be made in an department at 800-959-4246 or on the AIM
grow, the impact of IPO investments will index. Unless otherwise indicated, index Web site, AIMinvestments.com. On the home
decline, which may reduce the effect of results include reinvested dividends, and page, scroll down and click on AIM Funds
IPO investments on the fund's total they do not reflect sales charges. Proxy Policy. The information is also
return. available on the Securities and Exchange
OTHER INFORMATION Commission's Web site, sec.gov.
o Industry classifications used in this Information regarding how the fund voted
report are generally according to the proxies related to its portfolio
Global Industry Classification Standard, securities during the 12 months ended
which was developed by and is the 6/30/04 is available at our Web site. Go
exclusive property and a service mark of to AIMinvestments.com, access the About Us
Morgan Stanley Capital International Inc. tab, click on Required Notices and then
and Standard & Poor's. click on Proxy Voting Activity. Next,
select your fund from the drop-down menu.
</Table>
=============================================================================
THIS REPORT MUST BE ACCOMPANIED OR PRECEDED BY A CURRENTLY EFFECTIVE FUND
PROSPECTUS, WHICH CONTAINS MORE COMPLETE INFORMATION, INCLUDING SALES CHARGES
AND EXPENSES. INVESTORS SHOULD READ IT CAREFULLY BEFORE INVESTING.
=============================================================================
=====================================================
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
=====================================================
AIMinvestments.com
TO OUR SHAREHOLDERS
DEAR FELLOW SHAREHOLDER OF THE AIM FAMILY OF
FUNDS--REGISTERED TRADEMARK--:
[PHOTO OF NEW BOARD CHAIRMAN
ROBERT H.
GRAHAM] It is our pleasure to introduce you to Bruce Crockett,
the new Chairman of the Board of Trustees of the AIM
ROBERT H. GRAHAM Funds. Bob Graham has served as Chairman of the Board
of Trustees of the AIM Funds ever since Ted Bauer
PHOTO OF] retired from that position in 2000. However, as you may
MARK H. be aware, the U.S. Securities and Exchange Commission
WILLIAMSON] recently adopted a rule requiring that an independent
fund trustee, meaning a trustee who is not an officer
MARK H. WILLIAMSON of the fund's investment advisor, serve as chairman of
the funds' Board. In addition, a similar provision was
[PHOTO OF included in the terms of AIM Advisors' recent
BRUCE L. settlements with certain regulators. Accordingly, the
CROCKETT] AIM Funds' Board recently elected Mr. Crockett, one of
the fourteen independent trustees on the AIM Funds'
BRUCE L. CROCKETT Board, as Chairman. His appointment became effective on
October 4, 2004. Mr. Graham will remain on the funds'
Board, as will Mark Williamson, President and Chief Executive Officer of AIM.
Mr. Graham will also remain Chairman of AIM Investments--Registered Trademark--.
Mr. Crockett has been a member of the AIM Funds' board since 1992, when AIM
acquired certain funds that had been advised by CIGNA. He had been a member of
the board of those funds since 1978. Mr. Crockett has more than 30 years of
experience in finance and general management and has been Chairman of Crockett
Technologies Associates since 1996. He is the first independent chairman of the
funds' board in AIM's history, as he is not affiliated with AIM or AMVESCAP in
any way. He is committed to ensuring that the AIM Funds adhere to the highest
standards of corporate governance for the benefit of fund shareholders, and we
at AIM share that commitment.
MARKET CONDITIONS DURING THE FISCAL YEAR
Virtually every equity index, domestic and foreign, produced positive returns
for the fiscal year ended October 31, 2004. Domestically, the S&P 500 Index was
up 9.41% for the year. Globally, the MSCI World Index advanced more than 13%.
However, a goodly portion of this positive performance was achieved during 2003.
Year to date as of October 31, the S&P 500 Index was up just over 3%, the MSCI
World Index just about 5%. In the pages that follow, you will find a more
detailed discussion of the market conditions that affected your fund during the
fiscal year.
While it is agreeable to report positive market performance for the year
covered by this report, as ever, we encourage our shareholders to look past
short-term performance and focus on their long-term investment goals. Over the
short term, the one sure thing about the investment markets is their
unpredictability. Over the long term, equities have produced very attractive
returns. For the 25-year period ended October 31, 2004, the S&P 500 Index
averaged 13.50% growth per year and the MSCI World Index averaged 11.16%. While
past performance cannot guarantee future results, we believe staying invested
for the long term offers the best opportunity for capital growth.
YOUR FUND
The following pages of this report provide an explanation of how your fund was
managed during the fiscal year, how it performed in comparison to various
benchmarks, and a presentation of its long-term performance. We hope you find
this information helpful. Current information about your fund and about the
markets in general is always available on our Web site, AIMinvestments.com.
As always, AIM remains committed to building solutions for your investment
goals, and we thank you for your continued participation in AIM Investments. If
you have any questions, please contact our Client Service representatives at
800-959-4246.
Sincerely,
/s/ ROBERT H. GRAHAM /s/ MARK H. WILLIAMSON
- ------------------------------------ --------------------------------
Robert H. Graham Mark H. Williamson
Chairman, AIM Investments CEO & President, AIM Investments
President & Vice Chairman, AIM Funds Trustee, AIM Funds
December 16, 2004
AIM Investments is a registered service mark of A I M Management Group Inc. A I
M Advisors, Inc. and A I M Capital Management, Inc. are the investment advisors,
and A I M Distributors, Inc. is the distributor for the retail funds represented
by AIM Investments.
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
<Table>
FUND FOCUSED ON ECONOMICALLY reported third-quarter earnings by the
SENSITIVE STOCKS close of the fiscal year had either met or
exceeded expectations; just 20% missed
For the fiscal year ended October 31, October 31, 2004. Gross domestic product expectations. Energy, utilities, and
2004, AIM Mid Cap Growth Fund, Class A (GDP), the broadest measure of overall telecommunication services were the
shares, returned 1.79% at net asset value. economic activity, expanded at an strongest-performing sectors of the S&P
PERFORMANCE SHOWN AT NAV DOES NOT INCLUDE annualized rate of 4.2% in the fourth 500 Index; information technology, health
FRONT-END SALES CHARGES, WHICH WOULD HAVE quarter of 2003 before tapering off to a care, and consumer staples were the
REDUCED THE PERFORMANCE. For the more modest 3.9% in the third quarter of weakest-performing sectors. Mid-cap stocks
performance of other share classes, please 2004. generally were best-performing equity
see page 3. The fund underperformed the segment, followed by small-cap stocks and
S&P 500 Index, the Russell Midcap Growth Generally positive economic developments large-cap stocks.
Index and the Lipper Mid-Cap Growth Fund prompted the U.S. Federal Reserve (the
Index, which returned 9.41%, 8.77% and Fed) to raise its federal funds target YOUR FUND
6.18%, respectively, over the same period. rate from a decades-low 1.00%, where it
stood at the beginning of the fiscal year, While we remain committed to our strategy
The fund lagged its indexes primarily to 1.75% at the close of the reporting of investing in the stocks of medium-sized
because of the underperformance of period. In its report on the economy companies with the above-average earnings
relatively large holdings in companies released in late October, the Fed said growth potential, we fine-tuned our
with controversial business models such as economic activity continued to expand in strategy in the light of our experiences
UTStarcom and United Online. As of June September and early October. The Fed said over the past year. In an effort to better
30, 2004, UTStarcom and United Online that higher energy costs were constraining control risk, we reduced or eliminated our
comprised almost 6% of the portfolio. Fund consumer and business spending; but that positions in the stocks of companies with
performance was adversely affected when capital spending and hiring were rising more controversial business models. We
these two stocks declined sharply as the modestly. maintained some relatively large stock
reporting period progressed. The positions in the portfolio, but believe
portfolio's overweight position in Geopolitical uncertainty and terrorism they represented fundamentally sound
information technology relative to the concerns, as well as soaring oil prices, companies with excellent business models
Lipper Mid-Cap Growth Fund Index also had a detrimental effect on economic and solid long-term growth records. We may
detracted from the fund's performance growth and consumer sentiment. In not shy away from controversial stocks,
relative to its peers. mid-October, Fed Chairman Alan Greenspan but we intend to keep the position sizes
said that "so far this year, the rise in in check.
MARKET CONDITIONS the value of imported oil--essentially a
tax on U.S. residents--has amounted to Sectors that contributed most to fund
The U.S. economy generally showed signs of about 3/4 [of 1] percent of GDP." performance were energy, health care and
strength during the fiscal year ended industrials. Rising oil prices had a
Bloomberg reported that 80% of the positive impact on energy stocks. Demand
companies in the S&P 500 Index that had for medical products and services tends to
remain constant regardless of economic
conditions.
</Table>
<Table>
====================================================================================================================================
PORTFOLIO COMPOSITION TOP 10 EQUITY HOLDINGS* TOP 10 INDUSTRIES*
By sector
[PIE CHART] 1. Anthem, Inc. 1.4% 1. Communication Equipment 4.9%
Information Technology 25.5% 2. Agilent Technologies, Inc. 1.2 2. Health Care Equipment 4.8
Consumer Discretionary 20.7% 3. Community Health Systems Inc. 1.2 3. Diversified Commercial Services 4.4
Health Care 19.7% 4. Univision Communications-Class A 1.2 4. Pharmaceuticals 4.1
Industrials 12.9% 5. Legg Mason, Inc. 1.2 5. Biotechnology 3.9
Financials 9.9% 6. Fiserv, Inc. 1.2 6. Specialty Stores 3.6
Energy 4.8% 7. Cognizant Technology 7. Data Processing
Solutions Corp.-Class A 1.1 & Outsourced Services 3.5
Telecommunications Services 3.4%
8. Sirva Inc. 1.1 8. Asset Management &
Money Market Funds Plus Other Custody Banks 3.5
Assets Less Liabilities 1.9% 9. Amdocs Ltd. (United Kingdom) 1.1
9. Wireless Telecommunications
Consumer Staples 0.6% 10. Marvel Technology Services 3.4
Group Ltd. (Bermuda) 1.1
Materials 0.6% 10. Systems Software 3.1
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>
Consequently, health care stocks have expansion of its product line. Ultra THE VIEWS AND OPINIONS EXPRESSED IN
historically tended to be more stable in Petroleum is involved in the acquisition, MANAGEMENT'S DISCUSSION OF FUND
price. Industrial and service companies exploration and operation of oil and gas PERFORMANCE ARE THOSE OF A I M ADVISORS,
also tend to perform well in the beginning properties. The company benefited INC. THESE VIEWS AND OPINIONS ARE SUBJECT
of an economic recovery, such as we increased production, rising oil prices TO CHANGE AT ANY TIME BASED ON FACTORS
experienced this past year. and a reserve base that was larger and SUCH AS MARKET AND ECONOMIC CONDITIONS.
more productive than previous estimates THESE VIEWS AND OPINIONS MAY NOT BE RELIED
Over the reporting period, we increased indicated. UPON AS INVESTMENT ADVICE OR
the fund's weighting in industrials, a RECOMMENDATIONS, OR AS AN OFFER FOR A
broad sector that encompasses a relatively The most significant detractors from PARTICULAR SECURITY. THE INFORMATION IS
wide range of industries. We particularly performance were UTStarcom and United NOT A COMPLETE ANALYSIS OF EVERY ASPECT OF
liked employment-related companies, which Online. Prior to 2004, both companies had ANY MARKET, COUNTRY, INDUSTRY, SECURITY OR
should benefit from an improving job experienced consistent revenue and THE FUND. STATEMENTS OF FACT ARE FROM
market. earnings growth, and the stocks had SOURCES CONSIDERED RELIABLE, BUT A I M
performed well for the fund. UTStarcom was ADVISORS, INC. MAKES NO REPRESENTATION OR
Information technology, the fund's adversely affected by a decline WARRANTY AS TO THEIR COMPLETENESS OR
largest sector weighting, was also the in equipment orders and increased pricing ACCURACY. ALTHOUGH HISTORICAL PERFORMANCE
most significant detractor from competition in the handset market. United IS NO GUARANTEE OF FUTURE RESULTS, THESE
performance. While information technology Online's stock declined on concerns that INSIGHTS MAY HELP YOU UNDERSTAND OUR
was one of the best-performing sectors in declining subscription rates, combined INVESTMENT MANAGEMENT PHILOSOPHY.
the S&P 500 Index in 2003, it struggled in with increases in new subscriber
2004. As the annualized rate of economic acquisition costs, might undermine the See important fund and index
growth was sluggish over the fund's fiscal company's profitability. We sold our disclosures inside front cover.
year, the information technology sector holdings in United Online and reduced our
confronted the prospect of slowing capital position in UTStarcom. KARL F. FARMER
spending, and many stocks in that sector Prior to joining AIM in
declined. In response, we sold positions IN CLOSING [FARMER July of 1998, Mr. Farmer,
in any companies we considered marginal PHOTO] Chartered Financial
and focused on the companies in which we Throughout the reporting period, we Analyst, spent six years
had the most confidence. We continued to remained committed to our mid-cap growth as a pension actuary,
monitor this sector closely. investment directive as defined in the focusing on retirement plans and other
fund's prospectus. We constantly reviewed benefit programs. He earned a B.S. in
Stocks that contributed to fund each security's fundamentals to ensure a economics from Texas A&M University,
performance included Research In Motion, a continued fit and to limit exposure to graduating magna cum laude. He
mobile communications company, and Ultra high-risk stocks. We believe our enhanced subsequently earned his M.B.A. in finance
Petroleum, an independent oil and gas investment strategy coupled with our from The Wharton School at the University
company. Research In Motion benefited from in-depth bottom-up fundamental stock of Pennsylvania.
increased sales of hand-held communication selection process has the potential to
devices such as its BlackBerry--Registered provide shareholders with consistent JAY K. RUSHIN
Trademark-- wireless platform, further risk-adjusted return over a long-term Mr. Rushin, Chartered
penetration of wireless carriers and an investment horizon. [RUSHIN Financial Analyst, began
PHOTO] his investment career in
=========================================== ========================================== 1994 when he joined AIM
as a portfolio
FUND VS. INDEXES TOTAL NET ASSETS $195 MILLION administrator. In 1996, he left AIM to
work as an associate equity analyst. He
TOTAL RETURNS, 10/31/03-10/31/04, TOTAL NUMBER OF HOLDINGS* 128 returned to AIM as an equity analyst on
EXCLUDING APPLICABLE SALES CHARGES. IF AIM's small-cap funds in 1998 and was
SALES CHARGES WERE INCLUDED, RETURNS ========================================== promoted to senior analyst in 2000. He
WOULD BE LOWER. assumed his current duties as portfolio
manager in 2001. A native of Gaithersburg,
Class A Shares 1.79% MD, Mr. Rushin holds a B.A. in English
from Florida State University.
Class B Shares 1.04
Assisted by Mid-Cap Growth Team and GARP
Class C Shares 1.04 Team
Class R Shares 1.57 [RIGHT ARROW GRAPHIC]
S&P 400 Index 11.04 FOR A PRESENTATION OF YOUR FUND'S
LONG-TERM PERFORMANCE RECORD, PLEASE
S&P 500 Index (Broad-based Index) 9.41 TURN TO PAGE 5.
Russell Midcap Growth Index
(Style-specific Index) 8.77
Lipper Mid-Cap Growth Fund Index
(Peer-group Index) 6.18
Source: Lipper, Inc.
==========================================
</Table>
3
INFORMATION ABOUT YOUR FUND'S EXPENSES
CALCULATING YOUR ONGOING FUND EXPENSES
<Table>
EXAMPLE to estimate the expenses that you paid To do so, compare this 5% hypothetical
over the period. Simply divide your example with the 5% hypothetical examples
As a shareholder of the fund, you incur account value by $1,000 (for example, an that appear in the shareholder reports of
two types of costs: (1) transaction costs, $8,600 account value divided by $1,000 = the other funds.
which may include sales charges (loads) on 8.6), then multiply the result by the
purchase payments; contingent deferred number in the table under the heading Please note that the expenses shown in
sales charges on redemptions; and entitled "Actual Expenses Paid During the table are meant to highlight your
redemption fees, if any; and (2) ongoing Period" to estimate the expenses you paid ongoing costs only and do not reflect any
costs, including management fees; on your account during this period. transactional costs, such as sales charges
distribution and/or service fees (12b-1); (loads) on purchase payments, contingent
and other fund expenses. This example is HYPOTHETICAL EXAMPLE FOR deferred sales charges on redemptions, and
intended to help you understand your COMPARISON PURPOSES redemption fees, if any. Therefore, the
ongoing costs (in dollars) of investing in hypothetical information is useful in
the fund and to compare these costs with The table below also provides information comparing ongoing costs only, and will not
ongoing costs of investing in other mutual about hypothetical account values and help you determine the relative total
funds. The example is based on an hypothetical expenses based on the fund's costs of owning different funds. In
investment of $1,000 invested at the actual expense ratio and an assumed rate addition, if these transactional costs
beginning of the period and held for the of return of 5% per year before expenses, were included, your costs would have been
entire period, May 1, 2004-October 31, which is not the fund's actual return. The higher.
2004. hypothetical account values and expenses
may not be used to estimate the actual
ACTUAL EXPENSES ending account balance or expenses you
paid for the period. You may use this
The table below provides information about information to compare the ongoing costs
actual account values and actual expenses. of investing in the fund and other funds.
You may use the information in this table,
together with the amount you invested,
</Table>
<Table>
<Caption>
===================================================================================================================================
ACTUAL HYPOTHETICAL
(5% ANNUAL RETURN BEFORE EXPENSES)
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES ENDING ACCOUNT EXPENSES
VALUE VALUE PAID DURING VALUE PAID DURING
(05/01/04) (10/31/04)(1) PERIOD(2) (10/31/04) PERIOD(2)
Class A $1,000.00 $984.80 $ 8.93 $1,016.14 $ 9.07
Class B 1,000.00 982.10 12.16 1,012.87 12.35
Class C 1,000.00 982.10 12.16 1,012.87 12.35
Class R 1,000.00 983.70 9.67 1,015.38 9.83
(1) The actual ending account value is based on the actual total return of the fund for the period May 1, 2004, to October 31,
2004, after actual expenses and will differ from the hypothetical ending account value which is based on the fund's expense ratio
and a hypothetical annual return of 5% before expenses. The actual cumulative return at net asset value for the period May 1, 2004,
to October 31, 2004, was -1.52%, -1.79%, -1.79% and -1.63% for Class A, B, C and R shares, respectively.
(2) Expenses are equal to the fund's annualized expense ratio (1.79%, 2.44%, 2.44% and 1.94% for Class A, B, C and R shares,
respectively) multiplied by the average account value over the period, multiplied by 184/366 (to reflect the one-half year period).
===================================================================================================================================
[ARROW
BUTTON For More Information Visit
IMAGE] AIMinvestments.com
</Table>
4
LONG-TERM PERFORMANCE
YOUR FUND'S LONG-TERM PERFORMANCE
<Table>
===================================================================================================================================
Past performance cannot guarantee comparable RESULTS OF A $10,000 INVESTMENT
future results. 11/1/99-10/31/04 (Index results from 10/31/99)
Your fund's total return includes [MOUNTAIN CHART]
reinvested distributions, fund expenses
and management fees. Index results include AIM MID LIPPER
reinvested dividends. Performance of an AIM MID CAP AIM MID CAP CAP GROWTH MID-CAP RUSSELL
index of funds reflects fund expenses and GROWTH FUND GROWTH FUND FUND GROWTH MIDCAP
management fees; performance of a market CLASS A CLASS B CLASS C FUND GROWTH S&P 500 S&P 400
index does not. Performance shown in the DATE SHARES SHARES SHARES INDEX INDEX INDEX INDEX
CHART does not reflect deduction of taxes
a shareholder would pay on fund 11/1/1999 $ 9450 $10000 $10000 $10000 $10000 $10000 $10000
distributions or sale of fund shares. 11/99 10660 11270 11270 11254 11036 10203 10525
Performance of the indexes does not 12/99 12984 13700 13700 13602 12946 10803 11150
reflect the effects of taxes. 1/00 12805 13509 13509 13368 12944 10261 10836
2/00 15895 16760 16760 16719 15665 10067 11595
Since the last reporting period, the fund 3/00 16623 17519 17519 15542 15681 11051 12565
has elected to use the S&P 500 Index as 4/00 14515 15289 15299 13492 14159 10718 12126
its broadbased market index since the S&P 5/00 13382 14079 14089 12279 13127 10499 11975
500 Index is such a widely recognized 6/00 14724 15479 15490 14187 14520 10757 12151
gauge of the stock market. The fund will 7/00 14176 14898 14899 13598 13600 10589 12343
no longer measure its performance against 8/00 15821 16609 16619 15377 15651 11247 13721
the S&P 400 Index, the index published in 9/00 14922 15669 15668 14638 14886 10653 13627
previous reports to shareholders. Because 10/00 13589 14249 14258 13454 13867 10608 13165
this is the first reporting period since 11/00 10953 11479 11488 10641 10854 9772 12171
we have adopted the new index, SEC 12/00 11672 12239 12238 11408 11425 9820 13102
guidelines require that we compare the 1/01 12116 12689 12688 11563 12078 10168 13394
fund's performance to both the old and the 2/01 10141 10620 10619 9828 9989 9242 12630
new index. The fund has also included a 3/01 9225 9650 9649 8785 8559 8657 11691
style-specific index, the Russell Midcap 4/01 10500 10980 10990 9944 9986 9329 12980
Growth Index. The fund believes this index 5/01 10236 10700 10699 10026 9939 9391 13283
more closely reflects the performance of 6/01 10604 11080 11079 9987 9944 9163 13229
the securities in which the fund invests. 7/01 10094 10540 10540 9461 9274 9073 13032
In addition, the unmanaged Lipper Mid-Cap 8/01 9026 9420 9419 8827 8602 8505 12606
Growth Fund Index, which may or may not 9/01 7325 7640 7639 7554 7180 7818 11038
include AIM Mid Cap Growth Fund, is 10/01 8109 8449 8449 7975 7935 7968 11526
included for comparison to a peer group. 11/01 8903 9269 9268 8630 8789 8579 12384
12/01 9196 9569 9569 9004 9123 8654 13023
In evaluating this chart, please note that 1/02 8865 9219 9218 8660 8827 8528 12956
the chart uses a logarithmic scale along 2/02 8175 8499 8499 8229 8326 8363 12972
the vertical axis (the value scale). This 3/02 8828 9169 9168 8748 8962 8678 13899
means that each scale increment always 4/02 8619 8949 8948 8457 8487 8152 13834
represents the same percent change in 5/02 8478 8798 8798 8175 8234 8092 13600
price; in a linear chart each scale 6/02 7608 7898 7898 7440 7325 7516 12605
increment always represents the same 7/02 6729 6978 6978 6638 6614 6930 11383
absolute change in price. In this example, 8/02 6531 6768 6768 6559 6591 6975 11441
the scale increment between $5,000 and 9/02 5878 6089 6088 6151 6067 6218 10520
$10,000 is the same as that between 10/02 6191 6408 6408 6462 6537 6765 10975
$10,000 and $20,000. In a linear chart, 11/02 6625 6858 6858 6845 7049 7163 11610
the latter scale increment would be twice 12/02 6266 6478 6478 6441 6623 6742 11133
as large. The benefit of using a 1/03 6247 6458 6458 6345 6558 6566 10808
logarithmic scale is that it better 2/03 6124 6318 6318 6247 6501 6467 10551
illustrates performance during the fund's 3/03 6209 6408 6417 6337 6622 6530 10639
early years before reinvested 4/03 6606 6807 6817 6781 7073 7067 11412
distributions and compounding create the 5/03 7126 7347 7357 7342 7753 7439 12358
potential for the original investment to 6/03 7296 7517 7527 7457 7864 7534 12515
grow to very large numbers. Had the chart 7/03 7693 7917 7927 7751 8145 7667 12959
used a linear scale along its vertical 8/03 8109 8347 8347 8132 8593 7816 13547
axis, you would not be able to see as 9/03 7826 8057 8057 7859 8427 7734 13340
clearly the movements in the value of the 10/03 8431 8677 8677 8476 9106 8171 14348
fund and the indexes during the fund's 11/03 8677 8907 8916 8677 9350 8243 14848
early years. We used a logarithmic scale 12/03 8903 9146 9146 8722 9452 8675 15099
because the fund is almost five years old. 1/04 9196 9436 9436 8942 9764 8834 15426
2/04 9309 9556 9556 9065 9927 8957 15796
AVERAGE ANNUAL TOTAL RETURNS 3/04 9243 9476 9476 9063 9908 8822 15863
As of 10/31/04, including applicable sales 4/04 8713 8926 8926 8776 9629 8683 15343
charges 5/04 9006 9226 9226 8967 9856 8802 15661
6/04 9016 9226 9226 9182 10013 8973 16017
CLASS A SHARES 7/04 8166 8347 8347 8530 9350 8676 15270
Inception (11/1/99) -3.01% 8/04 7930 8107 8107 8382 9234 8711 15230
1 Year -3.81 9/04 8308 8497 8497 8741 9579 8805 15681
10/04 $ 8582 $ 8595 $ 8770 $ 8999 $ 9904 $ 8940 $15932
CLASS B SHARES Source: Lipper, Inc.
Inception (11/1/99) -2.98% In addition to returns as of the close of
1 Year -3.96 the fiscal year, industry regulations Class R shares' inception date is
require us to provide average annual total 6/3/02. Returns since that date are
CLASS C SHARES returns as of 9/30/04, the most recent historical returns. All other returns are
Inception (11/1/99) -2.59% calendar quarter-end. blended returns of historical Class R
1 Year 0.04 share performance and restated Class A
AVERAGE ANNUAL TOTAL RETURNS share performance (for periods prior to
CLASS R SHARES As of 9/30/04, most recent calendar the inception date of Class R shares) at
Inception -2.10% quarter-end, including applicable sales net asset value, adjusted to reflect the
1 Year 1.57 charges higher Rule 12b-1 fees applicable to
Class R shares.
CLASS A SHARES
Inception (11/1/99) -3.70% The performance data quoted represent
1 Year 0.34 past performance and cannot guarantee
comparable future results; current
CLASS B SHARES performance may be lower or higher.
Inception (11/1/99) -3.65% Please visit AIMinvestments.com for the
1 Year 0.46 most recent month-end performance.
Performance figures reflect reinvested
CLASS C SHARES distributions, changes in net asset value
Inception (11/1/99) -3.25% and the effect of the maximum sales
1 Year 4.46 charge unless otherwise stated.
Investment return and principal value
CLASS R SHARES will fluctuate so that you may have a
Inception -2.76% gain or loss when you sell shares.
1 Year 5.93
Class A share performance reflects the
maximum 5.50% sales charge, and Class B
and Class C share performance reflects
the applicable contingent deferred sales
charge (CDSC) for the period involved.
The CDSC on Class B shares declines from
5% beginning at the time of purchase to
0% at the beginning of the seventh year.
The CDSC on Class C shares is 1% for the
first year after purchase. 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
SUPPLEMENT TO ANNUAL REPORT DATED 10/31/04
AIM MID CAP GROWTH FUND
<Table>
INSTITUTIONAL CLASS SHARES ========================================= Institutional Class shares have no sales
AVERAGE ANNUAL TOTAL RETURNS charge; therefore, performance is at net
The following information has been For periods ended 10/31/04 asset value. Performance of Institutional
prepared to provide Institutional Class Inception -1.85% Class shares will differ from performance
shareholders with a performance overview 1 Year 2.13 of other share classes due to differing
specific to their holdings. Institutional sales charges and class expenses.
Class shares are offered exclusively to =========================================
institutional investors, including AVERAGE ANNUAL TOTAL RETURNS Please note that past performance is
defined contribution plans that meet For periods ended 9/30/04 not indicative of future results. More
certain criteria. Inception -2.52% recent returns may be more or less than
1 Year 6.52 those shown. All returns assume
reinvestment of distributions at net
========================================= asset value. Investment return and
principal value will fluctuate so your
Institutional Class shares' inception shares, when redeemed, may be worth more
date is 4/30/04. Returns since that date or less than their original cost. See
are historical returns. All other returns full report for information on
are blended returns of historical comparative benchmarks. Please consult
Institutional Class share performance and your fund prospectus for more
restated Class A share performance (for information. For the most current
periods prior to the inception date of month-end performance, please call
Institutional Class shares) at net asset 800-451-4246 or visit AIMinvestments.com.
value and reflect the higher Rule 12b-1
fees applicable to Class A shares. Class
A shares' inception date is 11/1/99.
Institutional Class shares would have had
different returns due to differences in
the expense structure of the
Institutional Class.
</Table>
Over for information on your fund's expenses.
FOR INSTITUTIONAL INVESTOR USE ONLY
This material is for institutional investor use only and may not be quoted,
reproduced or shown to the public, nor used in written form as sales literature
for public use.
[YOUR GOALS. OUR SOLUTIONS.] [AIM INVESTMENTS LOGO APPEARS HERE]
--Registered Trademark-- --Registered Trademark--
AIMinvestments.com MCG-INS-1 10/04
INFORMATION ABOUT YOUR FUND'S EXPENSES
CALCULATING YOUR ONGOING FUND EXPENSES
<Table>
EXAMPLE $1,000 (for example, an $8,600 account other funds. To do so, compare this 5%
value divided by $1,000 = 8.6), then hypothetical example with the 5%
As a shareholder of the fund, you incur multiply the result by the number in the hypothetical examples that appear in the
ongoing costs, including management fees; table under the heading entitled "Actual shareholder reports of the other funds.
and other fund expenses. This example is Expenses Paid During Period" to estimate
intended to help you understand your the expenses you paid on your account Please note that the expenses shown in
ongoing costs (in dollars) of investing during this period. the table are meant to highlight your
in the fund and to compare these costs ongoing costs only. Therefore, the
with ongoing costs of investing in other HYPOTHETICAL EXAMPLE FOR hypothetical information is useful in
mutual funds. The example is based on an COMPARISON PURPOSES comparing ongoing costs only, and will
investment of $1,000 invested at the not help you determine the relative total
beginning of the period and held for the The table below also provides information costs of owning different funds.
entire period, May 1, 2004, to October about hypothetical account values and
31, 2004. hypothetical expenses based on the fund's
actual expense ratio and an assumed rate
ACTUAL EXPENSES of return of 5% per year before expenses,
which is not the fund's actual return.
The table below provides information The hypothetical account values and
about actual account values and actual expenses may not be used to estimate the
expenses. You may use the information in actual ending account balance or expenses
this table, together with the amount you you paid for the period. You may use this
invested, to estimate the expenses that information to compare the ongoing costs
you paid over the period. Simply divide of investing in the fund and
your account value by
</Table>
<Table>
<Caption>
====================================================================================================================================
ACTUAL HYPOTHETICAL
(5% ANNUAL RETURN BEFORE EXPENSES)
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES ENDING ACCOUNT EXPENSES
VALUE VALUE PAID DURING VALUE PAID DURING
(05/01/04) (10/31/04)(1) PERIOD(2) (10/31/04) PERIOD(2)
Institutional Class $1,000.00 $988.10 $5.55 $1,019.56 $5.63
(1) The actual ending account value is based on the actual total return of the fund for the period May 1, 2004, to October 31, 2004,
after actual expenses and will differ from the hypothetical ending account value which is based on the fund's expense ratio and
a hypothetical annual return of 5% before expenses. The actual cumulative return at net asset value for the period May 1, 2004,
to October 31, 2004, was -1.19% for Institutional Class shares.
(2) Expenses are equal to the fund's annualized expense ratio of 1.11% for the Institutional Class shares, multiplied by the average
account value over the period, multiplied by 184/366 (to reflect the one-half year period).
====================================================================================================================================
</Table>
AIMinvestments.com MCG-INS-1 10/04
FINANCIALS
SCHEDULE OF INVESTMENTS
October 31, 2004
<Table>
<Caption>
MARKET
SHARES VALUE
- ---------------------------------------------------------------------
COMMON STOCKS & OTHER EQUITY INTERESTS-98.10%
ADVERTISING-0.73%
Omnicom Group Inc. 18,000 $ 1,420,200
=====================================================================
AEROSPACE & DEFENSE-0.68%
L-3 Communications Holdings, Inc. 20,000 1,318,600
=====================================================================
AIR FREIGHT & LOGISTICS-0.64%
Robinson (C.H.) Worldwide, Inc. 23,000 1,240,620
=====================================================================
APPAREL RETAIL-2.24%
Chico's FAS, Inc.(a) 44,000 1,761,320
- ---------------------------------------------------------------------
Pacific Sunwear of California, Inc.(a) 55,000 1,289,200
- ---------------------------------------------------------------------
Urban Outfitters, Inc.(a) 32,000 1,312,000
=====================================================================
4,362,520
=====================================================================
APPAREL, ACCESSORIES & LUXURY GOODS-0.96%
Coach, Inc.(a) 40,000 1,865,200
=====================================================================
APPLICATION SOFTWARE-2.70%
Amdocs Ltd. (United Kingdom)(a) 85,200 2,142,780
- ---------------------------------------------------------------------
Intuit Inc.(a) 40,000 1,814,400
- ---------------------------------------------------------------------
Mercury Interactive Corp.(a) 30,000 1,302,900
=====================================================================
5,260,080
=====================================================================
ASSET MANAGEMENT & CUSTODY BANKS-3.46%
Calamos Asset Management, Inc.-Class A(a) 60,700 1,183,650
- ---------------------------------------------------------------------
Franklin Resources, Inc. 18,000 1,091,160
- ---------------------------------------------------------------------
Investors Financial Services Corp.(b) 55,000 2,116,950
- ---------------------------------------------------------------------
Legg Mason, Inc. 37,000 2,357,270
=====================================================================
6,749,030
=====================================================================
AUTO PARTS & EQUIPMENT-0.55%
Autoliv, Inc. 25,000 1,068,750
=====================================================================
BIOTECHNOLOGY-3.87%
Cephalon, Inc.(a) 21,000 1,001,070
- ---------------------------------------------------------------------
Charles River Laboratories International,
Inc.(a) 22,000 1,029,380
- ---------------------------------------------------------------------
Gen-Probe Inc.(a) 32,000 1,121,280
- ---------------------------------------------------------------------
Gilead Sciences, Inc.(a) 35,000 1,212,050
- ---------------------------------------------------------------------
Invitrogen Corp.(a) 17,200 995,880
- ---------------------------------------------------------------------
Martek Biosciences Corp.(a) 26,000 1,223,456
- ---------------------------------------------------------------------
OSI Pharmaceuticals, Inc.(a) 15,000 974,700
=====================================================================
7,557,816
=====================================================================
BROADCASTING & CABLE TV-1.22%
Univision Communications Inc.-Class A(a) 77,000 2,383,920
=====================================================================
</Table>
<Table>
MARKET
SHARES VALUE
- ---------------------------------------------------------------------
<Caption>
BUILDING PRODUCTS-1.02%
Masco Corp. 58,000 $ 1,987,080
=====================================================================
CASINOS & GAMING-0.52%
Station Casinos, Inc. 20,000 1,019,000
=====================================================================
COMMUNICATIONS EQUIPMENT-4.94%
Avaya Inc.(a) 140,000 2,016,000
- ---------------------------------------------------------------------
Comverse Technology, Inc.(a) 100,000 2,064,000
- ---------------------------------------------------------------------
Juniper Networks, Inc.(a) 40,300 1,072,383
- ---------------------------------------------------------------------
Research In Motion Ltd. (Canada)(a) 21,000 1,852,200
- ---------------------------------------------------------------------
Scientific-Atlanta, Inc. 52,400 1,435,236
- ---------------------------------------------------------------------
UTStarcom, Inc.(a)(b) 70,000 1,198,400
=====================================================================
9,638,219
=====================================================================
COMPUTER & ELECTRONICS RETAIL-0.76%
Best Buy Co., Inc. 25,000 1,480,500
=====================================================================
COMPUTER HARDWARE-0.82%
PalmOne, Inc.(a)(b) 55,000 1,593,350
=====================================================================
COMPUTER STORAGE & PERIPHERALS-1.16%
Emulex Corp.(a) 92,000 966,920
- ---------------------------------------------------------------------
QLogic Corp.(a) 40,000 1,300,000
=====================================================================
2,266,920
=====================================================================
CONSTRUCTION & FARM MACHINERY & HEAVY
TRUCKS-0.65%
Cummins Inc.(b) 18,000 1,261,440
=====================================================================
CONSUMER FINANCE-0.82%
First Marblehead Corp. (The)(a) 30,000 1,608,000
=====================================================================
DATA PROCESSING & OUTSOURCED SERVICES-3.52%
Affiliated Computer Services, Inc.-Class A(a) 20,000 1,091,000
- ---------------------------------------------------------------------
Alliance Data Systems Corp.(a) 50,000 2,114,000
- ---------------------------------------------------------------------
DST Systems, Inc.(a) 30,000 1,345,500
- ---------------------------------------------------------------------
Fiserv, Inc.(a) 65,000 2,310,100
=====================================================================
6,860,600
=====================================================================
DEPARTMENT STORES-1.70%
Kohl's Corp.(a) 39,900 2,025,324
- ---------------------------------------------------------------------
Nordstrom, Inc. 30,000 1,295,400
=====================================================================
3,320,724
=====================================================================
DIVERSIFIED COMMERCIAL SERVICES-4.35%
Apollo Group, Inc.-Class A(a) 18,000 1,188,000
- ---------------------------------------------------------------------
Career Education Corp.(a) 35,000 1,097,950
- ---------------------------------------------------------------------
Cintas Corp. 30,000 1,294,200
- ---------------------------------------------------------------------
</Table>
F-1
<Table>
<Caption>
MARKET
SHARES VALUE
- ---------------------------------------------------------------------
DIVERSIFIED COMMERCIAL SERVICES-(CONTINUED)
Corporate Executive Board Co. (The) 32,000 $ 2,036,800
- ---------------------------------------------------------------------
Corrections Corp. of America(a) 48,800 1,695,800
- ---------------------------------------------------------------------
ITT Educational Services, Inc.(a) 31,000 1,178,310
=====================================================================
8,491,060
=====================================================================
DRUG RETAIL-0.60%
Shoppers Drug Mart Corp. (Canada)(a) 38,300 1,165,133
=====================================================================
ELECTRONIC EQUIPMENT MANUFACTURERS-1.25%
Agilent Technologies, Inc.(a) 97,000 2,430,820
=====================================================================
ELECTRONIC MANUFACTURING SERVICES-0.54%
Benchmark Electronics, Inc.(a) 31,000 1,053,070
=====================================================================
EMPLOYMENT SERVICES-1.69%
Manpower Inc. 42,000 1,900,500
- ---------------------------------------------------------------------
Monster Worldwide Inc.(a) 50,000 1,402,500
=====================================================================
3,303,000
=====================================================================
ENVIRONMENTAL SERVICES-0.65%
Stericycle, Inc.(a) 28,000 1,269,240
=====================================================================
GENERAL MERCHANDISE STORES-1.79%
Dollar Tree Stores, Inc.(a) 70,000 2,023,000
- ---------------------------------------------------------------------
Family Dollar Stores, Inc. 50,000 1,477,500
=====================================================================
3,500,500
=====================================================================
HEALTH CARE DISTRIBUTORS-0.80%
Schein (Henry), Inc.(a) 24,800 1,568,104
=====================================================================
HEALTH CARE EQUIPMENT-4.81%
Biomet, Inc. 22,000 1,026,960
- ---------------------------------------------------------------------
Fisher Scientific International Inc.(a) 25,000 1,434,000
- ---------------------------------------------------------------------
INAMED Corp.(a) 26,000 1,381,900
- ---------------------------------------------------------------------
Kinetic Concepts, Inc.(a) 27,000 1,345,410
- ---------------------------------------------------------------------
PerkinElmer, Inc. 80,000 1,643,200
- ---------------------------------------------------------------------
Waters Corp.(a) 24,000 990,960
- ---------------------------------------------------------------------
Zimmer Holdings, Inc.(a) 20,000 1,551,800
=====================================================================
9,374,230
=====================================================================
HEALTH CARE FACILITIES-1.24%
Community Health Systems Inc.(a) 90,000 2,413,800
=====================================================================
HEALTH CARE SERVICES-2.08%
Caremark Rx, Inc.(a) 65,000 1,948,050
- ---------------------------------------------------------------------
Express Scripts, Inc.(a) 33,000 2,112,000
=====================================================================
4,060,050
=====================================================================
HEALTH CARE SUPPLIES-0.50%
Cooper Cos., Inc. (The) 14,000 984,900
=====================================================================
</Table>
<Table>
MARKET
SHARES VALUE
- ---------------------------------------------------------------------
<Caption>
HOME FURNISHINGS-0.52%
Mohawk Industries, Inc.(a) 12,000 $ 1,020,960
=====================================================================
HOMEBUILDING-0.93%
Pulte Homes, Inc. 33,000 1,811,040
=====================================================================
HOTELS, RESORTS & CRUISE LINES-1.33%
Kerzner International Ltd. (Bahamas)(a) 19,000 963,680
- ---------------------------------------------------------------------
Marriott International, Inc.-Class A 30,000 1,634,700
=====================================================================
2,598,380
=====================================================================
HOUSEWARES & SPECIALTIES-0.96%
Jarden Corp.(a) 53,500 1,878,920
=====================================================================
INDUSTRIAL MACHINERY-0.75%
Eaton Corp. 23,000 1,470,850
=====================================================================
INSURANCE BROKERS-1.08%
Willis Group Holdings Ltd. (Bermuda) 58,700 2,110,265
=====================================================================
INTEGRATED OIL & GAS-0.86%
Murphy Oil Corp. 21,000 1,680,420
=====================================================================
INTERNET SOFTWARE & SERVICES-1.28%
Ask Jeeves, Inc.(a) 45,000 1,160,100
- ---------------------------------------------------------------------
SINA Corp. (Cayman Islands)(a) 40,000 1,340,000
=====================================================================
2,500,100
=====================================================================
IT CONSULTING & OTHER SERVICES-1.13%
Cognizant Technology Solutions Corp.-Class
A(a) 65,000 2,210,000
=====================================================================
LEISURE PRODUCTS-1.51%
Brunswick Corp. 35,000 1,642,200
- ---------------------------------------------------------------------
Marvel Enterprises, Inc.(a) 85,000 1,309,000
=====================================================================
2,951,200
=====================================================================
MANAGED HEALTH CARE-2.29%
Aetna Inc. 19,000 1,805,000
- ---------------------------------------------------------------------
Anthem, Inc.(a) 33,000 2,653,200
=====================================================================
4,458,200
=====================================================================
MULTI-LINE INSURANCE-0.66%
Quanta Capital Holdings Ltd. (Bermuda)(a) 144,200 1,297,800
=====================================================================
OIL & GAS DRILLING-1.73%
Noble Corp. (Cayman Islands)(a) 25,000 1,142,000
- ---------------------------------------------------------------------
Patterson-UTI Energy, Inc. 63,000 1,211,490
- ---------------------------------------------------------------------
Pride International, Inc.(a) 55,000 1,016,400
=====================================================================
3,369,890
=====================================================================
OIL & GAS EQUIPMENT & SERVICES-0.50%
Varco International, Inc.(a) 35,000 968,800
=====================================================================
</Table>
F-2
<Table>
<Caption>
MARKET
SHARES VALUE
- ---------------------------------------------------------------------
OIL & GAS EXPLORATION & PRODUCTION-1.73%
Ultra Petroleum Corp. (Canada)(a) 35,000 $ 1,701,000
- ---------------------------------------------------------------------
XTO Energy Inc. 50,000 1,669,000
=====================================================================
3,370,000
=====================================================================
PHARMACEUTICALS-4.14%
Barr Pharmaceuticals Inc.(a) 35,000 1,317,750
- ---------------------------------------------------------------------
Kos Pharmaceuticals, Inc.(a) 36,000 1,285,200
- ---------------------------------------------------------------------
Medicis Pharmaceutical Corp.-Class A(b) 40,000 1,626,800
- ---------------------------------------------------------------------
MGI Pharma, Inc.(a) 50,000 1,333,500
- ---------------------------------------------------------------------
Sepracor Inc.(a) 24,000 1,102,320
- ---------------------------------------------------------------------
Shire Pharmaceuticals Group PLC-ADR (United
Kingdom) 50,000 1,420,000
=====================================================================
8,085,570
=====================================================================
PUBLISHING-0.70%
Getty Images, Inc.(a)(b) 23,000 1,359,990
=====================================================================
REAL ESTATE-0.92%
New Century Financial Corp. 32,500 1,792,375
=====================================================================
REGIONAL BANKS-0.61%
Commerce Bancorp, Inc. 20,000 1,184,800
=====================================================================
REINSURANCE-0.77%
Everest Re Group, Ltd. (Bermuda) 19,000 1,508,030
=====================================================================
RESTAURANTS-0.65%
Brinker International, Inc.(a) 39,000 1,259,700
=====================================================================
SEMICONDUCTOR EQUIPMENT-0.99%
Novellus Systems, Inc.(a) 74,800 1,938,068
=====================================================================
SEMICONDUCTORS-3.07%
ATI Technologies Inc. (Canada)(a) 70,000 1,263,500
- ---------------------------------------------------------------------
Broadcom Corp.-Class A(a) 45,000 1,217,250
- ---------------------------------------------------------------------
Marvell Technology Group Ltd. (Bermuda)(a) 75,000 2,142,750
- ---------------------------------------------------------------------
Microchip Technology Inc. 45,000 1,361,250
=====================================================================
5,984,750
=====================================================================
SPECIALTY CHEMICALS-0.57%
Ecolab Inc. 33,000 1,117,050
=====================================================================
SPECIALTY STORES-3.64%
Advance Auto Parts, Inc.(a) 45,000 1,760,400
- ---------------------------------------------------------------------
Bed Bath & Beyond Inc.(a) 50,000 2,039,500
- ---------------------------------------------------------------------
Staples, Inc. 60,000 1,784,400
- ---------------------------------------------------------------------
Williams-Sonoma, Inc.(a) 40,000 1,526,800
=====================================================================
7,111,100
=====================================================================
SYSTEMS SOFTWARE-3.10%
Computer Associates International, Inc. 50,000 1,385,500
- ---------------------------------------------------------------------
</Table>
<Table>
MARKET
SHARES VALUE
- ---------------------------------------------------------------------
<Caption>
SYSTEMS SOFTWARE-(CONTINUED)
Novell, Inc.(a) 175,000 $ 1,258,250
- ---------------------------------------------------------------------
Red Hat, Inc.(a)(b) 80,000 1,027,200
- ---------------------------------------------------------------------
Symantec Corp.(a) 16,600 945,204
- ---------------------------------------------------------------------
VERITAS Software Corp.(a) 65,000 1,422,200
=====================================================================
6,038,354
=====================================================================
TECHNOLOGY DISTRIBUTORS-1.02%
CDW Corp. 32,000 1,984,960
=====================================================================
THRIFTS & MORTGAGE FINANCE-1.53%
Doral Financial Corp. (Puerto Rico) 40,000 1,679,200
- ---------------------------------------------------------------------
W Holding Co., Inc. (Puerto Rico) 65,000 1,299,350
=====================================================================
2,978,550
=====================================================================
TRADING COMPANIES & DISTRIBUTORS-1.38%
Fastenal Co. 21,000 1,159,830
- ---------------------------------------------------------------------
MSC Industrial Direct Co., Inc.-Class A 45,000 1,536,300
=====================================================================
2,696,130
=====================================================================
TRUCKING-1.11%
Sirva Inc.(a) 90,000 2,160,000
=====================================================================
WIRELESS TELECOMMUNICATION SERVICES-3.38%
AO VimpelCom-ADR (Russia)(a) 11,000 1,254,000
- ---------------------------------------------------------------------
Nextel Partners, Inc.-Class A(a) 100,000 1,684,000
- ---------------------------------------------------------------------
NII Holdings Inc.(a)(b) 38,000 1,682,260
- ---------------------------------------------------------------------
SpectraSite, Inc.(a) 38,500 1,975,050
=====================================================================
6,595,310
=====================================================================
Total Common Stocks & Other Equity
Interests (Cost $164,645,208) 191,368,038
=====================================================================
</Table>
<Table>
<Caption>
NUMBER
OF EXERCISE EXPIRATION
CONTRACTS PRICE DATE
OPTIONS PURCHASED-0.01%
PUTS-0.01%
XTO Energy Inc. (Oil & Gas Exploration &
Production) (Cost $70,660) 500 $30 Nov-04 8,750
===============================================================================================
</Table>
<Table>
<Caption>
SHARES
MONEY MARKET FUNDS-1.86%
Liquid Assets Portfolio-Institutional
Class(c) 1,818,420 1,818,420
- -----------------------------------------------------------------------
STIC Prime Portfolio-Institutional Class(c) 1,818,420 1,818,420
=======================================================================
Total Money Market Funds (Cost
$3,636,840) 3,636,840
=======================================================================
TOTAL INVESTMENTS-99.97% (excluding
investments purchased with cash collateral
from securities loaned) (Cost $168,352,708) 195,013,628
=======================================================================
</Table>
F-3
<Table>
<Caption>
MARKET
SHARES VALUE
- -----------------------------------------------------------------------
INVESTMENTS PURCHASED WITH CASH COLLATERAL
FROM SECURITIES LOANED
MONEY MARKET FUNDS-3.48%
STIC Prime Portfolio-Institutional
Class(c)(d) 6,790,375 $ 6,790,375
=======================================================================
Total Money Market Funds (purchased with
cash collateral from securities loaned)
(Cost $6,790,375) 6,790,375
=======================================================================
TOTAL INVESTMENTS-103.45% (Cost $175,143,083) 201,804,003
=======================================================================
OTHER ASSETS LESS LIABILITIES-(3.45%) (6,732,117)
=======================================================================
NET ASSETS-100.00% $195,071,886
_______________________________________________________________________
=======================================================================
</Table>
Investment Abbreviations
ADR - American Depositary Receipt
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) All or a portion of this security has been pledged as collateral for
security lending transactions at October 31, 2004.
(c) The 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-4
STATEMENT OF ASSETS AND LIABILITIES
October 31, 2004
<Table>
ASSETS:
Investments, at market value (cost
$164,715,868)* $ 191,376,788
- ------------------------------------------------------------
Investments in affiliated money market funds
(cost $10,427,215) 10,427,215
============================================================
Total investments (cost $175,143,083) 201,804,003
============================================================
Receivables for:
Investments sold 5,998,273
- ------------------------------------------------------------
Fund shares sold 140,843
- ------------------------------------------------------------
Dividends 23,987
- ------------------------------------------------------------
Investment for trustee deferred compensation
and retirement plans 27,100
- ------------------------------------------------------------
Other assets 33,155
============================================================
Total assets 208,027,361
____________________________________________________________
============================================================
LIABILITIES:
Payables for:
Investments purchased 5,257,491
- ------------------------------------------------------------
Fund shares reacquired 663,500
- ------------------------------------------------------------
Trustee deferred compensation and
retirement plans 32,411
- ------------------------------------------------------------
Collateral upon return of securities loaned 6,790,375
- ------------------------------------------------------------
Accrued distribution fees 104,705
- ------------------------------------------------------------
Accrued trustees' fees 941
- ------------------------------------------------------------
Accrued transfer agent fees 26,248
- ------------------------------------------------------------
Accrued operating expenses 79,804
============================================================
Total liabilities 12,955,475
============================================================
Net assets applicable to shares outstanding $ 195,071,886
____________________________________________________________
============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $ 307,591,806
- ------------------------------------------------------------
Undistributed net investment income (loss) (29,371)
- ------------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities (139,144,919)
- ------------------------------------------------------------
Unrealized appreciation of investment
securities and foreign currencies 26,654,370
============================================================
$ 195,071,886
____________________________________________________________
============================================================
NET ASSETS:
Class A $ 99,261,624
____________________________________________________________
============================================================
Class B $ 70,420,726
____________________________________________________________
============================================================
Class C $ 24,503,049
____________________________________________________________
============================================================
Class R $ 876,607
____________________________________________________________
============================================================
Institutional Class $ 9,880
____________________________________________________________
============================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER
SHARE, UNLIMITED NUMBER OF SHARES
AUTHORIZED:
Class A 10,934,912
____________________________________________________________
============================================================
Class B 8,033,455
____________________________________________________________
============================================================
Class C 2,794,530
============================================================
Class R 97,064
____________________________________________________________
============================================================
Institutional Class 1,085
____________________________________________________________
============================================================
Class A:
Net asset value per share $ 9.08
- ------------------------------------------------------------
Offering price per share:
(Net asset value of $9.08 divided by
94.50%) $ 9.61
____________________________________________________________
============================================================
Class B:
Net asset value and offering price per
share $ 8.77
____________________________________________________________
============================================================
Class C:
Net asset value and offering price per
share $ 8.77
____________________________________________________________
============================================================
Class R:
Net asset value and offering price per
share $ 9.03
____________________________________________________________
============================================================
Institutional Class:
Net asset value and offering price per
share $ 9.11
____________________________________________________________
============================================================
</Table>
* At October 31, 2004, securities with an aggregate market value of $6,544,219
were on loan to brokers.
See accompanying notes which are an integral part of the financial statements.
F-5
STATEMENT OF OPERATIONS
For the year ended October 31, 2004
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $4,918) $ 683,992
- -------------------------------------------------------------------------
Dividends from affiliated money market funds (including
security lending income of $63,247)* 153,142
=========================================================================
Total investment income 837,134
=========================================================================
EXPENSES:
Advisory fees 1,780,749
- -------------------------------------------------------------------------
Administrative services fees 86,224
- -------------------------------------------------------------------------
Custodian fees 61,905
- -------------------------------------------------------------------------
Distribution fees:
Class A 394,349
- -------------------------------------------------------------------------
Class B 802,204
- -------------------------------------------------------------------------
Class C 291,132
- -------------------------------------------------------------------------
Class R 2,920
- -------------------------------------------------------------------------
Transfer agent fees -- Class A, B, C and R 912,181
- -------------------------------------------------------------------------
Transfer agent fees -- Institutional Class 9
- -------------------------------------------------------------------------
Trustees' fees and retirement benefits 16,001
- -------------------------------------------------------------------------
Other 281,545
=========================================================================
Total expenses 4,629,219
=========================================================================
Less: Fees waived, expenses reimbursed and expense offset
arrangement (42,438)
=========================================================================
Net expenses 4,586,781
=========================================================================
Net investment income (loss) (3,749,647)
=========================================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES AND FOREIGN CURRENCIES:
Net realized gain from investment securities 9,151,671
=========================================================================
Change in net unrealized appreciation (depreciation) of:
Investment securities (2,975,847)
- -------------------------------------------------------------------------
Foreign currencies (6,549)
=========================================================================
(2,982,396)
=========================================================================
Net gain from investment securities 6,169,275
=========================================================================
Net increase in net assets resulting from operations $ 2,419,628
_________________________________________________________________________
=========================================================================
</Table>
* Dividends from affiliated money market funds are net of income rebate paid to
security lending counterparties.
See accompanying notes which are an integral part of the financial statements.
F-6
STATEMENT OF CHANGES IN NET ASSETS
For the years ended October 31, 2004 and 2003
<Table>
<Caption>
2004 2003
- ------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (3,749,647) $ (2,955,493)
- ------------------------------------------------------------------------------------------
Net realized gain from investment securities 9,151,671 14,307,340
- ------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities and foreign currencies (2,982,396) 42,907,455
==========================================================================================
Net increase in net assets resulting from operations 2,419,628 54,259,302
==========================================================================================
Share transactions-net:
Class A (10,422,993) 18,339,848
- ------------------------------------------------------------------------------------------
Class B (11,811,705) 1,788,121
- ------------------------------------------------------------------------------------------
Class C (4,684,464) 5,771,210
- ------------------------------------------------------------------------------------------
Class R 676,095 197,900
- ------------------------------------------------------------------------------------------
Institutional Class 10,000 --
==========================================================================================
Net increase (decrease) in net assets resulting from
share transactions (26,233,067) 26,097,079
==========================================================================================
Net increase (decrease) in net assets (23,813,439) 80,356,381
==========================================================================================
NET ASSETS:
Beginning of year 218,885,325 138,528,944
==========================================================================================
End of year (including undistributed net investment income
(loss) of $(29,371) and $(24,611), respectively) $195,071,886 $218,885,325
__________________________________________________________________________________________
==========================================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
F-7
NOTES TO FINANCIAL STATEMENTS
October 31, 2004
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Mid Cap Growth Fund (the "Fund") is a series portfolio of AIM Equity Funds
(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 fifteen separate portfolios,
each authorized to issue an unlimited number of shares of beneficial interest.
The Fund currently offers multiple classes of shares. Matters affecting each
portfolio or class will be voted on exclusively by the shareholders of such
portfolio or class. The assets, liabilities and operations of each portfolio are
accounted for separately. Information presented in these financial statements
pertains only to the Fund.
The Fund's investment objective is long-term growth of capital. Each company
listed in the Schedule of Investments is organized in the United States of
America unless otherwise noted.
Under the Trust's organizational documents, the Fund's officers, trustees,
employees and agents are indemnified against certain liabilities that may arise
out of performance of their duties to the Fund. Additionally, in the normal
course of business, the Fund enters into contracts that contain a variety of
indemnification clauses. The Fund's maximum exposure under these arrangements is
unknown as this would involve future claims that may be made against the Fund
that have not yet occurred. However, the Fund has not had prior claims or losses
pursuant to these contracts.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates. The following is a summary of the significant
accounting policies followed by the Fund in the preparation of its financial
statements.
A. SECURITY VALUATIONS -- Securities, including restricted securities, are
valued according to the following policy.
A security listed or traded on an exchange (except convertible bonds) is
valued at its last sales price as of the close of the customary trading
session on the exchange where the security is principally traded, or
lacking any sales on a particular day, the security is valued at the
closing bid price on that day. Each security traded in the over-the-counter
market (but not securities reported on the NASDAQ National Market System)
is valued on the basis of prices furnished by independent pricing services
or market makers. Each security reported on the NASDAQ National Market
System is valued at the NASDAQ Official Closing Price ("NOCP") as of the
close of the customary trading session on the valuation date or absent a
NOCP, at the closing bid price.
Futures contracts are valued at the final settlement price set by an
exchange on which they are principally traded. Listed options are valued at
the mean between the last bid and the ask prices from the exchange on which
they are principally traded. Options not listed on an exchange are valued
by an independent source at the mean between the last bid and ask prices.
For purposes of determining net asset value per share, futures and option
contracts generally will be valued 15 minutes after the close of the
customary trading session of the New York Stock Exchange ("NYSE").
Investments in open-end registered investment companies and closed-end
registered investment companies that do not trade on an exchange are valued
at the end of day net asset value per share. Investments in closed-end
registered investment companies that trade on an exchange are valued at the
last sales price as of the close of the customary trading session on the
exchange where the security is principally traded.
Debt obligations (including convertible bonds) are fair valued using an
evaluated quote provided by an independent pricing service. Evaluated
quotes provided by the pricing service may be determined without exclusive
reliance on quoted prices, and may reflect appropriate factors such as
institution-size trading in similar groups of securities, developments
related to specific securities, dividend rate, yield, quality, type of
issue, coupon rate, maturity, individual trading characteristics and other
market data. Short-term obligations having 60 days or less to maturity and
commercial paper are valued at amortized cost which approximates market
value.
Securities for which market prices are not provided by any of the above
methods are valued based upon quotes furnished by independent sources and
are valued at the last bid price in the case of equity securities and in
the case of debt obligations, the mean between the last bid and asked
prices.
Foreign securities (including foreign exchange contracts) are converted
into U.S. dollar amounts using the applicable exchange rates as of the
close of the NYSE. Generally, trading in foreign securities is
substantially completed each day at various times prior to the close of the
NYSE. The values of such securities used in computing the net asset value
of the Fund's shares are determined as of the close of the respective
markets. Events affecting the values of such foreign securities may occur
between the times at which the particular foreign market closes and the
close of the customary trading session of the NYSE which would not
ordinarily be reflected in the computation of the Fund's net asset value.
If the event is likely to have affected the closing price of the security,
the security will be valued at fair value in good faith using procedures
approved by the Board of Trustees. Adjustments to closing prices to reflect
fair value may also be based on a screening process of an independent
pricing service to indicate the degree of certainty, based on historical
data, that the closing price in the principal market where a foreign
security trades is not the current market value as of the close of the
NYSE. Foreign securities meeting the approved degree of certainty that the
price is not reflective of current market value will be priced at the
indication of fair value from the independent pricing service. Multiple
factors may be considered by the independent pricing service in determining
adjustments to reflect fair value and may include information relating to
sector indices, ADRs, domestic and foreign index futures and
exchange-traded funds.
Securities for which market quotations are not readily available or are
unreliable are valued at fair value as determined in good faith by or under
the supervision of the Trust's officers following procedures approved by
the Board of Trustees. Issuer specific events, market trends, bid/ask
quotes of
F-8
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 -- 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. 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-9
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement,
the Fund pays an advisory fee to AIM at the annual rate of 0.80% of the first $1
billion of the Fund's average daily net assets plus 0.75% of the Fund's average
daily net assets in excess of $1 billion. AIM has 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 2.00%, 2.65%, 2.65%,
2.15% and 1.65% of average daily net assets, respectively. In determining the
advisor's obligation to waive advisory fees and/or reimburse expenses, the
following expenses are not taken into account, and could cause the Total Annual
Fund Operating Expenses to exceed the caps stated above: (i) interest; (ii)
taxes; (iii) dividend expense on short sales; (iv) extraordinary items (these
are expenses that are not anticipated to arise from the Fund's day-to-day
operations), or items designated as such by the Fund's Board of Trustees; (v)
expenses related to a merger or reorganization, as approved by the Fund's Board
of Trustees; and (vi) expenses that the Fund has incurred but did not actually
pay because of an expense offset arrangement. Currently, the only expense offset
arrangements from which the Fund benefits are in the form of credits that the
Fund receives from banks where the Fund or its transfer agent has deposit
accounts in which it holds uninvested cash. Those credits are used to pay
certain expenses incurred by the Fund. Further, AIM has voluntarily agreed to
waive advisory fees of the Fund in the amount of 25% of the advisory fee AIM
receives from the affiliated money market funds on investments by the Fund in
such affiliated money market funds (excluding investments made in affiliated
money market funds with cash collateral from securities loaned by the fund).
Voluntary fee waivers or reimbursements may be modified or discontinued at any
time upon consultation with the Board of Trustees without further notice to
investors. For the year ended October 31, 2004, AIM waived fees of $2,147.
For the year ended October 31, 2004, at the request of the Trustees of the
Trust, AMVESCAP PLC ("AMVESCAP") agreed to assume $36,467 of expenses incurred
by the Fund in connection with matters related to recently settled regulatory
actions and investigations concerning market timing activity in the AIM Funds,
including legal, audit, shareholder servicing, communication and trustee
expenses. These expenses along with the related expense reimbursement, are
included in the Statement of Operations.
The Fund, pursuant to a master administrative services agreement with AIM,
has agreed to pay AIM for certain administrative costs incurred in providing
accounting services to the Fund. For the year ended October 31, 2004, AIM was
paid $86,224 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 October 31, 2004,
the Fund paid AISI $912,181 for Class A, Class B, Class C and Class R shares and
$9 for Institutional Class shares and reimbursed fees for the Institutional
Class shares of $4. 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 October 31, 2004, the Class A, Class
B, Class C and Class R shares paid $394,349 $802,204, $291,132 and $2,920,
respectively.
Front-end sales commissions and contingent deferred sales charges ("CDSC")
(collectively the "sales charges") are not recorded as expenses of the Fund.
Front-end sales commissions are deducted from proceeds from the sales of Fund
shares prior to investment in Class A shares of the Fund. CDSC are deducted from
redemption proceeds prior to remittance to the shareholder. During the year
ended October 31, 2004, AIM Distributors advised the Fund that it retained
$77,275 in front-end sales commissions from the sale of Class A shares and $120,
$12,045, $4,411 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 October 31, 2004.
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 10/31/03 AT COST FROM SALES (DEPRECIATION) 10/31/04 INCOME GAIN (LOSS)
- ---------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $ 6,039,656 $ 60,161,675 $(64,382,911) $ -- $1,818,420 $45,344 $ --
- ---------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-
Institutional
Class 6,039,656 60,161,675 (64,382,911) -- 1,818,420 44,551 --
===========================================================================================================================
Subtotal $12,079,312 $120,323,350 $(128,765,822) $ -- $3,636,840 $89,895 $ --
===========================================================================================================================
</Table>
INVESTMENTS OF CASH COLLATERAL FROM SECURITIES LENDING TRANSACTIONS:
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 10/31/03 AT COST FROM SALES (DEPRECIATION) 10/31/04 INCOME* GAIN (LOSS)
- ---------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $ 1,593,500 $ 86,506,068 $ (88,099,568) $ -- $ -- $58,446 $ --
- ---------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-
Institutional
Class -- 19,094,475 (12,304,100) -- 6,790,375 4,801 --
===========================================================================================================================
Subtotal $ 1,593,500 $105,600,543 $(100,403,668) $ -- $ 6,790,375 $63,247 $ --
===========================================================================================================================
Total $13,672,812 $225,923,893 $(229,169,490) $ -- $10,427,215 $153,142 $ --
___________________________________________________________________________________________________________________________
===========================================================================================================================
</Table>
* Dividend income is net of income rebate paid to security lending
counterparties.
NOTE 4--SECURITY TRANSACTIONS WITH AFFILIATED FUNDS
The Fund is permitted to purchase or sell securities from or to certain other
AIM Funds under specified conditions outlined in procedures adopted by the Board
of Trustees of the Trust. The procedures have been designed to ensure that any
purchase or sale of securities by the Fund from or to another fund or portfolio
that is or could be considered an affiliate by virtue of having a common
investment advisor (or affiliated investment advisors), common Trustees and/or
common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined
under the procedures each transaction is effected at the current market price.
Pursuant to these procedures, during the year ended October 31, 2004, the Fund
engaged in purchases and sales of securities of $2,622,166 and $702,736,
respectively.
NOTE 5--EXPENSE OFFSET ARRANGEMENT
The expense offset arrangement is comprised of transfer agency credits which
result from balances in Demand Deposit Accounts (DDA) used by the transfer agent
for clearing shareholder transactions. For the year ended October 31, 2004, the
Fund received credits in transfer agency fees of $3,820 under an expense offset
arrangement, which resulted in a reduction of the Fund's total expenses of
$3,820.
NOTE 6--TRUSTEES' FEES
Trustees' fees represent remuneration paid to each Trustee of the Trust who is
not an "interested person" of AIM. Trustees have the option to defer
compensation payable by the Trust. Those Trustees who defer compensation have
the option to select various AIM Funds in which their deferral accounts shall be
deemed to be invested.
Current Trustees are eligible to participate in a retirement plan that
provides for benefits to be paid upon retirement to Trustees over a period of
time based on the number of years of service. The Fund may have certain former
Trustees that also participate in a retirement plan and receive benefits under
such plan.
Obligations under the deferred compensation and retirement plans represent
unsecured claims against the general assets of the Fund.
During the year ended October 31, 2004, the Fund paid legal fees of $5,035
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 October 31, 2004, the Fund did not borrow or lend
under the interfund lending facility or borrow under the uncommitted unsecured
revolving credit facility.
Additionally, the Fund is permitted to temporarily carry a negative or
overdrawn balance in its account with SSB, the custodian bank. To compensate the
custodian bank for such overdrafts, the overdrawn Fund may either (i) leave
funds in the account so the custodian can be compensated by earning the
additional interest; or (ii) compensate by paying the custodian bank. In either
case, the custodian bank will be compensated at an amount equal to the Federal
Funds rate plus 100 basis points.
NOTE 8--PORTFOLIO SECURITIES LOANED
The Fund may lend portfolio securities having a market value up to one-third of
the Fund's total assets. Such loans are secured by collateral equal to no less
than the market value of the loaned securities determined daily. Such collateral
will be cash or debt securities issued or guaranteed by the U.S. Government or
any of its agencies. Cash collateral received in connection with these loans is
invested in short-term money market instruments or affiliated money market
funds. It is the Fund's policy to obtain additional collateral from or return
excess collateral to the borrower by the end of the next business day, following
the valuation date of the securities loaned. Therefore, the value of the
collateral held may be temporarily less than the value of the securities on
loan. Lending securities entails a risk of loss to the Fund if and to the extent
that the market value of the securities loaned were to increase and the borrower
did not increase the collateral accordingly, and the borrower fails to return
the securities. The Fund could also experience delays and costs in gaining
access to the collateral. The Fund bears the risk of any deficiency in the
amount of the collateral available for return to the borrower due to a loss on
the collateral invested.
At October 31, 2004, securities with an aggregate value of $6,544,219 were
on loan to brokers. The loans were secured by cash collateral of $6,790,375
received by the Fund and subsequently invested in an affiliated money market
fund. For the year ended October 31, 2004, the Fund received dividends on cash
collateral net of income rebate paid to counterparties of $63,247 for securities
lending transactions.
NOTE 9--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
DISTRIBUTIONS TO SHAREHOLDERS:
There were no ordinary income or long-term capital gain distributions paid
during the years ended October 31, 2004 and 2003.
TAX COMPONENTS OF NET ASSETS:
As of October 31, 2004, the components of net assets on a tax basis were as
follows:
<Table>
<Caption>
2004
- ---------------------------------------------------------------------------
Unrealized appreciation -- investments $ 25,453,299
- ---------------------------------------------------------------------------
Temporary book/tax differences (29,371)
- ---------------------------------------------------------------------------
Capital loss carryforward (137,943,848)
- ---------------------------------------------------------------------------
Shares of beneficial interest 307,591,806
===========================================================================
Total net assets $ 195,071,886
___________________________________________________________________________
===========================================================================
</Table>
The difference between book-basis and tax-basis unrealized appreciation
(depreciation) is due to differences in the timing of recognition of gains and
losses on investments for tax and book purposes. The Fund's unrealized
appreciation (depreciation) difference is attributable primarily to losses on
wash sales. The tax-basis unrealized appreciation on investments amount includes
appreciation (depreciation) on foreign currencies of $(6,550).
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-12
The Fund utilized $8,876,974 of capital loss carryforward in the current
period to offset net realized capital gain for federal income tax purposes. The
Fund has a capital loss carryforward as of October 31, 2004 which expires as
follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD*
- -----------------------------------------------------------------------------
October 31, 2008 $ 407,338
- -----------------------------------------------------------------------------
October 31, 2009 86,724,292
- -----------------------------------------------------------------------------
October 31, 2010 50,812,218
=============================================================================
Total capital loss carryforward $137,943,848
_____________________________________________________________________________
=============================================================================
</Table>
* Capital loss carryforward as of the date listed above is reduced for
limitations, if any, to the extent required by the Internal Revenue Code.
NOTE 10--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities
and money market funds) purchased and sold by the Fund during the year ended
October 31, 2004 was $358,096,030 and $382,393,967, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- -------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $29,338,178
- -------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (3,878,329)
===============================================================================
Net unrealized appreciation of investment securities $25,459,849
_______________________________________________________________________________
===============================================================================
Cost of investments for tax purposes is $176,344,154.
</Table>
NOTE 11--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of net operating losses,
on October 31, 2004, undistributed net investment income (loss) was increased by
$3,744,887 and shares of beneficial interest decreased by $3,744,887. 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 OCTOBER 31,
--------------------------------------------------------
2004 2003
-------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------------------------------------------------------------
Sold:
Class A 3,366,280 $ 31,467,821 7,664,279 $ 58,252,871
- ----------------------------------------------------------------------------------------------------------------------
Class B 1,689,471 15,326,444 3,281,689 24,068,217
- ----------------------------------------------------------------------------------------------------------------------
Class C 1,055,967 9,613,286 1,644,878 12,124,964
- ----------------------------------------------------------------------------------------------------------------------
Class R 79,652 742,690 25,518 209,495
- ----------------------------------------------------------------------------------------------------------------------
Institutional Class(b) 1,085 10,000 -- --
======================================================================================================================
Automatic conversion of Class B shares to Class A shares:
Class A 287,382 2,711,609 189,563 1,431,485
- ----------------------------------------------------------------------------------------------------------------------
Class B (296,604) (2,711,609) (194,530) (1,431,485)
======================================================================================================================
Reacquired:
Class A (4,869,016) (44,602,423) (5,404,259) (41,344,508)
- ----------------------------------------------------------------------------------------------------------------------
Class B (2,730,826) (24,426,540) (2,879,424) (20,848,611)
- ----------------------------------------------------------------------------------------------------------------------
Class C (1,595,627) (14,297,750) (872,689) (6,353,754)
- ----------------------------------------------------------------------------------------------------------------------
Class R (7,765) (66,595) (1,487) (11,595)
======================================================================================================================
(3,020,001) $(26,233,067) 3,453,538 $ 26,097,079
______________________________________________________________________________________________________________________
======================================================================================================================
</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/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.
(b) Institutional Class shares commenced sales on April 30, 2004.
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
---------------------------------------------------------------------------
NOVEMBER 1, 1999
(DATE OPERATIONS
YEAR ENDED OCTOBER 31, COMMENCED) TO
---------------------------------------------------- OCTOBER 31,
2004 2003 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 8.92 $ 6.54 $ 8.58 $ 14.38 $ 10.00
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.13)(a) (0.11)(a) (0.13)(a) (0.11)(a) (0.12)(a)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized
and unrealized) 0.29 2.49 (1.91) (5.69) 4.50
=================================================================================================================================
Total from investment operations 0.16 2.38 (2.04) (5.80) 4.38
=================================================================================================================================
Net asset value, end of period $ 9.08 $ 8.92 $ 6.54 $ 8.58 $ 14.38
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) 1.79% 36.39% (23.78)% (40.33)% 43.80%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $99,262 $108,436 $63,463 $94,457 $114,913
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets 1.74%(c)(d) 1.90% 1.83% 1.65% 1.63%(e)
=================================================================================================================================
Ratio of net investment income (loss) to average net
assets (1.36)%(c) (1.42)% (1.49)% (1.06)% (0.76)%(e)
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(f) 167% 211% 185% 173% 183%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</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
shareholders 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 $112,671,098.
(d) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 1.76%.
(e) Annualized.
(f) Not annualized for periods less than one year.
F-15
NOTE 13--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS B
--------------------------------------------------------------------------
NOVEMBER 1, 1999
(DATE OPERATIONS
YEAR ENDED OCTOBER 31, COMMENCED) TO
--------------------------------------------------- OCTOBER 31,
2004 2003 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 8.68 $ 6.40 $ 8.45 $ 14.25 $ 10.00
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.18)(a) (0.15)(a) (0.18)(a) (0.18)(a) (0.22)(a)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.27 2.43 (1.87) (5.62) 4.47
=================================================================================================================================
Total from investment operations 0.09 2.28 (2.05) (5.80) 4.25
=================================================================================================================================
Net asset value, end of period $ 8.77 $ 8.68 $ 6.40 $ 8.45 $ 14.25
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) 1.04% 35.63% (24.26)% (40.70)% 42.50%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $70,421 $81,298 $58,654 $81,905 $103,893
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets 2.39%(c)(d) 2.55% 2.48% 2.32% 2.32%(e)
=================================================================================================================================
Ratio of net investment income (loss) to average net
assets (2.01)%(c) (2.07)% (2.14)% (1.73)% (1.45)%(e)
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(f) 167% 211% 185% 173% 183%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</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
shareholders 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 $80,220,450.
(d) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 2.41%.
(e) Annualized.
(f) Not annualized for periods less than one year.
<Table>
<Caption>
CLASS C
--------------------------------------------------------------------------
NOVEMBER 1, 1999
(DATE OPERATIONS
YEAR ENDED OCTOBER 31, COMMENCED) TO
--------------------------------------------------- OCTOBER 31,
2004 2003 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 8.68 $ 6.40 $ 8.45 $ 14.26 $ 10.00
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.18)(a) (0.15)(a) (0.18)(a) (0.18)(a) (0.22)(a)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.27 2.43 (1.87) (5.63) 4.48
=================================================================================================================================
Total from investment operations 0.09 2.28 (2.05) (5.81) 4.26
=================================================================================================================================
Net asset value, end of period $ 8.77 $ 8.68 $ 6.40 $ 8.45 $ 14.26
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) 1.04% 35.63% (24.26)% (40.74)% 42.60%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $24,503 $28,928 $16,404 $23,971 $29,969
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets 2.39%(c)(d) 2.55% 2.48% 2.32% 2.32%(e)
=================================================================================================================================
Ratio of net investment income (loss) to average net
assets (2.01)%(c) (2.07)% (2.14)% (1.73)% (1.45)%(e)
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(f) 167% 211% 185% 173% 183%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</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
shareholders 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 $29,113,161.
(d) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 2.41%.
(e) Annualized.
(f) Not annualized for periods less than one year.
F-16
NOTE 13--FINANCIAL HIGHLIGHTS (CONTINUED)
<Table>
<Caption>
CLASS R
-----------------------------------------
JUNE 3, 2002
YEAR ENDED (DATE SALES
OCTOBER 31, COMMENCED) TO
--------------------- OCTOBER 31,
2004 2003 2002
- -------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $8.89 $ 6.54 $ 8.73
- -------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.14)(a) (0.13)(a) (0.05)(a)
- -------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.28 2.48 (2.14)
=======================================================================================================
Total from investment operations 0.14 2.35 (2.19)
=======================================================================================================
Net asset value, end of period $9.03 $ 8.89 $ 6.54
_______________________________________________________________________________________________________
=======================================================================================================
Total return(b) 1.57% 35.93% (25.09)%
_______________________________________________________________________________________________________
=======================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 877 $ 224 $ 7
_______________________________________________________________________________________________________
=======================================================================================================
Ratio of expenses to average net assets 1.89%(c)(d) 2.05% 1.98%(e)
=======================================================================================================
Ratio of net investment income (loss) to average net assets (1.51)%(c) (1.57)% (1.64)%(e)
_______________________________________________________________________________________________________
=======================================================================================================
Portfolio turnover rate(f) 167% 211% 185%
_______________________________________________________________________________________________________
=======================================================================================================
</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
shareholders transactions. Not annualized for periods less than one
year.
(c) Ratios are based on average daily net assets of $584,032.
(d) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 1.91%.
(e) Annualized.
(f) Not annualized for periods less than one year.
<Table>
<Caption>
INSTITUTIONAL CLASS
-------------------
APRIL 30, 2004
(DATE SALES
COMMENCED) TO
OCTOBER 31,
2004
- -----------------------------------------------------------------------------------
Net asset value, beginning of period $ 9.22
- -----------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.04)(a)
- -----------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) (0.07)
===================================================================================
Total from investment operations (0.11)
===================================================================================
Net asset value, end of period $ 9.11
___________________________________________________________________________________
===================================================================================
Total return(b) (1.19)%
___________________________________________________________________________________
===================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 10
___________________________________________________________________________________
===================================================================================
Ratio of expenses to average net assets 1.20%(c)(d)
===================================================================================
Ratio of net investment income (loss) to average net assets (0.82)%
___________________________________________________________________________________
===================================================================================
Portfolio turnover rate(e) 167%
___________________________________________________________________________________
===================================================================================
</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
shareholders transactions. Not annualized for periods less than one
year.
(c) Ratios are annualized and based on average daily net assets of $9,671.
(d) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 1.28% (annualized).
(e) Not annualized for periods less than one year.
F-17
NOTE 14--LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
The mutual fund industry as a whole is currently subject to regulatory inquiries
and litigation related to a wide range of issues. These issues include, among
others, market timing activity, late trading, fair value pricing, excessive or
improper advisory and/or distribution fees, mutual fund sales practices,
including revenue sharing and directed-brokerage arrangements, investments in
securities of other registered investment companies, contractual plans, issues
related to Section 529 college savings plans and procedures for locating lost
securityholders.
As described more fully below, INVESCO Funds Group, Inc. ("IFG"), the former
investment advisor to certain AIM Funds, A I M Advisors, Inc. ("AIM"), the
Fund's investment advisor, and A I M Distributors, Inc. ("ADI"), the distributor
of the retail AIM Funds and a wholly owned subsidiary of AIM, reached final
settlements with the Securities and Exchange Commission ("SEC"), the New York
Attorney General ("NYAG"), the Colorado Attorney General ("COAG"), the Colorado
Division of Securities ("CODS") and the Secretary of State of the State of
Georgia to resolve civil enforcement actions and investigations related to
market timing activity and related issues in the AIM Funds, including those
formerly advised by IFG.
In addition, as described more fully below, IFG and AIM are the subject of a
number of ongoing regulatory inquiries and civil lawsuits related to one or more
of the issues currently being scrutinized by various Federal and state
regulators, including but not limited to those issues described above.
Additional regulatory actions and/or civil lawsuits related to the above or
other issues may be filed against the AIM Funds, IFG, AIM and/or related
entities and individuals in the future. Additional regulatory inquiries related
to the above or other issues also may be received by the AIM Funds, IFG, AIM
and/or related entities and individuals in the future.
As a result of the matters discussed below, investors in the AIM Funds might
react by redeeming their investments. This might require the Funds to sell
investments to provide for sufficient liquidity and could also have an adverse
effect on the investment performance of the Funds.
Settled Enforcement Actions and Investigations Related to Market Timing
On October 8, 2004, AMVESCAP PLC ("AMVESCAP"), the parent company of IFG and
AIM, announced that final settlements had been reached with the SEC, the NYAG,
the COAG and the Secretary of State of Georgia to resolve civil enforcement
actions and investigations related to market timing activity and related issues
in the AIM Funds, including those formerly advised by IFG. A final settlement
also has been reached with the Colorado Division of Securities ("CODS") with
respect to this matter. In their enforcement actions and investigations, these
regulators alleged, in substance, that IFG and AIM failed to disclose in the
prospectuses for the AIM Funds that they advised and to the independent
directors/trustees of such Funds that IFG and AIM had entered into certain
arrangements permitting market timing of such Funds, thereby breaching their
fiduciary duties to such Funds. As a result of the foregoing, the regulators
alleged that IFG, AIM and ADI breached various Federal and state securities,
business and consumer protection laws. Under the terms of the settlements, IFG,
AIM and ADI consent to the entry of settlement orders or assurances of
discontinuance, as applicable, by the regulators containing certain terms, some
of which are described below, without admitting or denying any wrongdoing.
Under the terms of the settlements, IFG agreed to pay a total of $325 million,
of which $110 million is civil penalties. Of the $325 million total payment,
half will be paid on or before December 31, 2004 and the remaining half will be
paid on or before December 31, 2005. AIM and ADI agreed to pay a total of $50
million, of which $30 million is civil penalties. The entire $50 million payment
by AIM and ADI has been paid.
The entire $325 million IFG settlement payment will be available for
distribution to the shareholders of those AIM Funds that IFG formerly advised
that were harmed by market timing activity, and the entire $50 million
settlement payment by AIM and ADI will be available for distribution to the
shareholders of those AIM Funds advised by AIM that were harmed by market timing
activity, all as to be determined by an independent distribution consultant to
be appointed under the settlements. The settlement payments will be distributed
in accordance with a methodology to be determined by the independent
distribution consultant, in consultation with AIM and the independent trustees
of the AIM Funds and acceptable to the staff of the SEC.
Under the settlements with the NYAG and COAG, AIM has agreed to reduce
management fees on the AIM Funds by $15 million per year for the next five
years, based upon effective fee rates and assets under management as of July 1,
2004, and not to increase certain management fees. IFG will also pay $1.5
million to the COAG to be used for investor education purposes and to reimburse
the COAG for actual costs. Finally, IFG and AIM will pay $175,000 to the
Secretary of State of Georgia to be used for investor education purposes and to
reimburse the Secretary of State for actual costs.
None of the costs of the settlements will be borne by the AIM Funds or by Fund
shareholders.
Under the terms of the settlements, AIM will make certain governance reforms,
including maintaining an internal controls committee and retaining an
independent compliance consultant, a corporate ombudsman and, as stated above,
an independent distribution consultant. Also, commencing in 2007 and at least
once every other year thereafter, AIM will undergo a compliance review by an
independent third party.
In addition, under the terms of the settlements, AIM has undertaken to cause
the AIM Funds to operate in accordance with certain governance policies and
practices, including retaining a full-time independent senior officer whose
duties will include monitoring compliance and managing the process by which
proposed management fees to be charged the AIM Funds are negotiated. Also,
commencing in 2008 and not less than every fifth calendar year thereafter, the
AIM Funds will hold shareholder meetings at which their Boards of Trustees will
be elected.
On October 8, 2004, the SEC announced that it had settled a market timing
enforcement action against Raymond R. Cunningham, the former president and chief
executive officer of IFG and a former member of the board of directors of the
AIM Funds formerly advised by IFG. As part of the settlement, the SEC ordered
Mr. Cunningham to pay $1 in restitution and civil penalties in the amount of
$500,000. In addition, the SEC prohibited Mr. Cunningham from associating with
an investment advisor, broker, dealer or investment company for a period of two
years and further prohibited him from serving as an officer or director of an
investment advisor, broker, dealer or investment company for a period of five
years.
On August 31, 2004, the SEC announced that it had settled market timing
enforcement actions against Timothy J. Miller, the former chief investment
officer and a former portfolio manager for IFG, Thomas A. Kolbe, the former
national sales manager of IFG, and Michael D. Legoski, a former assistant
F-18
NOTE 14--LEGAL PROCEEDINGS (CONTINUED)
vice president in IFG's sales department. As part of the settlements, the SEC
ordered Messrs. Miller, Kolbe and Legoski to pay $1 in restitution each and
civil penalties in the amounts of $150,000, $150,000 and $40,000, respectively.
In addition, the SEC prohibited each of them from associating with an investment
advisor or investment company for a period of one year, prohibited Messrs.
Miller and Kolbe from serving as an officer or director of an investment advisor
or investment company for three years and two years, respectively, and
prohibited Mr. Legoski from associating with a broker or dealer for a period of
one year.
As referenced by the SEC in the SEC's settlement order, one former officer of
ADI and one current officer of AIM (who has taken a voluntary leave of absence)
have received regulatory inquiries in the form of subpoenas or other oral or
written requests for information and/or documents related to market timing
activity in the AIM Funds.
At the request of the trustees of the AIM Funds, AMVESCAP has agreed to pay
all of the expenses incurred by such Funds related to the market timing
investigations, including expenses incurred in connection with the regulatory
complaints against IFG alleging market timing and the market timing
investigations with respect to IFG and AIM.
The payments made in connection with the above-referenced settlements by IFG,
AIM and ADI will total approximately $375 million (not including AIM's agreement
to reduce management fees on the AIM Funds by $15 million per year for the next
five years, based upon effective fee rates and assets under management as of
July 1, 2004). The manner in which the settlement payments will be distributed
is unknown at the present time and will be determined by an independent
distribution consultant to be appointed under the settlement agreements.
Therefore, management of AIM and the Fund are unable at the present time to
estimate the impact, if any, that the distribution of the settlement amounts may
have on the Fund or whether such distribution will have an impact on the Fund's
financial statements in the future.
At the present time, management of AIM and the Fund are unable to estimate the
impact, if any, that the outcome of the ongoing matters described below may have
on AIM, ADI or the Fund.
Ongoing Regulatory Inquiries Concerning IFG and AIM
IFG, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds formerly advised by IFG have received regulatory
inquiries in the form of subpoenas or other oral or written requests for
information and/or documents related to one or more of the following issues,
some of which concern one or more such Funds: market timing activity, late
trading, fair value pricing, excessive or improper advisory and/or distribution
fees, mutual fund sales practices, including revenue sharing and
directed-brokerage arrangements, and investments in securities of other
registered investment companies. These regulators include the SEC, the NASD,
Inc. ("NASD"), the Florida Department of Financial Services, the Attorney
General of the State of West Virginia, the West Virginia Securities Commission
and the Bureau of Securities of the State of New Jersey. IFG and certain of
these other parties also have received more limited inquiries from the United
States Department of Labor ("DOL") and the United States Attorney's Office for
the Southern District of New York, some of which concern one or more of the AIM
Funds formerly advised by IFG. IFG is providing full cooperation with respect to
these inquiries.
AIM, certain related entities, certain of their current and former officers
and/or certain of the AIM Funds have received regulatory inquiries in the form
of subpoenas or other oral or written requests for information and/or documents
related to one or more of the following issues, some of which concern one or
more AIM Funds: market timing activity, late trading, fair value pricing,
excessive or improper advisory and/or distribution fees, mutual fund sales
practices, including revenue sharing and directed-brokerage arrangements,
investments in securities of other registered investment companies, contractual
plans, issues related to Section 529 college savings plans and procedures for
locating lost securityholders. These regulators include the SEC, the NASD, the
Department of Banking for the State of Connecticut, the Attorney General of the
State of West Virginia, the West Virginia Securities Commission and the Bureau
of Securities of the State of New Jersey. AIM and certain of these other parties
also have received more limited inquiries from the SEC, the NASD, the DOL, the
Internal Revenue Service, the New York Stock Exchange, the United States
Attorney's Office for the Southern District of New York, the United States
Attorney's Office for the Central District of California, the United States
Attorney's Office for the District of Massachusetts, the Massachusetts
Securities Division and the U.S. Postal Inspection Service, some of which
concern one or more AIM Funds. AIM is providing full cooperation with respect to
these inquiries.
Private Civil Actions Alleging Market Timing
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, certain AIM Funds, IFG, AIM, A I M Management Group Inc. ("AIM
Management"), AMVESCAP, certain related entities, certain of their current and
former officers and/or certain unrelated third parties) making allegations that
are similar in many respects to those in the settled regulatory actions brought
by the SEC, the NYAG and the COAG concerning market timing activity in the AIM
Funds. These lawsuits allege a variety of theories of recovery, including but
not limited to: (i) violation of various provisions of the Federal and state
securities laws; (ii) violation of various provisions of ERISA; (iii) breach of
fiduciary duty; and/or (iv) breach of contract. These lawsuits were initiated in
both Federal and state courts and seek such remedies as compensatory damages;
restitution; injunctive relief; disgorgement of management fees; imposition of a
constructive trust; removal of certain directors and/or employees; various
corrective measures under ERISA; rescission of certain Funds' advisory
agreements; interest; and attorneys' and experts' fees.
All lawsuits based on allegations of market timing, late trading, and related
issues have been transferred to the United States District Court for the
District of Maryland (the "MDL Court") for consolidated or coordinated pre-trial
proceedings. Pursuant to an Order of the MDL Court, plaintiffs consolidated
their claims for pre-trial purposes into three amended complaints against
various AIM- and IFG-related parties: (i) a Consolidated Amended Class Action
Complaint purportedly brought on behalf of shareholders of the AIM Funds; (ii) a
Consolidated Amended Fund Derivative Complaint purportedly brought on behalf of
the AIM Funds and fund registrants; and (iii) an Amended Class Action Complaint
for Violations of the Employee
F-19
NOTE 14--LEGAL PROCEEDINGS (CONTINUED)
Retirement Income Securities Act purportedly brought on behalf of participants
in AMVESCAP's 401(k) plan. Plaintiffs in one of the underlying lawsuits
transferred to the MDL Court continue to seek remand of their action to state
court.
Private Civil Actions Alleging Improper Use of Fair Value Pricing
Multiple civil class action lawsuits have been filed against various parties
(including, depending on the lawsuit, certain AIM Funds, IFG and/or AIM)
alleging that certain AIM Funds inadequately employed fair value pricing. These
lawsuits allege a variety of theories of recovery, including but not limited to:
(i) violations of various provisions of the Federal securities laws; (ii) common
law breach of duty; and (iii) common law negligence and gross negligence. These
lawsuits have been filed in both Federal and state courts and seek such remedies
as compensatory and punitive damages; interest; and attorneys' fees and costs.
Private Civil Actions Alleging Excessive Advisory and/or Distribution Fees
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, IFG, AIM, INVESCO Institutional (N.A.), Inc., ADI and/or INVESCO
Distributors, Inc.) alleging that the defendants charged excessive advisory
and/or distribution fees and failed to pass on to shareholders the perceived
savings generated by economies of scale. Certain of these lawsuits also allege
that the defendants adopted unlawful distribution plans. These lawsuits allege a
variety of theories of recovery, including but not limited to: (i) violation of
various provisions of the Federal securities laws; (ii) breach of fiduciary
duty; and/or (iii) breach of contract. These lawsuits have been filed in Federal
courts and seek such remedies as damages; injunctive relief; rescission of
certain Funds' advisory agreements and distribution plans; interest; prospective
relief in the form of reduced fees; and attorneys' and experts' fees.
Private Civil Actions Alleging Improper Charging of Distribution Fees on Closed
Funds or Share Classes
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, IFG, AIM, ADI and/or certain of the trustees of the AIM Funds)
alleging that the defendants breached their fiduciary duties by charging
distribution fees while funds and/or specific share classes were closed
generally to new investors and/or while other share classes of the same fund
were not charged the same distribution fees. These lawsuits allege a variety of
theories of recovery, including but not limited to: (i) violation of various
provisions of the Federal securities laws; and (ii) breach of fiduciary duty.
These lawsuits have been filed in Federal courts and seek such remedies as
damages; injunctive relief; and attorneys' and experts' fees.
Private Civil Actions Alleging Improper Mutual Fund Sales Practices and
Directed-Brokerage Arrangements
Multiple civil lawsuits, including purported class action and shareholder
derivative suits, have been filed against various parties (including, depending
on the lawsuit, AIM Management, IFG, AIM, AIM Investment Services, Inc. and/or
certain of the trustees of the AIM Funds) alleging that the defendants
improperly used the assets of the AIM Funds to pay brokers to aggressively
promote the sale of the AIM Funds over other mutual funds and that the
defendants concealed such payments from investors by disguising them as
brokerage commissions. These lawsuits allege a variety of theories of recovery,
including but not limited to: (i) violation of various provisions of the Federal
securities laws; (ii) breach of fiduciary duty; and (iii) aiding and abetting a
breach of fiduciary duty. These lawsuits have been filed in Federal courts and
seek such remedies as compensatory and punitive damages; rescission of certain
Funds' advisory agreements and distribution plans and recovery of all fees paid;
an accounting of all fund-related fees, commissions and soft dollar payments;
restitution of all unlawfully or discriminatorily obtained fees and charges; and
attorneys' and experts' fees.
F-20
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders of AIM Mid Cap Growth Fund
And Board of Trustees of AIM Equity Funds:
We have audited the accompanying statement of assets and liabilities of AIM Mid
Cap Growth Fund (a portfolio of AIM Equity Funds), including the schedule of
investments, as of October 31, 2004, and the related statement of operations for
the year then ended, the statements of changes in net assets for each of the two
years in the period then ended, and the financial highlights for each of the
four years in the period then ended. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits. The financial highlights for the period ended October 31,
2000 were audited by other auditors whose report dated December 6, 2000,
expressed an unqualified opinion on those financial highlights.
We conducted our audits 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 and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of October 31, 2004, by correspondence with the custodian
and brokers or by other appropriate auditing procedures where replies from
brokers were not received. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of AIM
Mid Cap Growth Fund as of October 31, 2004, the results of its operations for
the year then ended, the changes in its net assets for each of the two years in
the period then ended, and the financial highlights for each of the four years
in the period then ended, in conformity with U.S. generally accepted accounting
principles.
Houston, Texas -s- ERNST & YOUNG LLP
December 15, 2004
F-21
AIM MID CAP GROWTH FUND
OTHER INFORMATION
TRUSTEES AND OFFICERS
As of October 31, 2004
The address of each trustee and officer of AIM Equity Funds (the "Trust"), is 11
Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee oversees 114
portfolios in the AIM Funds complex. The trustees serve for the life of the
Trust, subject to their earlier death, incapacitation, resignation, retirement
or removal as more specifically provided in the Trust's organizational
documents. Column two below includes length of time served with predecessor
entities, if any.
<Table>
<Caption>
TRUSTEE AND/
NAME, YEAR OF BIRTH AND OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- ---------------------------------------------------------------------------------------------------------------------------------
INTERESTED PERSONS
- ---------------------------------------------------------------------------------------------------------------------------------
Robert H. Graham(1) -- 1946 1988 Director and Chairman, A I M Management None
Trustee and President Group Inc. (financial services holding
company); Director and Vice Chairman,
AMVESCAP PLC and Chairman, AMVESCAP
PLC -- AIM Division (parent of AIM and a
global investment management firm)
Formerly: President and Chief Executive
Officer, A I M Management Group Inc.;
Director, Chairman and President, A I M
Advisors, Inc. (registered investment
advisor); Director and Chairman, A I M
Capital Management, Inc. (registered
investment advisor), A I M Distributors,
Inc. (registered broker dealer), AIM
Investment Services, Inc., (registered
transfer agent), and Fund Management
Company (registered broker dealer); and
Chief Executive Officer, AMVESCAP
PLC -- Managed Products
- ---------------------------------------------------------------------------------------------------------------------------------
Mark H. Williamson(2) -- 1951 2003 Director, President and Chief Executive None
Trustee and Executive Vice Officer, A I M Management Group Inc.
President (financial services holding company);
Director, Chairman and President, A I M
Advisors, Inc. (registered investment
advisor); Director, A I M Capital
Management, Inc. (registered investment
advisor) and A I M Distributors, Inc.
(registered broker dealer); Director and
Chairman, AIM Investment Services, Inc.
(registered transfer agent), Fund
Management Company (registered broker
dealer) and INVESCO Distributors, Inc.
(registered broker dealer); and Chief
Executive Officer, AMVESCAP PLC -- AIM
Division (parent of AIM and a global
investment management firm)
Formerly: Director, Chairman, President
and Chief Executive Officer, INVESCO
Funds Group, Inc.; President and Chief
Executive Officer, INVESCO Distributors,
Inc.; Chief Executive Officer, AMVESCAP
PLC -- Managed Products; Chairman and
Chief Executive Officer of NationsBanc
Advisors, Inc.; and Chairman of
NationsBanc Investments, Inc.
- ---------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- ---------------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett(3) -- 1944 1993 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 1988 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 October 31, 2004
AIM MID CAP GROWTH FUND
The address of each trustee and officer of AIM Equity Funds (the "Trust"), is 11
Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee oversees 114
portfolios in the AIM Funds complex. The trustees serve for the life of the
Trust, subject to their earlier death, incapacitation, resignation, retirement
or removal as more specifically provided in the Trust's organizational
documents. Column two below includes length of time served with predecessor
entities, if any.
<Table>
<Caption>
TRUSTEE AND/
NAME, YEAR OF BIRTH AND OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- ---------------------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA None
Trustee of the USA
- ---------------------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 1988 Partner, law firm of Pennock & Cooper None
Trustee
- ---------------------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2001 Retired None
Trustee
- ---------------------------------------------------------------------------------------------------------------------------------
Louis S. Sklar -- 1939 1989 Executive Vice President, Development None
Trustee and Operations, Hines Interests Limited
Partnership (real estate development
company)
- ---------------------------------------------------------------------------------------------------------------------------------
Larry Soll -- 1942 2003 Retired None
Trustee
- ---------------------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- ---------------------------------------------------------------------------------------------------------------------------------
Lisa O. Brinkley(4) -- 1959 2004 Senior Vice President, A I M Management N/A
Senior Vice President and Group Inc. (financial services holding
Chief Compliance Officer company); Senior Vice President and
Chief Compliance Officer, A I M
Advisors, Inc.; Vice President and Chief
Compliance Officer, A I M Capital
Management, Inc. and A I M Distributors,
Inc.; and Vice President, AIM Investment
Services, Inc. and Fund Management
Company
Formerly: Senior Vice President and
Compliance Director, Delaware
Investments Family of Funds
- ---------------------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 2003 Director, Senior Vice President, N/A
Senior Vice President, Secretary and General Counsel, A I M
Secretary and Chief Legal Management Group Inc. (financial
Officer services holding company) and A I M
Advisors, Inc.; Director and Vice
President, INVESCO Distributors, Inc.;
Vice President, A I M Capital
Management, Inc., and AIM Investment
Services, Inc.; Director, Vice President
and General Counsel, Fund Management
Company and Senior Vice President, A I M
Distributors, Inc.
Formerly: Senior Vice President and
General Counsel, Liberty Financial
Companies, Inc.; Senior Vice President
and General Counsel, Liberty Funds
Group, LLC and Vice President, A I M
Distributors, Inc.
- ---------------------------------------------------------------------------------------------------------------------------------
Stuart W. Coco -- 1955 2002 Managing Director and Director of Money N/A
Vice President Market Research and Special Projects,
A I M Capital Management, Inc.; and Vice
President, A I M Advisors, Inc.
- ---------------------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, A I M N/A
Vice President and Treasurer Advisors, Inc.
Formerly: Senior Vice President, AIM
Investment Services, Inc.; and Vice
President, A I M Distributors, Inc.
- ---------------------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 2004 Director of Cash Management, Managing N/A
Vice President Director and Chief Cash Management
Officer, A I M Capital Management, Inc;
Director and President, Fund Management
Company; and Vice President, A I M
Advisors, Inc.
- ---------------------------------------------------------------------------------------------------------------------------------
Edgar M. Larsen -- 1940 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.
Formerly: Director of A I M Advisors,
Inc. and A I M Management Group Inc.,
A I M Advisors, Inc.; and Director and
Chairman, A I M Capital Management, Inc.
- ---------------------------------------------------------------------------------------------------------------------------------
</Table>
(4) Ms. Brinkley was elected Senior Vice President and Chief Compliance Officer
of the Trust effective September 20, 2004.
The Statement of Additional Information of the Trust includes additional
information about the Fund's Trustees and is available upon request, without
charge, by calling 1.800.959.4246.
<Table>
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS
11 Greenway Plaza A I M Advisors, Inc. A I M Distributors, Inc. Ernst & Young LLP
Suite 100 11 Greenway Plaza 11 Greenway Plaza 5 Houston Center
Houston, TX 77046-1173 Suite 100 Suite 100 1401 McKinney
Houston, TX 77046-1173 Houston, TX 77046-1173 Suite 1200
Houston, TX 77010-4035
COUNSEL TO THE FUND COUNSEL TO THE TRUSTEES TRANSFER AGENT CUSTODIAN
Ballard Spahr Kramer, Levin, Naftalis AIM Investment Services, State Street Bank and
Andrews & Ingersoll, LLP & Frankel LLP Inc. Trust Company
1735 Market Street 919 Third Avenue P.O. Box 4739 225 Franklin Street
Philadelphia, PA 19103-7599 New York, NY 10022-3852 Houston, TX 77210-4739 Boston, MA 02110-2801
</Table>
<Table>
DOMESTIC EQUITY INTERNATIONAL/GLOBAL EQUITY FIXED INCOME
AIM Aggressive Growth Fund AIM Asia Pacific Growth Fund TAXABLE
AIM Balanced Fund* AIM Developing Markets Fund
AIM Basic Balanced Fund* AIM European Growth Fund AIM Floating Rate Fund
AIM Basic Value Fund AIM European Small Company Fund(5) AIM High Yield Fund
AIM Blue Chip Fund AIM Global Aggressive Growth Fund AIM Income Fund
AIM Capital Development Fund AIM Global Equity Fund(6) AIM Intermediate Government Fund
AIM Charter Fund AIM Global Growth Fund AIM Limited Maturity Treasury Fund
AIM Constellation Fund AIM Global Value Fund AIM Money Market Fund
AIM Core Stock Fund(1) AIM International Core Equity Fund(1) AIM Short Term Bond Fund
AIM Dent Demographic Trends Fund AIM International Emerging Growth Fund(7) AIM Total Return Bond Fund
AIM Diversified Dividend Fund AIM International Growth Fund Premier U.S. Government Money Portfolio(1)
AIM Dynamics Fund(1) AIM Trimark Fund
AIM Emerging Growth Fund TAX-FREE
AIM Large Cap Basic Value Fund SECTOR EQUITY
AIM Large Cap Growth Fund AIM High Income Municipal Fund
AIM Libra Fund AIM Advantage Health Sciences Fund(1) AIM Municipal Bond Fund
AIM Mid Cap Basic Value Fund AIM Energy Fund(1) AIM Tax-Exempt Cash Fund
AIM Mid Cap Core Equity Fund(2) AIM Financial Services Fund(1) AIM Tax-Free Intermediate Fund
AIM Mid Cap Growth Fund AIM Global Health Care Fund
AIM Mid Cap Stock Fund(1) AIM Gold & Precious Metals Fund(1) AIM ALLOCATION SOLUTIONS
AIM Opportunities I Fund AIM Health Sciences Fund(1)
AIM Opportunities II Fund AIM Leisure Fund(1) AIM Aggressive Allocation Fund
AIM Opportunities III Fund AIM Multi-Sector Fund(1) AIM Conservative Allocation Fund
AIM Premier Equity Fund AIM Real Estate Fund AIM Moderate Allocation Fund
AIM S&P 500 Index Fund(1) AIM Technology Fund(1)
AIM Select Equity Fund AIM Utilities Fund(1)
AIM Small Cap Equity Fund(3)
AIM Small Cap Growth Fund(4) ===============================================================================
AIM Small Company Growth Fund(1) CONSIDER THE INVESTMENT OBJECTIVES, RISKS, AND CHARGES AND EXPENSES CAREFULLY.
AIM Total Return Fund*(1) FOR THIS AND OTHER INFORMATION ABOUT AIM FUNDS, OBTAIN A PROSPECTUS FROM YOUR
AIM Trimark Endeavor Fund FINANCIAL ADVISOR AND READ IT THOROUGHLY BEFORE INVESTING.
AIM Trimark Small Companies Fund ===============================================================================
AIM Weingarten Fund
</Table>
* Domestic equity and income fund
(1) The following name changes became effective October 15, 2004: INVESCO
Advantage Health Sciences Fund to AIM Advantage Health Sciences Fund, INVESCO
Core Equity Fund to AIM Core Stock Fund, INVESCO Dynamics Fund to AIM Dynamics
Fund, INVESCO Energy Fund to AIM Energy Fund, INVESCO Financial Services Fund to
AIM Financial Services Fund, INVESCO Gold & Precious Metals Fund to AIM Gold &
Precious Metals Fund, INVESCO Health Sciences Fund to AIM Health Sciences Fund,
INVESCO International Core Equity Fund to AIM International Core Equity Fund,
INVESCO Leisure Fund to AIM Leisure Fund, INVESCO Mid-Cap Growth Fund to AIM Mid
Cap Stock Fund, INVESCO Multi-Sector Fund to AIM Multi-Sector Fund, INVESCO S&P
500 Index Fund to AIM S&P 500 Index Fund, INVESCO Small Company Growth Fund to
AIM Small Company Growth Fund, INVESCO Technology Fund to AIM Technology Fund,
INVESCO Total Return Fund to AIM Total Return Fund, INVESCO U.S. Government
Money Fund to Premier U.S. Government Money Portfolio, INVESCO Utilities Fund to
AIM Utilities Fund. (2) As of the close of business on February 27, 2004, AIM
Mid Cap Core Equity Fund is available to new investors on a limited basis. For
information on who may continue to invest in AIM Mid Cap Core Equity Fund,
please contact your financial advisor. (3) Effective December 13, 2004, AIM
Small Cap Equity Fund is open to all investors. (4) AIM Small Cap Growth Fund
was closed to most investors on March 18, 2002. For information on who may
continue to invest in AIM Small Cap Growth Fund, please contact your financial
advisor. (5) AIM European Small Company Fund will close to new investors when
net assets reach $500 million. (6) Effective March 31, 2004, AIM Global Trends
Fund was renamed AIM Global Equity Fund. (7) AIM International Emerging Growth
Fund will close to new investors when net assets reach $500 million.
If used after January 20, 2005, this report must be accompanied by a fund
Performance & Commentary or by an AIM Quarterly Performance Review for the most
recent quarter-end. Mutual funds distributed by A I M Distributors, Inc.
A I M Management Group Inc. has provided leadership in the investment management
industry since 1976 and manages $132 billion in assets. AIM is a subsidiary of
AMVESCAP PLC, one of the world's largest independent financial services
companies with $363 billion in assets under management. Data as of September 30,
2004.
AIMinvestments.com MCG-AR-1 A I M Distributors. Inc.
<Table>
YOUR GOALS. OUR SOLUTIONS.--Registered Trademark--
- -------------------------------------------------------------------------------------
Mutual Retirement Annuities College Separately Offshore Alternative Cash [AIM INVESTMENTS LOGO APPEARS HERE]
Funds Products Savings Managed Products Investments Management --Registered Trademark--
Plans Accounts
- -------------------------------------------------------------------------------------
</Table>
APPENDIX III
AIM MID CAP GROWTH FUND
SEMIANNUAL REPORT TO SHAREHOLDERS o APRIL 30, 2005
[COVER IMAGE]
[YOUR GOALS. OUR SOLUTIONS.] [AIM INVESTMENTS LOGO APPEARS HERE]
- --Registered Trademark-- --Registered Trademark--
AIM MID CAP GROWTH FUND SEEKS TO PROVIDE LONG-TERM GROWTH OF CAPITAL.
o Unless otherwise stated, information presented in this report is as of April
30, 2005, and is based on total net assets.
<Table>
ABOUT SHARE CLASSES ABOUT INDEXES USED IN THIS REPORT o The returns shown in the Management's
Discussion of Fund Performance are based
Effective September 30, 2003, Class B o The unmanaged Standard & Poor's on net asset values calculated for
shares are not available as an Composite Index of 500 Stocks (the S&P shareholder transactions. Generally
investment for retirement plans 500--Registered Trademark-- Index) is an accepted accounting principles require
maintained pursuant to Section 401 of index of common stocks frequently used adjustments to be made to the net assets
the Internal Revenue Code, including as a general measure of U.S. stock of the Fund at period end for financial
401(k) plans, money purchase pension market performance. reporting purposes, and as such, the net
plans and profit sharing plans. Plans asset values for shareholder
that have existing accounts invested in o The unmanaged RussellMidcap transactions and the returns based on
Class B shares will continue to be --Registered Trademark-- Growth Index is those net asset values may differ from
allowed to make additional purchases. a subset of the Russell Midcap the net asset values and returns
--Registered Trademark-- Index, which reported in the Financial Highlights.
o Class R shares are available only to represents the performance of the stocks
certain retirement plans. Please see the of domestic mid-capitalization The Fund provides a complete list of its
prospectus for more information. companies; the Growth subset measures holdings four times in each fiscal year,
the performance of Russell Midcap at the quarter-ends. For the second and
PRINCIPAL RISKS OF INVESTING IN THE FUND companies with higher price/book ratios fourth quarters, the lists appear in the
and higher forecasted growth values. Fund's semiannual and annual reports to
o Investing in small and mid-size shareholders. For the first and third
companies involves risks not associated o The unmanaged Lipper Mid-Cap Growth quarters, the Fund files the lists with
with investing in more established Fund Index represents an average of the the Securities and Exchange Commission
companies, including business risk, performance of the 30 largest (SEC) on Form N-Q. Shareholders can look
significant stock price fluctuations and mid-capitalization growth funds tracked up the Fund's Forms N-Q on the SEC's Web
illiquidity. by Lipper, Inc., an independent mutual site at sec.gov. Copies of the Fund's
fund performance monitor. Forms N-Q may be reviewed and copied at
o The Fund may invest up to 25% of its the SEC's Public Reference Room at 450
assets in the securities of non-U.S. o The Fund is not managed to track the Fifth Street, N.W., Washington, D.C.
issuers. International investing performance of any particular index, 20549-0102. You can obtain information
presents certain risks not associated including the indexes defined here, and on the operation of the Public Reference
with investing solely in the United consequently, the performance of the Room, including information about
States. These include risks relating to Fund may deviate significantly from the duplicating fee charges, by calling
fluctuations in the value of the U.S. performance of the indexes. 1-202-942-8090 or 1-800-732-0330, or by
dollar relative to the values of other electronic request at the following
currencies, the custody arrangements o A direct investment cannot be made in e-mail address: publicinfo@sec.gov. The
made for the Fund's foreign holdings, an index. Unless otherwise indicated, SEC file numbers for the Fund are
differences in accounting, political index results include reinvested 811-1424 and 2-25469. The Fund's most
risks and the lesser degree of public dividends, and they do not reflect sales recent portfolio holdings, as filed on
information required to be provided by charges. Performance of an index of Form N-Q, are also available at
non-U.S. companies. funds reflects fund expenses; AIMinvestments.com.
Performance of a market index does not.
o Although investments in initial public A description of the policies and
offerings (IPOs) have had a positive OTHER INFORMATION procedures that the Fund uses to
impact on the Fund's performance in the determine how to vote proxies relating
past, there can be no assurance that the o Industry classifications used in this to portfolio securities is available
Fund will have favorable IPO investment report are generally according to the without charge, upon request, from our
opportunities in the future. Attractive Global Industry Classification Standard, Client Services department at
IPOs are often oversubscribed and may which was developed by and is the 800-959-4246 or on the AIM Web site,
not be available to the Fund, or may be exclusive property and a service mark of AIMinvestments.com. On the home page,
available in only very limited Morgan Stanley Capital International scroll down and click on AIM Funds Proxy
quantities. For additional information Inc. and Standard & Poor's. Policy. The information is also
regarding the Fund's performance, please available on the SEC Web site, sec.gov.
see the Fund's prospectus.
Information regarding how the Fund voted
proxies related to its portfolio
securities during the 12 months ended
June 30, 2004, 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 the Fund from the
drop-down menu. The information is also
available on the SEC Web site, sec.gov.
</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 GROWTH FUND
DEAR FELLOW SHAREHOLDERS:
Most equity market and fund indexes, domestic and
[GRAHAM international, produced positive total returns for
PHOTO] the six months ended April 30, 2005, but for the most
part, those positive numbers reflected gains made
during the latter months of 2004. Year-to-date as of
April 30, 2005, the returns were far less attractive.
High oil prices remained a source of unease; crude
ROBERT H. GRAHAM oil remained near or above $50 per barrel throughout
the reporting period. The Producer Price Index was up
fairly sharply in April, largely due to energy costs.
[WILLIAMSON And central bank policy continued to focus on
PHOTO] containing short-term inflation via increases in the
overnight federal funds interest rate, the rate the
Federal Reserve (the Fed) most directly controls.
Shortly after the reporting period closed, the Fed
raised that rate to 3%; it was the eighth increase
MARK H. WILLIAMSON since mid-2004. Should the Fed continue to raise
rates, this could eventually dampen economic
performance, which in fact has been quite good. Gross
domestic product grew 4.4% for all of 2004 and the
preliminary estimate of annualized growth for the
first quarter of 2005 was 3.5%.
o Though the growth rate of the manufacturing
sector slowed in April and again in May,
manufacturing continued to grow, according
to the Institute for Supply Management
(ISM), whose purchasing manager surveys
cover more than 80% of the U.S. economy. In
May, manufacturing grew for the 24th
consecutive month while the overall economy
grew for the 43rd consecutive month, ISM
reported.
o Though job growth during May was much slower
than during April, the unemployment rate
remained unchanged at 5.1% as May 2005
ended.
o For the first quarter of 2005, earnings for
companies included in the Standard & Poor's
Composite Index of 500 Stocks, an index of
the broad U.S. stock market, were up more
than 10%, on average, over a year earlier.
o Bond yields have not risen as much as might
be expected given eight increases in
short-term interest rates in less than a
year. This may indicate that the bond market
is not anticipating a long-term inflationary
pattern.
After the slow start in 2005, domestic and
many international markets began to rally after the
close of the reporting period, demonstrating once
again how changeable markets are in the short term.
Given the elusiveness of accurate short-term market
forecasts, as always, we urge our shareholders to:
o keep a long-term investment perspective,
o make sure their portfolio of investments is
suitably diversified, and
o contact their financial advisors when they
have questions about their investments or
the markets.
YOUR FUND
In the following pages you will find a discussion of
your Fund's investment philosophy, an explanation of
its performance for the reporting period, and a
summary of its portfolio as of April 30. Further
information about your Fund, The AIM Family of
Funds--Registered Trademark--, and investing in
general is always available on our widely praised Web
site, AIMinvestments.com. Please visit frequently.
We at AIM remain committed to building
solutions to help you meet your investment goals. We
thank you for your continued participation in AIM
Investments--Registered Trademark--. If you have any
questions, please contact our award-winning Client
Service representatives at 800-959-4246. We are happy
to be of help.
Sincerely,
/S/ ROBERT H. GRAHAM /S/ MARK H. WILLIAMSON
Robert H. Graham Mark H. Williamson
President & Vice Chair, Chairman & President,
AIM Funds A I M Advisors, Inc.
June 17, 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 MID CAP GROWTH FUND
<Table>
MANAGEMENT'S DISCUSSION OF FUND ======================================== We endeavor to control volatility and
PERFORMANCE risk by avoiding concentrating the
FUND VS. INDEXES Fund's assets in any one sector or
PERFORMANCE SUMMARY stock. Typically, the portfolio will
Total returns, 10/31/04-4/30/05, hold between 100 and 120 stocks. We
Stocks, as measured by the performance excluding applicable sales charges. If consider selling a stock for any of the
of the S&P 500 Index and other sales charges were included, returns following reasons:
benchmarks, generally posted lackluster would be lower.
returns over the period, amid investor o a stock reaches our valuation target;
concerns about higher oil prices and Class A Shares 1.43%
rising interest rates. These trends also o a change in fundamentals indicates
muted the Fund's performance. Class B Shares 1.14 problems for the company;
The Fund underperformed the S&P 500 Class C Shares 1.14 o the company moves into the large
Index and the Russell Midcap Growth capitalization range;
Index largely because of stock Class R Shares 1.44
selection. Its holdings in the o or a more attractive investment option
industrials and information technology S&P 500 Index (Broad-Based Index) 3.28 becomes available.
sectors detracted from its performance
relative to the Russell Midcap Growth Russell Midcap Growth Index MARKET CONDITIONS AND YOUR FUND
Index. The Fund's focus on valuation (Style-specific Index) 4.07
helped it fare somewhat better than its The S&P 500 Index recorded most of its
Lipper peer group, as value stocks Lipper Mid-Cap Growth Fund Index gains in the first two months of the
outperformed growth stocks over the (Peer-Group Index) 1.05 reporting period, as oil prices declined
period. and the uncertainty surrounding the U.S.
SOURCE: LIPPER,INC. presidential race was resolved. The S&P
HOW WE INVEST 500 Index declined in the first quarter
======================================== of 2005, as oil prices again increased
We use a bottom-up approach to and the Federal Reserve continued
investing, selecting stocks based on an companies with capable management teams raising interest rates to slow economic
analysis of individual companies. Our that have demonstrated an ability to use growth and curb potential inflation. In
goal is to produce consistent returns corporate income to realize additional this environment, investors generally
over the long-term by adhering to our business opportunities. favored more defensive sectors such as
investment process in all market utilities, energy and health care.
environments. We use a fundamentals- The portfolio is typically composed
driven investment discipline to identify of the stocks of core and earnings The inclusion of the stocks of both
attractively priced stocks of acceleration companies: core and earnings acceleration companies
mid-capitalization companies with in the portfolio benefited performance.
above-average earnings and cash flow o Core companies serve growing, The Fund's earnings acceleration
growth. We also seek to invest in non-cyclical markets and are industry holdings enhanced performance when these
leaders with consistent or growing stocks led the market rally early in the
market share. reporting period. When investor sentiment
shifted in favor of more
o Earnings acceleration companies are
those that could potentially benefit
from favorable near-term sector or
industry trends, production cycles or
other factors that could lead to rapid
sales or earnings growth.
======================================== ======================================== ========================================
PORTFOLIO COMPOSITION TOP 5 INDUSTRIES* TOP 10 EQUITY HOLDINGS*
By sectors
1. Health Care Equipment 6.7% 1. Kinetic Concepts, Inc. 1.6%
[PIE CHART]
Financials 9.3% 2. Semiconductors 5.5 2. Ultra Petroleum Corp. (Canada) 1.5
Health Care 19.5%
Money Market Funds Plus 3. Specialty Stores 5.0 3. Alliance Data Systems Corp. 1.4
Other Assets Less Liabilities 3.1%
Materials 1.0% 4. Communications Equipment 4.2 4. Hilton Hotels Corp. 1.3
Industrials 9.5%
Telecommunication Services 3.9% 5. Wireless Telecommunication 5. Microchip Technology Inc. 1.3
Consumer Discretionary 22.3% Services 3.9
Consumer Staples 1.1% 6. Corporate Executive Board Co.
Energy 8.2% TOTAL NET ASSETS $173.6 MILLION (The) 1.3
Information Technology 22.1%
TOTAL NUMBER OF HOLDINGS* 112 7. Coach, Inc. 1.3
8. Murphy Oil Corp. 1.2
9. Nextel Partners, Inc. -Class A 1.2
10. Investors Financial Services
Corp. 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>
defensive stocks, the Fund benefited o EXPRESS SCRIPTS, a leading pharmacy The views and opinions expressed in
from its core company holdings. benefits management company, processes management's discussion of Fund
prescriptions for pharmacies and offers performance are those of A I M Advisors,
For the reporting period, the two home delivery of prescription drugs via Inc. These views and opinions are
best-performing sectors for the Fund mail. The company reported a 26% subject to change at any time based on
were health care, which tends to be more increase in earnings for the first factors such as market and economic
defensive, and consumer discretionary, quarter of 2005 compared to the same conditions. These views and opinions may
which tends to be more cyclical. period for the previous year. Express not be relied upon as investment advice
Cyclical sectors historically have Scripts has benefited from greater use or recommendations, or as an offer for a
performed well in a growing economy. of generic and low-cost brand-name drugs particular security. The information is
Demand for health care services and and home delivery services. One of its not a complete analysis of every aspect
products tends to remain stable chief competitors, CAREMARK RX, also was of any market, country, industry,
regardless of economic trends. The a strong contributor to Fund security or the Fund. Statements of fact
consumer discretionary sector benefited performance. Detractors included: are from sources considered reliable,
from generally solid consumer spending. but A I M Advisors, Inc. makes no
o SIRVA, a global relocation services representation or warranty as to their
THE INCLUSION OF THE company, saw its stock decline when it completeness or accuracy. Although
STOCKS OF BOTH CORE AND announced that it would not meet its historical performance is no guarantee
EARNINGS ACCELERATION previously issued earnings guidance for of future results, these insights may
COMPANIES IN THE the fourth quarter of 2004. Reasons help you understand our investment
PORTFOLIO BENEFITED cited included accounting issues in its management philosophy.
PERFORMANCE. insurance and European operations and
lower- than-expected operating margins See important Fund and index
While we maintained about the same in each of its business segments. We disclosures inside front cover.
weighting in health care and consumer sold the stock.
discretionary, we increased the Fund's KARL FARMER, Chartered
holdings in energy, which generally o AVAYA, which produces communication [FARMER Financial Analyst, is
posted gains for the Fund. Energy stocks equipment and software, faltered on PHOTO] co-manager of AIM Mid Cap
benefited from rising oil prices. concerns that corporations may be slower Growth Fund. He spent six
to deploy the company's voice over years as a pension
Simultaneously, we reduced the Internet protocol (VoIP) products than actuary, focusing on retirement plans
portfolio's holdings in information originally expected. VoIP technology and other benefit programs, prior to
technology and industrials, the two allows users to make phone calls without joining AIM in July of 1998. He earned a
weakest-performing sectors for the Fund. incurring typical analog telephone B.S. in economics from Texas A&M
We observed a deterioration in company charges, such as for long-distance University, graduating magna cum laude.
fundamentals in these sectors. calls, and also allows the flexibility He subsequently earned his M.B.A. in
of connecting from virtually any finance from The Wharton School at the
Examples of stocks that enhanced location. We continued to hold the stock University of Pennsylvania.
performance included: because we believe more corporations
will ultimately realize the value of PAUL RASPLICKA, Chartered
o Nordstrom, a department store this technology and begin to use VoIP [RASPLICKA Financial Analyst, is
operator, is particularly reflective of products in the near future. PHOTO] co-manager of AIM Mid Cap
our investment discipline. The company Growth Fund. Mr. Rasplicka
targets higher-end customers who have IN CLOSING joined AIM in 1998. Mr.
generally been less affected by the slow Rasplicka began his investment career in
pace of the economic recovery and rising Although we are pleased to have provided 1982 as an equity research analyst. A
gas prices. In addition, the company has positive returns for our investors for native of Denver, Mr. Rasplicka is a
developed a reputation for excellent the reporting period, we are always magna cum laude graduate of the
customer service with its easy-return striving to improve performance and help University of Colorado in Boulder with a
policy and personal touches such as you meet your financial goals. We remain B.S. in business administration. He
thank-you notes from store employees. committed to our investment process of received an M.B.A. from the University
focusing on the attractively priced of Chicago. He is a Chartered Investment
stocks of mid-cap companies with growing Counselor.
earnings. Although growth stocks have
struggled in recent years, it is Assisted by Mid Cap Growth/GARP Team
important to remember that market
segments and investment styles go in and
out of favor. We believe our strategy
has the potential to provide investors [RIGHT ARROW GRAPHIC]
with attractive returns over the long
term and thank your for your commitment FOR A PRESENTATION OF YOUR FUND'S
to AIM Mid Cap Growth Fund. LONG-TERM PERFORMANCE RECORD, PLEASE
TURN TO PAGE 5.
</Table>
3
AIM MID CAP GROWTH FUND
CALCULATING YOUR ONGOING FUND EXPENSES
<Table>
EXAMPLE together with the amount you invested, values and expenses may not be used to
to estimate the expenses that you paid estimate the actual ending account
As a shareholder of the Fund, you incur over the period. Simply divide your balance or expenses you paid for the
two types of costs: (1) transaction account value by $1,000 (for example, an period. You may use this information to
costs, which may include sales charges $8,600 account value divided by $1,000 = compare the ongoing costs of investing
(loads) on purchase payments; contingent 8.6), then multiply the result by the in the Fund and other funds. To do so,
deferred sales charges on redemptions; number in the table under the heading compare this 5% hypothetical example
and redemption fees, if any; and (2) entitled "Actual Expenses Paid During with the 5% hypothetical examples that
ongoing costs, including management Period" to estimate the expenses you appear in the shareholder reports of the
fees; distribution and/or service fees paid on your account during this period. other funds.
(12b-1); and other Fund expenses. This
example is intended to help you HYPOTHETICAL EXAMPLE FOR COMPARISON Please note that the expenses shown
understand your ongoing costs (in PURPOSES in the table are meant to highlight your
dollars) of investing in the Fund and to ongoing costs only and do not reflect
compare these costs with ongoing costs The table below also provides any transactional costs, such as sales
of investing in other mutual funds. The information about hypothetical account charges (loads) on purchase payments,
example is based on an investment of values and hypothetical expenses based contingent deferred sales charges on
$1,000 invested at the beginning of the on the Fund's actual expense ratio and redemptions, and redemption fees, if
period and held for the entire period, an assumed rate of return of 5% per year any. Therefore, the hypothetical
November 1, 2004, through April 30, before expenses, which is not the Fund's information is useful in comparing
2005. actual return. The Fund's actual ongoing costs only, and will not help
cumulative total returns at net asset you determine the relative total costs
ACTUAL EXPENSES value after expenses for the six months of owning different funds. In addition,
ended April 30, 2005, appear in the if these transactional costs were
The table below provides information table "Fund vs. Indexes" on page 2. The included, your costs would have been
about actual account values and actual hypothetical account higher.
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 (11/1/04) (4/30/05)(1) PERIOD(2),(3) (4/30/05) PERIOD(2),(4)
A $1,000.00 $1,014.30 $8.77 $1,016.09 $8.77
B 1,000.00 1,011.40 11.99 1,012.87 12.00
C 1,000.00 1,011.40 11.99 1,012.87 12.00
R 1,000.00 1,014.40 9.52 1,015.34 9.52
(1) The actual ending account value is based on the actual total return of the Fund for the period November 1, 2004, to April 30,
2005, 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 Fund's actual cumulative total returns at net asset value
after expenses for the six months ended April 30, 2005, appear in the table "Fund vs. Indexes" on page 2.
(2) Expenses are equal to the Fund's annualized expense ratio (1.76%, 2.41%, 2.41% and 1.91% for Class A, B, C, and R shares,
respectively) multiplied by the average account value over the period, multiplied by 181/365 (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 these agreements had been in effect throughout the entire most recent fiscal half year
are 1.74%, 2.39%, 2.39% and 1.89% 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 $8.69, $11.92, $11.92 and $9.44 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 $8.70, $11.93, $11.93 and $9.44 for Class A, B, C and R shares, respectively.
====================================================================================================================================
</Table>
[ARROW For More Information Visit
BUTTON AIMINVESTMENTS.COM
IMAGE]
4
AIM MID CAP GROWTH FUND
YOUR FUND'S LONG-TERM PERFORMANCE
Below you will find a presentation of your Fund's performance record for
periods ended April 30, 2005, the close of the six-month period covered by
this report.
Please read the important disclosure accompanying these tables, which explains
how Fund performance is calculated and the sales charges, if any, that apply
to the share class in which you are invested.
In addition to returns as of the close of the reporting period, industry
regulations require us to provide average annual total returns as of March 31,
2005, the most recent calendar quarter-end.
<Table>
======================================== ========================================
AVERAGE ANNUAL TOTAL RETURNS AVERAGE ANNUAL TOTAL RETURNS
As of 4/30/05, including applicable sales As of 3/31/05, including applicable sales
charges charges
CLASS A SHARES CLASS A SHARES
Inception (11/1/99) -2.49% Inception (11/1/99) -1.40%
5 Years -10.74 5 Years -12.04
1 Year -5.64 1 Year -5.31
CLASS B SHARES CLASS B SHARES
Inception (11/1/99) -2.34% Inception (11/1/99) -1.24%
5 Years -10.68 5 Years -11.99
1 Year -5.64 1 Year -5.40
CLASS C SHARES CLASS C SHARES
Inception (11/1/99) -2.16% Inception (11/1/99) -1.06%
5 Years -10.33 5 Years -11.63
1 Year -1.67 1 Year -1.42
CLASS R SHARES CLASS R SHARES
Inception -1.65% Inception -0.56%
5 Years -9.88 5 Years -11.21
1 Year -0.22 1 Year 0.10
======================================== ========================================
CLASS R SHARES' INCEPTION DATE IS JUNE PERFORMANCE FIGURES REFLECT REINVESTED THE CDSC ON CLASS B SHARES DECLINES FROM
3, 2002. RETURNS SINCE THAT DATE ARE DISTRIBUTIONS, CHANGES IN NET ASSET 5% BEGINNING AT THE TIME OF PURCHASE TO
HISTORICAL RETURNS. ALL OTHER RETURNS VALUE AND THE EFFECT OF THE MAXIMUM 0% AT THE BEGINNING OF THE SEVENTH YEAR.
ARE BLENDED RETURNS OF HISTORICAL CLASS SALES CHARGE UNLESS OTHERWISE STATED. THE CDSC ON CLASS C SHARES IS 1% FOR THE
R SHARE PERFORMANCE AND RESTATED CLASS A PERFORMANCE FIGURES DO NOT REFLECT FIRST YEAR AFTER PURCHASE. CLASS R
SHARE PERFORMANCE (FOR PERIODS PRIOR TO DEDUCTION OF TAXES A SHAREHOLDER WOULD SHARES DO NOT HAVE A FRONT-END SALES
THE INCEPTION DATE OF CLASS R SHARES) AT PAY ON FUND DISTRIBUTIONS OR SALE OF CHARGE; RETURNS SHOWN ARE AT NET ASSET
NET ASSET VALUE, ADJUSTED TO REFLECT THE FUND SHARES. INVESTMENT RETURN AND VALUE AND DO NOT REFLECT A 0.75% CDSC
HIGHER RULE 12b-1 FEES APPLICABLE TO PRINCIPAL VALUE WILL FLUCTUATE SO THAT THAT MAY BE IMPOSED ON A TOTAL
CLASS R SHARES. YOU MAY HAVE A GAIN OR LOSS WHEN YOU REDEMPTION OF RETIREMENT PLAN ASSETS
SELL SHARES. WITHIN THE FIRST YEAR. THE PERFORMANCE
THE PERFORMANCE DATA QUOTED REPRESENT OF THE FUND'S SHARE CLASSES WILL DIFFER
PAST PERFORMANCE AND CANNOT GUARANTEE CLASS A SHARE PERFORMANCE REFLECTS DUE TO DIFFERENT SALES CHARGE STRUCTURES
COMPARABLE FUTURE RESULTS; CURRENT THE MAXIMUM 5.50% SALES CHARGE, AND AND CLASS EXPENSES.
PERFORMANCE MAY BE LOWER OR HIGHER. CLASS B AND CLASS C SHARE PERFORMANCE
PLEASE VISIT AIMINVESTMENTS.COM FOR THE REFLECTS THE APPLICABLE CONTINGENT
MOST RECENT MONTH-END PERFORMANCE. DEFERRED SALES CHARGE (CDSC) FOR THE
PERIOD INVOLVED.
</Table>
5
SUPPLEMENT TO SEMIANNUAL REPORT DATED 4/30/05
AIM MID CAP GROWTH FUND
<Table>
INSTITUTIONAL CLASS SHARES ======================================== PLEASE NOTE THAT PAST PERFORMANCE IS NOT
AVERAGE ANNUAL TOTAL RETURNS INDICATIVE OF FUTURE RESULTS. MORE
The following information has been For periods ended 4/30/05 RECENT RETURNS MAY BE MORE OR LESS THAN
prepared to provide Institutional Class THOSE SHOWN. ALL RETURNS ASSUME
shareholders with a performance overview Inception -1.35% REINVESTMENT OF DISTRIBUTIONS AT NET
specific to their holdings. 5 Years -9.59 ASSET VALUE. INVESTMENT RETURN AND
Institutional Class shares are offered 1 Year 0.65 PRINCIPAL VALUE WILL FLUCTUATE SO YOUR
exclusively to institutional investors, 6 Months* 1.87 SHARES, WHEN REDEEMED, MAY BE WORTH MORE
including defined contribution plans ======================================== OR LESS THAN THEIR ORIGINAL COST. SEE
that meet certain criteria. FULL REPORT FOR INFORMATION ON
======================================== COMPARATIVE BENCHMARKS. PLEASE CONSULT
AVERAGE ANNUAL TOTAL RETURNS YOUR FUND PROSPECTUS FOR MORE
For periods ended 3/31/05, most recent INFORMATION. FOR THE MOST CURRENT
calendar quarter-end MONTH-END PERFORMANCE, PLEASE CALL
800-451-4246 OR VISIT
Inception -0.26% AIMINVESTMENTS.COM.
5 Years -10.93
1 Year 0.82
6 Months* 11.79
*Cumulative total return that has not
been annualized
========================================
INSTITUTIONAL CLASS SHARES' INCEPTION
DATE IS APRIL 30, 2004. RETURNS SINCE
THAT DATE ARE HISTORICAL RETURNS. ALL
OTHER RETURNS ARE BLENDED RETURNS OF
HISTORICAL INSTITUTIONAL CLASS SHARE
PERFORMANCE AND RESTATED CLASS A SHARE
PERFORMANCE (FOR PERIODS PRIOR TO THE
INCEPTION DATE OF INSTITUTIONAL CLASS
SHARES) AT NET ASSET VALUE AND REFLECT
THE HIGHER RULE 12B-1 FEES APPLICABLE TO
CLASS A SHARES. CLASS A SHARES'
INCEPTION DATE IS NOVEMBER 1, 1999.
INSTITUTIONAL CLASS SHARES HAVE NO
SALES CHARGE; THEREFORE, PERFORMANCE IS
AT NAV. INSTITUTIONAL CLASS SHARES WOULD
HAVE HAD DIFFERENT RETURNS DUE TO
DIFFERENCES IN THE EXPENSE STRUCTURE OF
THE INSTITUTIONAL CLASS.
</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.
AIMINVESTMENTS.COM MCG-INS-2 [YOUR GOALS. OUR SOLUTIONS.] [AIM INVESTMENTS LOGO APPEARS HERE]
--Registered Trademark-- --Registered Trademark--
INFORMATION ABOUT YOUR FUND'S EXPENSES
CALCULATING YOUR ONGOING FUND EXPENSES
<Table>
EXAMPLE Simply divide your account value by the table on the front of this
$1,000 (for example, an $8,600 account supplement. The hypothetical account
As a shareholder of the Fund, you incur value divided by $1,000 = 8.6), then values and expenses may not be used to
ongoing costs, including management multiply the result by the number in the estimate the actual ending account
fees; and other Fund expenses. This table under the heading entitled "Actual balance or expenses you paid for the
example is intended to help you Expenses Paid During Period" to estimate period. You may use this information to
understand your ongoing costs (in the expenses you paid on your account compare the ongoing costs of investing
dollars) of investing in the Fund and to during this period. in the Fund and other funds. To do so,
compare these costs with ongoing costs compare this 5% hypothetical example
of investing in other mutual funds. The HYPOTHETICAL EXAMPLE FOR with the 5% hypothetical examples that
example is based on an investment of COMPARISON PURPOSES appear in the shareholder reports of the
$1,000 invested at the beginning of the other funds.
period and held for the entire period The table below also provides
November 1, 2004, through April 30, information about hypothetical account Please note that the expenses shown
2005. values and hypothetical expenses based in the table are meant to highlight your
on the Fund's actual expense ratio and ongoing costs only. Therefore, the
ACTUAL EXPENSES an assumed rate of return of 5% per year hypothetical information is useful in
before expenses, which is not the Fund's comparing ongoing costs only, and will
The table below provides information actual return. The Fund's actual not help you determine the relative
about actual account values and actual cumulative total return after expenses total costs of owning different funds.
expenses. You may use the information in for the six months ended April 30, 2005,
this table, together with the amount you appears in
invested, to estimate the expenses that
you paid over the period.
====================================================================================================================================
ACTUAL HYPOTHETICAL
(5% ANNUAL RETURN BEFORE EXPENSES)
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES ENDING ACCOUNT EXPENSES
SHARE VALUE VALUE PAID DURING VALUE PAID DURING
CLASS (11/1/04) (4/30/05)(1) PERIOD(2,3) (4/30/05) PERIOD(2,4)
Institutional $1,000.00 $1,018.70 $5.04 $1,019.81 $5.04
(1) The actual ending account value is based on the actual total return of the Fund for the period November 1, 2004, to April 30,
2005, 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 Fund's actual cumulative total return after expenses for the
six months ended April 30, 2005, appears in the table on the front of this supplement.
(2) Expenses are equal to the Fund's annualized expense ratio, 1.01% for the Institutional Class shares, multiplied by the average
account value over the period, multiplied by 181/365 (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 is 0.99% for the Institutional Class shares.
(3) The actual expenses paid restated as if the changes discussed above had been in effect throughout the entire most recent fiscal
half year are $4.96 for the Institutional Class shares.
(4) The hypothetical expenses paid restated as if the changes discussed above had been in effect throughout the entire most recent
fiscal half year are $4.96 for the Institutional Class shares.
====================================================================================================================================
</Table>
AIMINVESTMENTS.COM MCG-INS-2
FINANCIALS
SCHEDULE OF INVESTMENTS
April 30, 2005
(Unaudited)
<Table>
<Caption>
MARKET
SHARES VALUE
- -----------------------------------------------------------------------
COMMON STOCKS & OTHER EQUITY INTERESTS-96.94%
ADVERTISING-0.86%
Omnicom Group Inc. 18,000 $ 1,492,200
=======================================================================
AEROSPACE & DEFENSE-1.08%
L-3 Communications Holdings, Inc. 26,500 1,880,705
=======================================================================
AIR FREIGHT & LOGISTICS-0.80%
Robinson (C.H.) Worldwide, Inc. 27,000 1,393,200
=======================================================================
APPAREL RETAIL-2.31%
Abercrombie & Fitch Co.-Class A 22,000 1,186,900
- -----------------------------------------------------------------------
Chico's FAS, Inc.(a) 53,000 1,358,390
- -----------------------------------------------------------------------
Urban Outfitters, Inc.(a) 33,000 1,461,900
=======================================================================
4,007,190
=======================================================================
APPAREL, ACCESSORIES & LUXURY GOODS-2.19%
Coach, Inc.(a) 83,000 2,224,400
- -----------------------------------------------------------------------
Polo Ralph Lauren Corp. 45,000 1,579,500
=======================================================================
3,803,900
=======================================================================
APPLICATION SOFTWARE-3.35%
Amdocs Ltd. (United Kingdom)(a) 60,000 1,602,600
- -----------------------------------------------------------------------
Autodesk, Inc.(a) 35,100 1,117,233
- -----------------------------------------------------------------------
Mercury Interactive Corp.(a) 36,000 1,487,880
- -----------------------------------------------------------------------
MicroStrategy Inc.-Class A(a) 18,000 783,540
- -----------------------------------------------------------------------
NAVTEQ Corp.(a) 22,700 826,734
=======================================================================
5,817,987
=======================================================================
ASSET MANAGEMENT & CUSTODY BANKS-2.07%
Investors Financial Services Corp.(b) 50,000 2,097,500
- -----------------------------------------------------------------------
Legg Mason, Inc. 21,000 1,488,060
=======================================================================
3,585,560
=======================================================================
AUTO PARTS & EQUIPMENT-0.87%
Autoliv, Inc. 34,000 1,504,500
=======================================================================
BIOTECHNOLOGY-3.85%
Charles River Laboratories International,
Inc.(a) 40,400 1,913,748
- -----------------------------------------------------------------------
Eyetech Pharmaceuticals Inc.(a) 30,000 689,700
- -----------------------------------------------------------------------
Gilead Sciences, Inc.(a) 45,000 1,669,500
- -----------------------------------------------------------------------
Invitrogen Corp.(a) 14,000 1,025,780
- -----------------------------------------------------------------------
Martek Biosciences Corp.(a)(b) 36,000 1,377,720
=======================================================================
6,676,448
=======================================================================
CASINOS & GAMING-0.93%
Station Casinos, Inc. 25,000 1,613,250
=======================================================================
</Table>
<Table>
MARKET
SHARES VALUE
- -----------------------------------------------------------------------
<Caption>
COMMODITY CHEMICALS-1.03%
Celanese Corp.-Series A(a) 122,400 $ 1,780,920
=======================================================================
COMMUNICATIONS EQUIPMENT-4.23%
Avaya Inc.(a) 140,000 1,215,200
- -----------------------------------------------------------------------
Comverse Technology, Inc.(a) 58,000 1,321,820
- -----------------------------------------------------------------------
Corning Inc.(a) 100,000 1,375,000
- -----------------------------------------------------------------------
Juniper Networks, Inc.(a) 88,200 1,992,438
- -----------------------------------------------------------------------
Scientific-Atlanta, Inc. 47,000 1,437,260
=======================================================================
7,341,718
=======================================================================
COMPUTER STORAGE & PERIPHERALS-1.27%
QLogic Corp.(a) 40,000 1,329,600
- -----------------------------------------------------------------------
Storage Technology Corp.(a) 31,700 881,260
=======================================================================
2,210,860
=======================================================================
CONSUMER FINANCE-0.67%
First Marblehead Corp. (The)(a)(b) 30,000 1,155,900
=======================================================================
DATA PROCESSING & OUTSOURCED SERVICES-2.02%
Alliance Data Systems Corp.(a) 58,000 2,343,200
- -----------------------------------------------------------------------
Iron Mountain Inc.(a) 39,000 1,158,300
=======================================================================
3,501,500
=======================================================================
DEPARTMENT STORES-2.27%
Kohl's Corp.(a) 40,000 1,904,000
- -----------------------------------------------------------------------
Nordstrom, Inc. 40,000 2,033,200
=======================================================================
3,937,200
=======================================================================
DIVERSIFIED BANKS-0.98%
Centennial Bank Holdings, Inc. (Acquired
12/27/04; Cost $1,653,750)(a)(c) 157,500 1,701,000
=======================================================================
DIVERSIFIED COMMERCIAL SERVICES-3.71%
Career Education Corp.(a) 33,800 1,062,672
- -----------------------------------------------------------------------
ChoicePoint Inc.(a) 36,400 1,436,708
- -----------------------------------------------------------------------
Corporate Executive Board Co. (The) 34,000 2,234,820
- -----------------------------------------------------------------------
Corrections Corp. of America(a) 45,000 1,703,250
=======================================================================
6,437,450
=======================================================================
DRUG RETAIL-1.08%
Shoppers Drug Mart Corp. (Canada)(a) 60,000 1,871,498
=======================================================================
ELECTRICAL COMPONENTS & EQUIPMENT-0.98%
Cooper Industries, Ltd.-Class A (Bermuda) 26,700 1,699,722
=======================================================================
</Table>
F-1
<Table>
<Caption>
MARKET
SHARES VALUE
- -----------------------------------------------------------------------
ELECTRONIC EQUIPMENT MANUFACTURERS-0.61%
Amphenol Corp.-Class A 27,000 $ 1,064,880
=======================================================================
ELECTRONIC MANUFACTURING SERVICES-0.78%
Benchmark Electronics, Inc.(a) 50,000 1,352,000
=======================================================================
GENERAL MERCHANDISE STORES-1.49%
Dollar General Corp. 80,700 1,642,245
- -----------------------------------------------------------------------
Dollar Tree Stores, Inc.(a) 38,300 937,967
=======================================================================
2,580,212
=======================================================================
HEALTH CARE DISTRIBUTORS-0.86%
Schein (Henry), Inc.(a) 40,000 1,500,400
=======================================================================
HEALTH CARE EQUIPMENT-6.66%
Biomet, Inc. 42,000 1,624,980
- -----------------------------------------------------------------------
Fisher Scientific International Inc.(a) 24,000 1,425,120
- -----------------------------------------------------------------------
INAMED Corp.(a) 15,000 912,600
- -----------------------------------------------------------------------
Kinetic Concepts, Inc.(a) 45,000 2,765,250
- -----------------------------------------------------------------------
PerkinElmer, Inc. 99,000 1,831,500
- -----------------------------------------------------------------------
Varian Medical Systems, Inc.(a) 41,900 1,413,706
- -----------------------------------------------------------------------
Waters Corp.(a) 40,000 1,585,200
=======================================================================
11,558,356
=======================================================================
HEALTH CARE FACILITIES-1.05%
Community Health Systems Inc.(a) 50,000 1,822,500
=======================================================================
HEALTH CARE SERVICES-3.52%
Caremark Rx, Inc.(a) 45,000 1,802,250
- -----------------------------------------------------------------------
Cerner Corp.(a)(b) 20,000 1,161,200
- -----------------------------------------------------------------------
Express Scripts, Inc.(a) 18,000 1,613,520
- -----------------------------------------------------------------------
Renal Care Group, Inc.(a) 40,000 1,526,000
=======================================================================
6,102,970
=======================================================================
HEALTH CARE SUPPLIES-1.01%
Cooper Cos., Inc. (The) 25,900 1,749,545
=======================================================================
HOME FURNISHINGS-0.53%
Tempur-Pedic International Inc.(a) 48,000 916,320
=======================================================================
HOMEBUILDING-1.03%
Pulte Homes, Inc. 25,000 1,786,250
=======================================================================
HOTELS, RESORTS & CRUISE LINES-2.26%
Hilton Hotels Corp. 105,000 2,292,150
- -----------------------------------------------------------------------
Starwood Hotels & Resorts Worldwide, Inc.(d) 30,000 1,630,200
=======================================================================
3,922,350
=======================================================================
HOUSEWARES & SPECIALTIES-1.53%
Fortune Brands, Inc. 10,200 862,716
- -----------------------------------------------------------------------
Jarden Corp.(a) 40,000 1,786,800
=======================================================================
2,649,516
=======================================================================
</Table>
<Table>
MARKET
SHARES VALUE
- -----------------------------------------------------------------------
<Caption>
INDUSTRIAL MACHINERY-0.53%
Ingersoll-Rand Co. Ltd.-Class A (Bermuda) 12,000 $ 922,440
=======================================================================
INTEGRATED OIL & GAS-1.23%
Murphy Oil Corp. 24,000 2,138,160
=======================================================================
INTERNET SOFTWARE & SERVICES-1.88%
Digital River, Inc.(a) 45,500 1,210,300
- -----------------------------------------------------------------------
VeriSign, Inc.(a) 77,300 2,045,358
=======================================================================
3,255,658
=======================================================================
IT CONSULTING & OTHER SERVICES-0.99%
Cognizant Technology Solutions Corp.-Class
A(a) 41,000 1,722,410
=======================================================================
LEISURE PRODUCTS-0.48%
Brunswick Corp. 20,000 840,000
=======================================================================
MANAGED HEALTH CARE-0.36%
AMERIGROUP Corp.(a) 18,000 632,160
=======================================================================
MULTI-LINE INSURANCE-0.19%
Quanta Capital Holdings Ltd. (Bermuda)(a) 41,177 329,416
=======================================================================
OFFICE ELECTRONICS-0.56%
Zebra Technologies Corp.-Class A(a) 20,400 974,304
=======================================================================
OIL & GAS DRILLING-2.02%
Nabors Industries, Ltd. (Bermuda)(a) 32,000 1,723,840
- -----------------------------------------------------------------------
Noble Corp. (Cayman Islands) 35,000 1,781,500
=======================================================================
3,505,340
=======================================================================
OIL & GAS EQUIPMENT & SERVICES-2.51%
National-Oilwell Varco Inc.(a) 37,000 1,470,380
- -----------------------------------------------------------------------
Smith International, Inc. 30,000 1,745,400
- -----------------------------------------------------------------------
Weatherford International Ltd. (Bermuda)(a) 22,000 1,147,300
=======================================================================
4,363,080
=======================================================================
OIL & GAS EXPLORATION & PRODUCTION-1.45%
Ultra Petroleum Corp. (Canada)(a) 50,000 2,524,000
=======================================================================
OIL & GAS REFINING, MARKETING &
TRANSPORTATION-1.03%
Williams Cos., Inc. (The) 105,000 1,787,100
=======================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES-1.06%
CapitalSource Inc.(a) 88,000 1,848,000
=======================================================================
PHARMACEUTICALS-2.23%
Medicis Pharmaceutical Corp.-Class A 32,000 899,200
- -----------------------------------------------------------------------
MGI Pharma, Inc.(a) 64,000 1,411,200
- -----------------------------------------------------------------------
Valeant Pharmaceuticals International 75,000 1,556,250
=======================================================================
3,866,650
=======================================================================
</Table>
F-2
<Table>
<Caption>
MARKET
SHARES VALUE
- -----------------------------------------------------------------------
PUBLISHING-0.49%
Getty Images, Inc.(a) 12,000 $ 858,600
=======================================================================
RAILROADS-0.49%
CSX Corp. 21,000 842,730
=======================================================================
REAL ESTATE-1.84%
Aames Investment Corp. 152,400 1,287,780
- -----------------------------------------------------------------------
People's Choice Financial Corp. (Acquired
12/21/04; Cost $1,897,000)(a)(c) 189,700 1,897,000
=======================================================================
3,184,780
=======================================================================
REAL ESTATE MANAGEMENT & DEVELOPMENT-1.16%
CB Richard Ellis Group, Inc.-Class A(a) 57,900 2,012,025
=======================================================================
REGIONAL BANKS-0.56%
Signature Bank(a) 39,600 975,348
=======================================================================
SEMICONDUCTOR EQUIPMENT-0.98%
Novellus Systems, Inc.(a) 36,000 843,480
- -----------------------------------------------------------------------
Tessera Technologies Inc.(a) 32,400 860,544
=======================================================================
1,704,024
=======================================================================
SEMICONDUCTORS-5.45%
Altera Corp.(a) 100,000 2,073,000
- -----------------------------------------------------------------------
ATI Technologies Inc. (Canada)(a) 114,700 1,697,560
- -----------------------------------------------------------------------
Marvell Technology Group Ltd. (Bermuda)(a) 45,000 1,506,600
- -----------------------------------------------------------------------
Microchip Technology Inc. 80,000 2,278,400
- -----------------------------------------------------------------------
National Semiconductor Corp. 100,000 1,908,000
=======================================================================
9,463,560
=======================================================================
SPECIALIZED FINANCE-0.72%
Chicago Mercantile Exchange Holdings Inc. 6,400 1,251,328
=======================================================================
SPECIALTY STORES-5.01%
Advance Auto Parts, Inc.(a) 37,000 1,973,950
- -----------------------------------------------------------------------
Bed Bath & Beyond Inc.(a) 40,000 1,488,400
- -----------------------------------------------------------------------
Office Depot, Inc.(a) 76,000 1,488,080
- -----------------------------------------------------------------------
Staples, Inc. 91,500 1,744,905
- -----------------------------------------------------------------------
Williams-Sonoma, Inc.(a) 59,500 1,992,655
=======================================================================
8,687,990
=======================================================================
</Table>
<Table>
MARKET
SHARES VALUE
- -----------------------------------------------------------------------
<Caption>
TRADING COMPANIES & DISTRIBUTORS-1.40%
MSC Industrial Direct Co., Inc.-Class A 57,000 $ 1,531,590
- -----------------------------------------------------------------------
W.W. Grainger, Inc. 16,300 901,227
=======================================================================
2,432,817
=======================================================================
TRUCKING-0.53%
Swift Transportation Co., Inc.(a) 43,000 917,190
=======================================================================
WIRELESS TELECOMMUNICATION SERVICES-3.91%
American Tower Corp.-Class A(a) 82,600 1,423,198
- -----------------------------------------------------------------------
Nextel Partners, Inc.-Class A(a) 90,000 2,116,800
- -----------------------------------------------------------------------
NII Holdings Inc.(a) 28,000 1,401,960
- -----------------------------------------------------------------------
SpectraSite, Inc.(a) 33,000 1,852,290
=======================================================================
6,794,248
=======================================================================
Total Common Stocks & Other Equity
Interests (Cost $154,999,096) 168,251,365
=======================================================================
MONEY MARKET FUNDS-2.75%
Liquid Assets Portfolio-Institutional
Class(e) 2,385,692 2,385,692
- -----------------------------------------------------------------------
STIC Prime Portfolio-Institutional Class(e) 2,385,692 2,385,692
=======================================================================
Total Money Market Funds (Cost
$4,771,384) 4,771,384
=======================================================================
TOTAL INVESTMENTS-99.69% (excluding
investments purchased with cash collateral
from securities loaned) (Cost $159,770,480) 173,022,749
=======================================================================
INVESTMENTS PURCHASED WITH CASH COLLATERAL
FROM SECURITIES LOANED
MONEY MARKET FUNDS-2.72%
STIC Prime Portfolio-Institutional
Class(e)(f) 4,723,100 4,723,100
=======================================================================
Total Money Market Funds (purchased with
cash collateral from securities loaned)
(Cost $4,723,100) 4,723,100
=======================================================================
TOTAL INVESTMENTS-102.41% (Cost $164,493,580) 177,745,849
=======================================================================
OTHER ASSETS LESS LIABILITIES-(2.41%) (4,190,098)
=======================================================================
NET ASSETS-100.00% $173,555,751
_______________________________________________________________________
=======================================================================
</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 April 30, 2005.
(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 April 30, 2005 was
$3,598,000, which represented 2.07% of the Fund's Net Assets. These
securities are considered to be illiquid; the portfolio is limited to
investing 15% of net assets in illiquid securities.
(d) Each unit represents one common share and one Class B share.
(e) The money market fund and the Fund are affiliated by having the same
investment advisor. See Note 3.
(f) The security has been segregated to satisfy the forward commitment to return
the cash collateral received in securities lending transactions upon the
borrower's return of the securities loaned. See Note 8.
See accompanying notes which are an integral part of the financial statements.
F-3
STATEMENT OF ASSETS AND LIABILITIES
April 30, 2005
(Unaudited)
<Table>
ASSETS:
Investments, at market value (cost
$154,999,096)* $ 168,251,365
- ------------------------------------------------------------
Investments in affiliated money market funds
(cost $9,494,484) 9,494,484
============================================================
Total investments (cost $164,493,580) 177,745,849
============================================================
Receivables for:
Investments sold 2,369,701
- ------------------------------------------------------------
Fund shares sold 79,121
- ------------------------------------------------------------
Dividends 61,133
- ------------------------------------------------------------
Investment for trustee deferred compensation
and retirement plans 24,529
- ------------------------------------------------------------
Other assets 27,946
============================================================
Total assets 180,308,279
____________________________________________________________
============================================================
LIABILITIES:
Payables for:
Investments purchased 1,300,277
- ------------------------------------------------------------
Fund shares reacquired 407,921
- ------------------------------------------------------------
Trustee deferred compensation and
retirement plans 32,061
- ------------------------------------------------------------
Collateral upon return of securities loaned 4,723,100
- ------------------------------------------------------------
Accrued distribution fees 95,667
- ------------------------------------------------------------
Accrued trustees' and officer's fees and
benefits 1,383
- ------------------------------------------------------------
Accrued transfer agent fees 140,290
- ------------------------------------------------------------
Accrued operating expenses 51,829
============================================================
Total liabilities 6,752,528
============================================================
Net assets applicable to shares outstanding $ 173,555,751
____________________________________________________________
============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $ 282,014,629
- ------------------------------------------------------------
Undistributed net investment income (loss) (1,592,487)
- ------------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities and foreign
currencies (120,118,527)
- ------------------------------------------------------------
Unrealized appreciation of investment
securities and foreign currencies 13,252,136
============================================================
$ 173,555,751
____________________________________________________________
============================================================
NET ASSETS:
Class A $ 88,060,287
____________________________________________________________
============================================================
Class B $ 62,328,884
____________________________________________________________
============================================================
Class C $ 22,078,567
____________________________________________________________
============================================================
Class R $ 1,077,949
____________________________________________________________
============================================================
Institutional Class $ 10,064
____________________________________________________________
============================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER
SHARE, UNLIMITED NUMBER OF SHARES
AUTHORIZED:
Class A 9,560,702
____________________________________________________________
============================================================
Class B 7,029,958
____________________________________________________________
============================================================
Class C 2,489,778
____________________________________________________________
============================================================
Class R 117,727
____________________________________________________________
============================================================
Institutional Class 1,085
____________________________________________________________
============================================================
Class A:
Net asset value per share $ 9.21
- ------------------------------------------------------------
Offering price per share:
(Net asset value of $9.21 divided by
94.50%) $ 9.75
____________________________________________________________
============================================================
Class B:
Net asset value and offering price per
share $ 8.87
____________________________________________________________
============================================================
Class C:
Net asset value and offering price per
share $ 8.87
____________________________________________________________
============================================================
Class R:
Net asset value and offering price per
share $ 9.16
____________________________________________________________
============================================================
Institutional Class:
Net asset value and offering price per
share $ 9.28
____________________________________________________________
============================================================
</Table>
* At April 30, 2005, securities with an aggregate market value of $3,721,463
were on loan to brokers.
See accompanying notes which are an integral part of the financial statements.
F-4
STATEMENT OF OPERATIONS
For the six months ended April 30, 2005
(Unaudited)
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $2,182) $ 462,289
- --------------------------------------------------------------------------
Dividends from affiliated money market funds (includes
securities lending income of $7,003 after rebates of
$57,773) 59,761
==========================================================================
Total investment income 522,050
==========================================================================
EXPENSES:
Advisory fees 807,397
- --------------------------------------------------------------------------
Administrative services fees 24,795
- --------------------------------------------------------------------------
Custodian fees 7,582
- --------------------------------------------------------------------------
Distribution fees:
Class A 181,426
- --------------------------------------------------------------------------
Class B 359,708
- --------------------------------------------------------------------------
Class C 125,661
- --------------------------------------------------------------------------
Class R 2,733
- --------------------------------------------------------------------------
Transfer agent fees -- Class A, B, C and R 507,388
- --------------------------------------------------------------------------
Transfer agent fees -- Institutional Class 5
- --------------------------------------------------------------------------
Trustees' and officer's fees and benefits 11,111
- --------------------------------------------------------------------------
Other 106,055
==========================================================================
Total expenses 2,133,861
==========================================================================
Less: Fees waived, expenses reimbursed and expense offset
arrangement (48,695)
==========================================================================
Net expenses 2,085,166
==========================================================================
Net investment income (loss) (1,563,116)
==========================================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES AND FOREIGN CURRENCIES:
Net realized gain (loss) from:
Investment securities (includes gains (losses) from
securities sold to affiliates of $(318,507)) 19,028,063
- --------------------------------------------------------------------------
Foreign currencies (1,671)
==========================================================================
19,026,392
==========================================================================
Change in net unrealized appreciation (depreciation) of:
Investment securities (13,408,650)
- --------------------------------------------------------------------------
Foreign currencies 6,416
==========================================================================
(13,402,234)
==========================================================================
Net gain from investment securities and foreign currencies 5,624,158
==========================================================================
Net increase in net assets resulting from operations $ 4,061,042
__________________________________________________________________________
==========================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
F-5
STATEMENT OF CHANGES IN NET ASSETS
For the six months ended April 30, 2005 and the year ended October 31, 2004
(Unaudited)
<Table>
<Caption>
APRIL 30, OCTOBER 31,
2005 2004
- ------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (1,563,116) $ (3,749,647)
- ------------------------------------------------------------------------------------------
Net realized gain from investment securities and foreign
currencies 19,026,392 9,151,671
- ------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities and foreign currencies (13,402,234) (2,982,396)
==========================================================================================
Net increase in net assets resulting from operations 4,061,042 2,419,628
==========================================================================================
Share transactions-net:
Class A (13,470,372) (10,422,993)
- ------------------------------------------------------------------------------------------
Class B (9,440,141) (11,811,705)
- ------------------------------------------------------------------------------------------
Class C (2,871,385) (4,684,464)
- ------------------------------------------------------------------------------------------
Class R 204,721 676,095
- ------------------------------------------------------------------------------------------
Institutional Class -- 10,000
==========================================================================================
Net increase (decrease) in net assets resulting from
share transactions (25,577,177) (26,233,067)
==========================================================================================
Net increase (decrease) in net assets (21,516,135) (23,813,439)
==========================================================================================
NET ASSETS:
Beginning of period 195,071,886 218,885,325
==========================================================================================
End of period (including undistributed net investment
income (loss) of $(1,592,487) and $(29,371),
respectively) $173,555,751 $195,071,886
__________________________________________________________________________________________
==========================================================================================
</Table>
See accompanying notes which are an integral part of the financial statements.
F-6
NOTES TO FINANCIAL STATEMENTS
April 30, 2005
(Unaudited)
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM Mid Cap Growth Fund (the "Fund") is a series portfolio of AIM Equity Funds
(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 thirteen 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,
which may be considered fair valued, 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 and domestic and foreign index futures.
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 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. 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 based on the annual rate of the Fund's average
daily net assets as follows:
<Table>
<Caption>
AVERAGE NET ASSETS RATE
- --------------------------------------------------------------------
First $1 billion 0.80%
- --------------------------------------------------------------------
Over $1 billion 0.75%
____________________________________________________________________
====================================================================
</Table>
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:
<Table>
<Caption>
AVERAGE NET ASSETS RATE
- --------------------------------------------------------------------
First $250 million 0.745%
- --------------------------------------------------------------------
Next $250 million 0.73%
- --------------------------------------------------------------------
Next $500 million 0.715%
- --------------------------------------------------------------------
Next $1.5 billion 0.70%
- --------------------------------------------------------------------
Next $2.5 billion 0.685%
- --------------------------------------------------------------------
Next $2.5 billion 0.67%
- --------------------------------------------------------------------
Next $2.5 billion 0.655%
- --------------------------------------------------------------------
Over $10 billion 0.64%
____________________________________________________________________
====================================================================
</Table>
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). AIM is also voluntarily waiving
a portion of the advisory fee payable by the Fund equal to the difference
between the income earned from investing in the affiliated money market fund and
the hypothetical income earned from investing in an appropriate comparative
benchmark. Voluntary fee waivers or reimbursements may be modified or
discontinued at any time upon consultation with the Board of Trustees without
further notice to investors.
For the six months ended April 30, 2005, AIM waived fees of $36,886.
For the six months ended April 30, 2005, at the request of the Trustees of
the Trust, AMVESCAP agreed to reimburse $9,355 of expenses incurred by the Fund
in connection with market timing matters in the AIM Funds, which may include
legal, audit, shareholder reporting, communications 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 six months
ended April 30, 2005, AIM was paid $24,795.
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. AISI may make
payments to intermediaries that provide omnibus account services, sub-accounting
services and/or networking services. For the six months ended April 30, 2005,
the Fund paid AISI $507,388 for Class A, Class B, Class C and Class R share
classes and $5 for Institutional Class shares.
The Trust has entered into master distribution agreements with A I M
Distributors, Inc. ("ADI") 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 ADI 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 impose a cap on
the total sales charges, including asset-based sales charges that may be paid by
any class of shares of the Fund. Pursuant to the Plans, for the six months ended
April 30, 2005, the Class A, Class B, Class C and Class R shares paid $181,426,
$359,708, $125,661 and $2,733, respectively.
Front-end sales commissions and contingent deferred sales charges ("CDSC")
(collectively the "sales charges") are not recorded as expenses of the Fund.
Front-end sales commissions are deducted from proceeds from the sales of Fund
shares prior to investment in Class A shares of the Fund. CDSC are deducted from
redemption proceeds prior to remittance to the shareholder. During the six
months ended April 30, 2005, ADI advised the Fund that it retained $18,491 in
front-end sales commissions from the sale of Class A shares and $25, $18,942,
$1,745 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 ADI.
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 six months ended April 30, 2005.
INVESTMENTS OF DAILY AVAILABLE CASH BALANCES:
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 10/31/04 AT COST FROM SALES (DEPRECIATION) 04/30/05 INCOME GAIN (LOSS)
- ----------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $ 1,818,420 $29,453,914 $(28,886,642) $ -- $2,385,692 $26,132 $ --
- ----------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-
Institutional
Class 1,818,420 29,453,914 (28,886,642) -- 2,385,692 26,626 --
==================================================================================================================================
Subtotal $ 3,636,840 $58,907,828 $(57,773,284) $ -- $4,771,384 $52,758 $ --
==================================================================================================================================
</Table>
INVESTMENTS OF CASH COLLATERAL FROM SECURITIES LENDING TRANSACTIONS:
<Table>
<Caption>
UNREALIZED
MARKET VALUE PURCHASES PROCEEDS APPRECIATION MARKET VALUE DIVIDEND REALIZED
FUND 10/31/04 AT COST FROM SALES (DEPRECIATION) 04/30/05 INCOME* GAIN (LOSS)
- ----------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-
Institutional
Class $ 6,790,375 $27,408,013 $(29,475,288) $ -- $4,723,100 $ 7,003 $ --
==================================================================================================================================
Total $10,427,215 $86,315,841 $(87,248,572) $ -- $9,494,484 $59,761 $ --
__________________________________________________________________________________________________________________________________
==================================================================================================================================
</Table>
* Net of rebates.
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 six months ended April 30, 2005, the
Fund engaged in securities purchases of $1,609,832 and sales of $2,346,010,
which resulted in net realized gain (loss) of $(318,507).
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 six months ended April 30, 2005,
the Fund received credits from this arrangement, which resulted in the reduction
of the Fund's total expenses of $2,454.
NOTE 6--TRUSTEES' AND OFFICER'S FEES AND BENEFITS
"Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund
to pay remuneration to each Trustee of the Fund who is not an "interested
person" of the AIM Funds. Trustees have the option to defer compensation payable
by the Fund, and "Trustees' and Officer's Fees and Benefits" also include
amounts accrued by the Fund to fund such deferred compensation amounts. Those
Trustees who defer compensation have the option to select various AIM Funds in
which their deferral accounts shall be deemed to be invested. Finally, 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 who
also participate in a retirement plan and receive benefits under such plan.
"Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund
to fund such retirement benefits. Obligations under the deferred compensation
and retirement plans represent unsecured claims against the general assets of
the Fund.
In addition to the above, "Trustees' and Officer's Fees and Benefits"
include amounts accrued by the Fund to pay remuneration to the Senior Officer of
the AIM Funds.
During the six months ended April 30, 2005, the Fund paid legal fees of
$2,200 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-10
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. During the six months ended
April 30, 2005, the average interfund borrowings for the one day the borrowings
were outstanding was $5,340,100 with a weighted average interest rate of 2.94%
and interest expense of $430.
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. The Fund did not borrow under the facility
during the six months ended April 30, 2005.
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 April 30, 2005, securities with an aggregate value of $3,721,463 were on
loan to brokers. The loans were secured by cash collateral of $4,723,100
received by the Fund and subsequently invested in an affiliated money market
fund. For the six months ended April 30, 2005, the Fund received dividends on
cash collateral of $7,003 for securities lending transactions, which are net of
rebates.
NOTE 9--TAX INFORMATION
The amount and character of income and gains to be distributed are determined in
accordance with income tax regulations, which may differ from generally accepted
accounting principles. Reclassifications are made to the Fund's capital accounts
to reflect income and gains available for distribution (or available capital
loss carryforward) under income tax regulations. The tax character of
distributions paid during the year and the tax components of net assets will be
reported at the Fund's fiscal year-end.
Capital loss carryforward is calculated and reported as of a specific date.
Results of transactions and other activity after that date may affect the amount
of capital loss carryforward actually available for the Fund to utilize. The
ability to 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 had a capital loss carryforward as of October 31, 2004 which
expires as follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD*
- ---------------------------------------------------------------------------
October 31, 2008 $ 407,338
- ---------------------------------------------------------------------------
October 31, 2009 86,724,292
- ---------------------------------------------------------------------------
October 31, 2010 50,812,218
===========================================================================
Total capital loss carryforward $137,943,848
___________________________________________________________________________
===========================================================================
</Table>
* Capital loss carryforward as of the date listed above is reduced for
limitations, if any, to the extent required by the Internal Revenue Code.
F-11
NOTE 10--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities
and money market funds) purchased and sold by the Fund during the six months
ended April 30, 2005 was $124,041,823 and $152,710,015, respectively. For
interim reporting periods, the cost of investments for tax purposes includes
reversals of certain tax items, such as, wash sales that have occurred since the
prior fiscal year-end.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- -------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $20,666,997
- -------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (8,002,162)
===============================================================================
Net unrealized appreciation of investment securities $12,664,835
_______________________________________________________________________________
===============================================================================
Cost of investments for tax purposes is $165,081,014.
</Table>
NOTE 11--SHARE INFORMATION
The Fund currently offers five different classes of shares: Class A shares,
Class B shares, Class C shares, Class R shares and Institutional Class shares.
Class A shares are sold with a front-end sales charge. Class B shares and Class
C shares are sold with CDSC. Class R shares and Institutional Class shares are
sold at net asset value. Under 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
- ----------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
APRIL 30, 2005 OCTOBER 31, 2004
-------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------------------------------------------------------------
Sold:
Class A 1,606,859 $ 15,552,162 3,366,280 $ 31,467,821
- ----------------------------------------------------------------------------------------------------------------------
Class B 662,305 6,186,393 1,689,471 15,326,444
- ----------------------------------------------------------------------------------------------------------------------
Class C 320,993 3,010,529 1,055,967 9,613,286
- ----------------------------------------------------------------------------------------------------------------------
Class R 46,364 447,790 79,652 742,690
- ----------------------------------------------------------------------------------------------------------------------
Institutional Class(a) -- -- 1,085 10,000
======================================================================================================================
Automatic conversion of Class B shares to Class A shares:
Class A 103,592 1,007,200 287,382 2,711,609
- ----------------------------------------------------------------------------------------------------------------------
Class B (107,470) (1,007,200) (296,604) (2,711,609)
======================================================================================================================
Reacquired:
Class A (3,084,661) (30,029,734) (4,869,016) (44,602,423)
- ----------------------------------------------------------------------------------------------------------------------
Class B (1,558,332) (14,619,334) (2,730,826) (24,426,540)
- ----------------------------------------------------------------------------------------------------------------------
Class C (625,745) (5,881,914) (1,595,627) (14,297,750)
- ----------------------------------------------------------------------------------------------------------------------
Class R (25,701) (243,069) (7,765) (66,595)
======================================================================================================================
(2,661,796) $(25,577,177) (3,020,001) $(26,233,067)
______________________________________________________________________________________________________________________
======================================================================================================================
</Table>
(a) Institutional Class shares commenced sales on April 30, 2004.
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
------------------------------------------------------------------------------------------
NOVEMBER 1, 1999
SIX MONTHS (DATE OPERATIONS
ENDED YEAR ENDED OCTOBER 31, COMMENCED) TO
APRIL 30, -------------------------------------------------- OCTOBER 31,
2005 2004 2003 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 9.08 $ 8.92 $ 6.54 $ 8.58 $ 14.38 $ 10.00
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.07) (0.13)(a) (0.11)(a) (0.13)(a) (0.11)(a) (0.12)(a)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities
(both realized and unrealized) 0.20 0.29 2.49 (1.91) (5.69) 4.50
=================================================================================================================================
Total from investment operations 0.13 0.16 2.38 (2.04) (5.80) 4.38
=================================================================================================================================
Net asset value, end of period $ 9.21 $ 9.08 $ 8.92 $ 6.54 $ 8.58 $ 14.38
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) 1.43% 1.79% 36.39% (23.78)% (40.33)% 43.80%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s
omitted) $88,060 $99,262 $108,436 $63,463 $94,457 $114,913
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net
assets:
With fee waivers and/or expense
reimbursements 1.76%(c) 1.74% 1.90% 1.83% 1.65% 1.63%(d)
=================================================================================================================================
Without fee waivers and/or expense
reimbursements 1.80%(c) 1.76% 1.90% 1.83% 1.65% 1.63%(d)
=================================================================================================================================
Ratio of net investment income (loss)
to average net assets (1.24)%(c) (1.36)% (1.42)% (1.49)% (1.06)% (0.76)%(d)
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(e) 63% 167% 211% 185% 173% 183%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Does not include sales charges and is not
annualized for periods less than one year.
(c) Ratios are annualized and based on average daily net assets of
$104,530,799.
(d) Annualized.
(e) Not annualized for periods less than one year.
F-13
NOTE 12--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
CLASS B
-----------------------------------------------------------------------------------------
NOVEMBER 1, 1999
SIX MONTHS (DATE OPERATIONS
ENDED YEAR ENDED OCTOBER 31, COMMENCED) TO
APRIL 30, ------------------------------------------------- OCTOBER 31,
2005 2004 2003 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 8.77 $ 8.68 $ 6.40 $ 8.45 $ 14.25 $ 10.00
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.10) (0.18)(a) (0.15)(a) (0.18)(a) (0.18)(a) (0.22)(a)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities
(both realized and unrealized) 0.20 0.27 2.43 (1.87) (5.62) 4.47
=================================================================================================================================
Total from investment operations 0.10 0.09 2.28 (2.05) (5.80) 4.25
=================================================================================================================================
Net asset value, end of period $ 8.87 $ 8.77 $ 8.68 $ 6.40 $ 8.45 $ 14.25
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) 1.14% 1.04% 35.63% (24.26)% (40.70)% 42.50%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s
omitted) $62,329 $70,421 $81,298 $58,654 $81,905 $103,893
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net
assets:
With fee waivers and/or expense
reimbursements 2.41%(c) 2.39% 2.55% 2.48% 2.32% 2.32%(d)
=================================================================================================================================
Without fee waivers and/or expense
reimbursements 2.45%(c) 2.41% 2.55% 2.48% 2.32% 2.32%(d)
=================================================================================================================================
Ratio of net investment income (loss)
to average net assets (1.89)%(c) (2.01)% (2.07)% (2.14)% (1.73)% (1.45)%(d)
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(e) 63% 167% 211% 185% 173% 183%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Does not include sales charges and is not
annualized for periods less than one year.
(c) Ratios are annualized and based on average daily net assets of
$72,537,839.
(d) Annualized.
(e) Not annualized for periods less than one year.
F-14
NOTE 12--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
CLASS C
-----------------------------------------------------------------------------------------
NOVEMBER 1, 1999
SIX MONTHS (DATE OPERATIONS
ENDED YEAR ENDED OCTOBER 31, COMMENCED) TO
APRIL 30, ------------------------------------------------- OCTOBER 31,
2005 2004 2003 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 8.77 $ 8.68 $ 6.40 $ 8.45 $ 14.26 $ 10.00
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.10) (0.18)(a) (0.15)(a) (0.18)(a) (0.18)(a) (0.22)(a)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities
(both realized and unrealized) 0.20 0.27 2.43 (1.87) (5.63) 4.48
=================================================================================================================================
Total from investment operations 0.10 0.09 2.28 (2.05) (5.81) 4.26
=================================================================================================================================
Net asset value, end of period $ 8.87 $ 8.77 $ 8.68 $ 6.40 $ 8.45 $ 14.26
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) 1.14% 1.04% 35.63% (24.26)% (40.74)% 42.60%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s
omitted) $22,079 $24,503 $28,928 $16,404 $23,971 $29,969
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net
assets:
With fee waivers and/or expense
reimbursements 2.41%(c) 2.39% 2.55% 2.48% 2.32% 2.32%(d)
- ---------------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense
reimbursements 2.45%(c) 2.41% 2.55% 2.48% 2.32% 2.32%(d)
=================================================================================================================================
Ratio of net investment income (loss)
to average net assets (1.89)%(c) (2.01)% (2.07)% (2.14)% (1.73)% (1.45)%(d)
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate(e) 63% 167% 211% 185% 173% 183%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Does not include sales charges and is not
annualized for periods less than one year.
(c) Ratios are annualized and based on average daily net assets of
$25,340,541.
(d) Annualized.
(e) Not annualized for periods less than one year.
<Table>
<Caption>
CLASS R
--------------------------------------------------------
JUNE 3, 2002
SIX MONTHS YEAR ENDED (DATE SALES
ENDED OCTOBER 31, COMMENCED) TO
APRIL 30, ------------------- OCTOBER 31,
2005 2004 2003 2002
- ----------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 9.03 $8.89 $6.54 $ 8.73
- ----------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.06) (0.14)(a) (0.13)(a) (0.05)(a)
- ----------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.19 0.28 2.48 (2.14)
======================================================================================================================
Total from investment operations 0.13 0.14 2.35 (2.19)
======================================================================================================================
Net asset value, end of period $ 9.16 $9.03 $8.89 $ 6.54
______________________________________________________________________________________________________________________
======================================================================================================================
Total return(b) 1.44% 1.57% 35.93% (25.09)%
______________________________________________________________________________________________________________________
======================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $1,078 $ 877 $ 224 $ 7
______________________________________________________________________________________________________________________
======================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.91%(c) 1.89% 2.05% 1.98%(d)
======================================================================================================================
Without fee waivers and/or expense reimbursements 1.95%(c) 1.91% 2.05% 1.98%(d)
======================================================================================================================
Ratio of net investment income (loss) to average net assets (1.39)%(c) (1.51)% (1.57)% (1.64)%(d)
______________________________________________________________________________________________________________________
======================================================================================================================
Portfolio turnover rate(e) 63% 167% 211% 185%
______________________________________________________________________________________________________________________
======================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Not annualized for periods less than one year.
(c) Ratios are annualized and based on average daily net assets of
$1,102,309.
(d) Annualized.
(e) Not annualized for periods less than one year.
F-15
NOTE 12--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
INSTITUTIONAL CLASS
-------------------------------
APRIL 30, 2004
SIX MONTHS (DATE SALES
ENDED COMMENCED) TO
APRIL 30, OCTOBER 31,
2005 2004
- ---------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 9.11 $ 9.22
- ---------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.02) (0.04)(a)
- ---------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.19 (0.07)
=============================================================================================
Total from investment operations 0.17 (0.11)
=============================================================================================
Net asset value, end of period $ 9.28 $ 9.11
_____________________________________________________________________________________________
=============================================================================================
Total return(b) 1.87% (1.19)%
_____________________________________________________________________________________________
=============================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 10 $ 10
_____________________________________________________________________________________________
=============================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.01%(c) 1.20%(d)
- ---------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.05%(c) 1.28%(d)
=============================================================================================
Ratio of net investment income (loss) to average net assets (0.49)%(c) (0.82)%(d)
_____________________________________________________________________________________________
=============================================================================================
Portfolio turnover rate(e) 63% 167%
_____________________________________________________________________________________________
=============================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Not annualized for periods less than one year.
(c) Ratios are annualized and based on average daily net assets of $10,612.
(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), A I M Advisors, Inc. ("AIM") (the Fund's
investment advisor) and A I M Distributors, Inc. ("ADI") (the distributor of the
retail AIM Funds) reached final settlements with certain regulators, including,
among others, the Securities and Exchange Commission ("SEC"), the New York
Attorney General ("NYAG") and the Colorado Attorney General ("COAG"), to resolve
civil enforcement actions and/or investigations related to market timing
activity and related issues in the AIM Funds, including those formerly advised
by IFG.
As part of the settlements, IFG agreed to pay a total of $325 million
(including $110 million in civil penalties). Additionally, AIM and ADI agreed to
pay a total of $50 million (including $30 million in civil penalties). These
settlement funds will be made available for distribution to the shareholders of
the applicable AIM Funds that were harmed by market timing activity, and may (or
may not) increase as a result of contributions from third parties who reach
final settlements with the SEC or other regulators to resolve allegations of
market timing and/or late trading. The settlement funds will be distributed in
accordance with a methodology to be determined by AIM's independent distribution
consultant, in consultation with AIM and the independent trustees of the AIM
Funds and acceptable to the staff of the SEC. As the methodology is unknown at
the present time, management of AIM and the Fund are unable to estimate the
impact, if any, that the distribution of these settlement funds may have on the
Fund or whether such distribution will have an impact on the Fund's financial
statements in the future.
At the request of the trustees of the AIM Funds, AMVESCAP PLC ("AMVESCAP"),
the parent company of IFG and AIM, has agreed to reimburse expenses incurred by
the AIM Funds related to market timing matters.
REGULATORY INQUIRIES AND PENDING LITIGATION
IFG, AIM, ADI and/or related entities and individuals have received inquiries
from numerous regulators 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. IFG,
AIM and ADI are providing full cooperation with respect to these
F-16
NOTE 13--LEGAL PROCEEDINGS--(CONTINUED)
inquiries. As described more fully below, the AIM Funds, IFG, AIM, ADI and/or
related entities and individuals are defendants in numerous civil lawsuits
related to one or more of these issues. Regulatory actions and/or additional
civil lawsuits related to these or other issues may be filed against the AIM
Funds, IFG, AIM and/or related entities and individuals in the future.
On April 12, 2005, the Attorney General of the State of West Virginia ("WVAG")
filed civil proceedings against AIM, IFG and ADI, as well as numerous unrelated
mutual fund complexes and financial institutions. None of the AIM Funds has been
named as a defendant in these proceedings. The WVAG complaint, filed in the
Circuit Court of Marshall County, West Virginia [Civil Action No. 05-C-81],
alleges, in substance, that AIM, IFG and ADI engaged in unfair competition
and/or unfair or deceptive trade practices by failing to disclose in the
prospectuses for the AIM Funds, including those formerly advised by IFG, that
they had entered into certain arrangements permitting market timing of such
Funds. As a result of the foregoing, the WVAG alleges violations of W. Va. Code
sec. 46A-1-101, et seq. (the West Virginia Consumer Credit and Protection Act).
The WVAG complaint is seeking, among other things, injunctive relief, civil
monetary penalties and a writ of quo warranto against the defendants. If AIM is
unsuccessful in its defense of the WVAG proceedings, it could be barred from
serving as an investment advisor for any investment company registered under the
Investment Company Act of 1940, as amended (a "registered investment company").
Such results could affect the ability of AIM or any other investment advisor
directly or indirectly owned by AMVESCAP, from serving as an investment advisor
to any registered investment company, including the Fund. The Fund has been
informed by AIM that, if these results occur, AIM will seek exemptive relief
from the SEC to permit it to continue to serve as the Fund's investment advisor.
There is no assurance that such exemptive relief will be granted.
Civil lawsuits, including purported class action and shareholder derivative
suits, have been filed against certain of the AIM Funds, IFG, AIM, ADI and/or
related entities and individuals, depending on the lawsuit, alleging:
- that the defendants permitted improper market timing and related issues in
the AIM Funds;
- that certain AIM Funds inadequately employed fair value pricing;
- 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 and that the defendants adopted unlawful distribution
plans;
- 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;
- 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; and
- 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.
These lawsuits allege as theories of recovery, depending on the lawsuit,
violations of various provisions of the Federal and state securities laws and
ERISA, negligence, breach of fiduciary duty and/or breach of contract. These
lawsuits seek remedies that include, depending on the lawsuit, damages,
restitution, injunctive relief, imposition of a constructive trust, removal of
certain directors and/or employees, various corrective measures under ERISA,
rescission of certain AIM Funds' advisory agreements and/or distribution plans
and recovery of all fees paid, an accounting of all fund-related fees,
commissions and soft dollar payments, restitution of all commissions and fees
paid, and prospective relief in the form of reduced fees.
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 above may have on AIM, ADI or the Fund.
* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
* * * * * *
As a result of the matters discussed above, investors in the AIM Funds might
react by redeeming their investments. This might require the AIM Funds to sell
investments to provide for sufficient liquidity and could also have an adverse
effect on the investment performance of the AIM Funds.
F-17
OTHER INFORMATION
TRUSTEES AND OFFICERS
<Table>
BOARD OF TRUSTEES OFFICERS OFFICE OF THE FUND
Bob R. Baker Robert H. Graham 11 Greenway Plaza
Frank S. Bayley President Suite 100
James T. Bunch Houston, TX 77046-1173
Bruce L. Crockett Mark H. Williamson
Chair Executive Vice President INVESTMENT ADVISOR
Albert R. Dowden A I M Advisors, Inc.
Edward K. Dunn Jr. Lisa O. Brinkley 11 Greenway Plaza
Jack M. Fields Senior Vice President and Chief Compliance Suite 100
Carl Frischling Officer Houston, TX 77046-1173
Robert H. Graham
Gerald J. Lewis Russell C. Burk TRANSFER AGENT
Prema Mathai-Davis Senior Vice President (Senior Officer) AIM Investment Services, Inc.
Lewis F. Pennock P.O. Box 4739
Ruth H. Quigley Kevin M. Carome Houston, TX 77210-4739
Larry Soll Senior Vice President, Secretary and Chief
Mark H. Williamson Legal Officer CUSTODIAN
State Street Bank and Trust Company
Sidney M. Dilgren 225 Franklin Street
Vice President and Treasurer Boston, MA 02110-2801
J. Philip Ferguson COUNSEL TO THE FUND
Vice President Ballard Spahr
Andrews & Ingersoll, LLP
Karen Dunn Kelley 1735 Market Street, 51st Floor
Vice President Philadelphia, PA 19103-7599
COUNSEL TO THE INDEPENDENT TRUSTEES
Kramer, Levin, Naftalis & Frankel LLP
1177 Avenue of the Americas
New York, NY 10036-2714
DISTRIBUTOR
A I M Distributors, Inc.
11 Greenway Plaza
Suite 100
Houston, TX 77046-1173
</Table>
<Table>
DOMESTIC EQUITY SECTOR EQUITY
AIM Aggressive Growth Fund AIM Advantage Health Sciences Fund(1)
AIM Basic Balanced Fund* AIM Energy Fund(1)
AIM Basic Value Fund AIM Financial Services Fund(1)
AIM Blue Chip Fund AIM Global Health Care Fund
AIM Capital Development Fund AIM Global Real Estate Fund
AIM Charter Fund AIM Gold & Precious Metals Fund(1)
AIM Constellation Fund AIM Leisure Fund(1)
AIM Diversified Dividend Fund AIM Multi-Sector Fund(1)
AIM Dynamics Fund(1) AIM Real Estate Fund(7)
AIM Large Cap Basic Value Fund AIM Technology Fund(1)
AIM Large Cap Growth Fund AIM Utilities Fund(1)
AIM Mid Cap Basic Value Fund
AIM Mid Cap Core Equity Fund(2) FIXED INCOME
AIM Mid Cap Growth Fund
AIM Opportunities I Fund TAXABLE
AIM Opportunities II Fund
AIM Opportunities III Fund AIM Floating Rate Fund
AIM Premier Equity Fund AIM High Yield Fund
AIM S&P 500 Index Fund(1) AIM Income Fund
AIM Select Equity Fund AIM Intermediate Government Fund
AIM Small Cap Equity Fund(3) AIM Limited Maturity Treasury Fund
AIM Small Cap Growth Fund(4) AIM Money Market Fund
AIM Small Company Growth Fund(1) AIM Short Term Bond Fund
AIM Trimark Endeavor Fund AIM Total Return Bond Fund
AIM Trimark Small Companies Fund Premier Portfolio
AIM Weingarten Fund Premier U.S. Government Money
Portfolio(1)
*Domestic equity and income fund
TAX-FREE
INTERNATIONAL/GLOBAL EQUITY AIM High Income Municipal Fund
AIM Municipal Bond Fund
AIM Asia Pacific Growth Fund AIM Tax-Exempt Cash Fund
AIM Developing Markets Fund AIM Tax-Free Intermediate Fund
AIM European Growth Fund Premier Tax-Exempt Portfolio
AIM European Small Company Fund(5)
AIM Global Aggressive Growth Fund AIM ALLOCATION SOLUTIONS
AIM Global Equity Fund
AIM Global Growth Fund AIM Conservative Allocation Fund
AIM Global Value Fund AIM Growth Allocation Fund(8)
AIM International Core Equity Fund(1) AIM Moderate Allocation Fund
AIM International Growth Fund AIM Moderate Growth Allocation Fund
AIM International Small Company Fund(6) AIM Moderately Conservative Allocation Fund
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
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 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 U.S.
Government Money Fund to Premier U.S. Government Money Portfolio, INVESCO
Utilities Fund to AIM Utilities Fund. (2) As of end of business on February 27,
2004, AIM Mid Cap Core Equity Fund has limited public sales of its shares to
certain investors. For more information on who may continue to invest in the
Fund, please contact your financial advisor. (3) Effective December 13, 2004,
AIM Small Cap Equity Fund is open to all investors. (4) As of end of business on
March 18, 2002, AIM Small Cap Growth Fund has limited public sales of its shares
to certain investors. For more information on who may continue to invest in the
Fund, please contact your financial advisor. (5) As of end of business on March
28, 2005, AIM European Small Company Fund has limited public sales of its shares
to certain investors. For more information on who may continue to invest in the
Fund, please contact your financial advisor. (6) Effective December 30, 2004,
AIM International Emerging Growth Fund was renamed AIM International Small
Company Fund. As of end of business on March 14, 2005, the Fund has limited
public sales of its shares to certain investors. For more information on who may
continue to invest in the Fund, please contact your financial advisor. (7) As of
end of business on April 29, 2005, AIM Real Estate Fund has limited public sales
of its shares to certain investors. For more information on who may continue to
invest in the Fund, please contact your financial advisor. (8) Effective April
29, 2005, AIM Aggressive Allocation Fund was renamed AIM Growth Allocation Fund.
If used after July 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 $131 billion in assets. AIM is a subsidiary of
AMVESCAP PLC, one of the world's largest independent financial services
companies with $375 billion in assets under management. Data as of March 31,
2005.
================================================================================
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 CAREFULLY BEFORE INVESTING.
================================================================================
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PART C
OTHER INFORMATION
Item 15. Indemnification
Indemnification provisions for officers, directors, and
employees of the Registrant are set forth in Article VIII of
the Registrant's Agreement and Declaration of Trust and
Article VIII of its Bylaws, and are hereby incorporated by
reference. See Item 16(1) and (2) below. Under the Agreement
and Declaration of Trust dated July 29, 2003, (i) Trustees or
officers, when acting in such capacity, shall not be
personally liable for any act, omission or obligation of the
Registrant or any Trustee or officer except by reason of
willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his office
with the Trust; (ii) every Trustee, officer, employee or agent
of the Registrant shall be indemnified to the fullest extent
permitted under the Delaware Statutory Trust act, the
Registrant's Bylaws and other applicable law; (iii) in case
any shareholder or former shareholder of the Registrant shall
be held to be personally liable solely by reason of his being
or having been a shareholder of the Registrant or any
portfolio or class and not because of his acts or omissions or
for some other reason, the shareholder or former shareholder
(or his heirs, executors, administrators or other legal
representatives, or, in the case of a corporation or other
entity, its corporate or general successor) shall be entitled,
out of the assets belonging to the applicable portfolio (or
allocable to the applicable class), to be held harmless from
and indemnified against all loss and expense arising from such
liability in accordance with the Bylaws and applicable law.
The Registrant, on behalf of the affected portfolio (or
class), shall upon request by the shareholder, assume the
defense of any such claim made against the shareholder for any
act or obligation of that portfolio (or class).
A I M Advisors, Inc. ("AIM"), the Registrant and other
investment companies managed by AIM, their respective
officers, trustees, directors and employees (the "Insured
Parties") are insured under a joint Mutual Fund and Investment
Advisory Professional and Directors and Officers Liability
Policy, issued by ICI Mutual Insurance Company and certain
other domestic insurers, with limits up to $60,000,000 (plus
an additional $20,000,000 limit that applies to independent
directors/trustees only).
Section 16 of the Master Investment Advisory Agreement between
the Registrant and AIM provides that in the absence of willful
misfeasance, bad faith, gross negligence or reckless disregard
of obligations or duties hereunder on the part of AIM or any
of its officers, directors or employees, that AIM shall not be
subject to liability to the Registrant or to any series of the
Registrant, or to any shareholder of any series of the
Registrant for any act or omission in the course of, or
connected with, rendering services hereunder or for any losses
that may be sustained in the purchase, holding or sale of any
security. Any liability of AIM to any series of the Registrant
shall not automatically impart liability on the part of AIM to
any other series of the Registrant. No series of the
Registrant shall be liable for the obligations of any other
series of the Registrant.
C-1
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Act") may be permitted to
trustees, officers and controlling persons of the Registrant
pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a
trustee, officer or controlling person of the Registrant in
the successful defense of any action, suit or proceeding) is
asserted by such trustee, officer or controlling person in
connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in
the Act will be governed by the final adjudication of such
issue.
Paragraph 7 of the Master Intergroup Sub-Advisory Contract for
Mutual Funds states:
Limitation of Liability of Sub-Adviser and Indemnification.
Sub-Adviser shall not be liable for any costs or liabilities
arising from any error of judgment or mistake of law or any
loss suffered by the Fund or the Trust in connection with the
matters to which this Contract relates except a loss resulting
from willful misfeasance, bad faith or gross negligence on the
part of Sub-Adviser in the performance by Sub-Adviser of its
duties or from reckless disregard by Sub-Adviser of its
obligations and duties under this Contract. Any person, even
though also an officer, partner, employee, or agent of
Sub-Adviser, who may be or become a Trustee, officer, employee
or agent of the Trust, shall be deemed, when rendering
services to a Fund or the Trust or acting with respect to any
business of a Fund or the Trust to be rendering such service
to or acting solely for the Fund or the Trust and not as an
officer, partner, employee, or agent or one under the control
or direction of Sub-Adviser even though paid by it.
Item 16. Exhibits
1 -- Amended and Restated Agreement and Declaration of
Trust of AIM Stock Funds dated September 14, 2005
incorporated herein by reference to Registrant's PEA
No. 79 on Form N-1A, filed on October 21, 2005.
2 -- Amended and Restated Bylaws dated September 14, 2005
incorporated herein by reference to Registrant's PEA
No. 79 on Form N-1A, filed on October 21, 2005.
3 -- Voting Trust Agreements -- None.
4 -- (a) Form of Agreement and Plan of Reorganization by
and among the Registrant on behalf of AIM Dynamics
Fund, AIM Equity Funds on behalf of AIM Mid Cap
Growth Fund and A I M Advisors, Inc., is attached as
Appendix I to the Combined Proxy Statement Prospectus
relating to AIM Mid Cap Growth Fund contained in this
Registration Statement.
5 -- Articles II, VI, VII, VIII and IX of the Amended and
Restated Agreement and Declaration of Trust and
Articles IV, V and VI of the Amended and Restated
Bylaws, define rights of holders of shares.
6 (a) -- (a) Master Investment Advisory Agreement dated
November 25, 2003 between Registrant and A I M
Advisors, Inc. incorporated herein by reference to
Registrant's PEA No. 76 on Form N-1A, filed on
November 19, 2004.
C-2
-- (b) Amendment No. 1 dated October 15, 2004 to Master
Investment Advisory Agreement incorporated herein by
reference to Registrant's PEA No. 76 on Form N-1A,
filed on November 19, 2004.
-- (c) Amendment No. 2 dated July 18, 2005 to Master
Investment Advisory Agreement incorporated herein by
reference to Registrant's PEA No. 78 on Form N-1A,
filed on August 24, 2005.
(b) -- (a) Master Intergroup Sub-Advisory Contract for
Mutual Funds dated November 25, 2003 between A I M
Advisors, Inc. and INVESCO Institutional (N.A.), Inc.
incorporated herein by reference to Registrant's PEA
No. 76 on Form N-1A, filed on November 19, 2004.
-- (b) Amendment No. 1, dated July 16, 2004, to Master
Intergroup Sub-Advisory Contract for Mutual Funds
dated November 25, 2003 between A I M Advisors, Inc.
and INVESCO Institutional (N.A.), Inc. incorporated
herein by reference to Registrant's PEA No. 76 on
Form N-1A, filed on November 19, 2004.
-- (c) Amendment No. 2, dated October 15, 2004, to
Master Intergroup Sub-Advisory Contract for Mutual
Funds dated November 25, 2003 between A I M Advisors,
Inc. and INVESCO Institutional (N.A.), Inc.
incorporated herein by reference to Registrant's PEA
No. 76 on Form N-1A, filed on November 19, 2004.
7 (a) -- (a) Amended and Restated Master Distribution
Agreement (all Classes of Shares except Class B
shares) dated August 18, 2003, between Registrant and
A I M Distributors, Inc. incorporated herein by
reference to Registrant's PEA No. 75 on Form N-1A,
filed on November 25, 2003.
-- (b) Amendment No. 1, dated October 29, 2003, to
Amended and Restated Master Distribution Agreement
(all Classes of Shares except Class B Shares), dated
August 18, 2003, between Registrant and A I M
Distributors, Inc. incorporated herein by reference
to Registrant's PEA No. 75 on Form N-1A, filed on
November 25, 2003.
-- (c) Amendment No. 2, to dated November 4, 2003, to
Amended and Restated Master Distribution Agreement
(all Classes of Shares except Class B Shares), dated
August 18, 2003, between Registrant and A I M
Distributors, Inc. incorporated herein by reference
to Registrant's PEA No. 75 on Form N-1A, filed on
November 25, 2003.
-- (d) Amendment No. 3, dated November 20, 2003, to the
Amended and Restated Master Distribution Agreement
(all Classes of Shares except Class B shares), dated
August 18, 2003, between Registrant and A I M
Distributors, Inc. incorporated herein by reference
to Registrant's PEA No. 76 on Form N-1A, filed on
November 19, 2004.
-- (e) Amendment No. 4, dated November 24, 2003, to the
Amended and Restated Master Distribution Agreement
(all Classes of Shares except Class B shares), dated
August 18, 2003, between Registrant and A I M
Distributors, Inc. incorporated herein by reference
to Registrant's PEA No. 76 on Form N-1A, filed on
November 19, 2004.
-- (f) Amendment No. 5, dated November 25, 2003, to the
Amended and Restated Master Distribution Agreement
(all Classes of Shares except Class B shares), dated
August 18, 2003, between Registrant and A I M
Distributors, Inc. incorporated herein by reference
to Registrant's PEA No. 76 on Form N-1A, filed on
November 19, 2004.
C-3
-- (g) Amendment No. 6, dated January 6, 2004, to the
Amended and Restated Master Distribution Agreement
(all Classes of Shares except Class B shares), dated
August 18, 2003, between Registrant and A I M
Distributors, Inc. incorporated herein by reference
to Registrant's PEA No. 76 on Form N-1A, filed on
November 19, 2004.
-- (h) Amendment No. 7, dated March 31, 2004, to the
Amended and Restated Master Distribution Agreement
(all Classes of Shares except Class B shares), dated
August 18, 2003, between Registrant and A I M
Distributors, Inc. incorporated herein by reference
to Registrant's PEA No. 76 on Form N-1A, filed on
November 19, 2004.
-- (i) Amendment No. 8, dated April 30, 2004, to the
Amended and Restated Master Distribution Agreement
(all Classes of Shares except Class B shares), dated
August 18, 2003, between Registrant and A I M
Distributors, Inc. incorporated herein by reference
to Registrant's PEA No. 76 on Form N-1A, filed on
November 19, 2004.
-- (j) Amendment No. 9, dated September 14, 2004, to the
Amended and Restated Master Distribution Agreement
(all Classes of Shares except Class B shares), dated
August 18, 2003, between Registrant and A I M
Distributors, Inc. incorporated herein by reference
to Registrant's PEA No. 76 on Form N-1A, filed on
November 19, 2004.
-- (k) Amendment No. 10, dated September 15, 2004, to
the Amended and Restated Master Distribution
Agreement (all Classes of Shares except Class B
shares), dated August 18, 2003, between Registrant
and A I M Distributors, Inc. incorporated herein by
reference to Registrant's PEA No. 76 on Form N-1A,
filed on November 19, 2004
-- (l) Amendment No. 11, dated October 15, 2004, to the
Amended and Restated Master Distribution Agreement
(all Classes of Shares except Class B shares), dated
August 18, 2003, between Registrant and A I M
Distributors, Inc. incorporated herein by reference
to Registrant's PEA No. 76 on Form N-1A, filed on
November 19, 2004.
-- (m) Amendment No. 12, dated November 30, 2004, to the
Amended and Restated Master Distribution Agreement
(all Classes of Shares except Class B shares), dated
August 18, 2003, between Registrant and A I M
Distributors, Inc. incorporated herein by reference
to Registrant's PEA No. 77 on Form N-1A, filed on May
12, 2005.
-- (n) Amendment No. 13, dated December 30, 2004, to the
Amended and Restated Master Distribution Agreement
(all Classes of Shares except Class B shares), dated
August 18, 2003, between Registrant and A I M
Distributors, Inc. incorporated herein by reference
to Registrant's PEA No. 77 on Form N-1A, filed on May
12, 2005.
-- (o) Amendment No. 14, dated February 25, 2005, to the
Amended and Restated Master Distribution Agreement
(all Classes of Shares except Class B shares), dated
August 18, 2003, between Registrant and A I M
Distributors, Inc. incorporated herein by reference
to Registrant's PEA No. 77 on Form N-1A, filed on May
12, 2005.
-- (p) Amendment No. 15, dated March 15, 2005, to the
Amended and Restated Master Distribution Agreement
(all Classes of Shares except Class B shares), dated
August 18, 2003, between Registrant and A I M
Distributors, Inc. incorporated herein by reference
to Registrant's PEA No. 77 on Form N-1A, filed on May
12, 2005.
-- (q) Amendment No. 16, dated April 29, 2005, to the
Amended and Restated Master Distribution Agreement
(all Classes of Shares except Class B shares), dated
August 18, 2003, between Registrant and A I M
Distributors, Inc. incorporated herein by reference
to Registrant's PEA No. 77 on Form N-1A, filed on May
12, 2005.
C-4
-- (r) Amendment No. 17, dated July 13, 2005, to the
Amended and Restated Master Distribution Agreement
(all classes of shares except Class B shares), dated
August 18, 2003, between Registrant and A I M
Distributors, Inc. incorporated herein by reference
to Registrant's PEA No. 79 on Form N-1A, filed on
October 21, 2005.
-- (s) Amendment No. 18, dated July 18, 2005, to the
Amended and Restated Master Distribution Agreement
(all classes of shares except Class B shares), dated
August 18, 2003, between Registrant and A I M
Distributors, Inc. incorporated herein by reference
to Registrant's PEA No. 79 on Form N-1A, filed on
October 21, 2005.
-- (t) Form of Amendment No. 19, dated October 22, 2005,
to the Amended and Restated Master Distribution
Agreement (all classes of shares except Class B
shares), dated August 18, 2003, between Registrant
and A I M Distributors, Inc. incorporated herein by
reference to Registrant's PEA No. 78 on Form N-1A,
filed on August 24, 2005.
-- (u) Form of Amendment No. 20, dated October 25, 2005,
to the Amended and Restated Master Distribution
Agreement (all classes of shares except Class B
shares), dated August 18, 2003, between Registrant
and A I M Distributors, Inc. incorporated herein by
reference to Registrant's PEA No. 78 on Form N-1A,
filed on August 24, 2005.
(b) -- (a) Amended and Restated Master Distribution
Agreement dated August 18, 2003 (Class B shares)
between Registrant and A I M Distributors, Inc.
incorporated herein by reference to Registrant's PEA
No. 75 on Form N-1A, filed on November 25, 2003.
-- (b) Amendment No. 1, dated October 1, 2003, to
Amended and Restated Master Distribution Agreement
(Class B Shares), dated August 18, 2003, between
Registrant and A I M Distributors, Inc. incorporated
herein by reference to Registrant's PEA No. 75 on
Form N-1A, filed on November 25, 2003.
-- (c) Amendment No. 2, dated October 29, 2003, to
Amended and Restated Master Distribution Agreement
(Class B Shares), dated August 18, 2003, between
Registrant and A I M Distributors, Inc. incorporated
herein by reference to Registrant's PEA No. 75 on
Form N-1A, filed on November 25, 2003.
-- (d) Amendment No. 3, dated November 3, 2003, to
Amended and Restated Master Distribution Agreement
(Class B Shares), dated August 18, 2003,between
Registrant and A I M Distributors, Inc. incorporated
herein by reference to Registrant's PEA No. 75 on
Form N-1A, filed on November 25, 2003.
-- (e) Amendment No. 4, dated November 4, 2003, to
Amended and Restated Master Distribution Agreement
(Class B Shares), dated August 18, 2003, between
Registrant and A I M Distributors, Inc. incorporated
herein by reference to Registrant's PEA No. 75 on
Form N-1A, filed on November 25, 2003.
-- (f) Amendment No. 5, dated November 20, 2003, to the
Amended and Restated Master Distribution Agreement
(Class B shares) dated August 18, 2003, between
Registrant and A I M Distributors, Inc. incorporated
herein by reference to Registrant's PEA No. 76 on
Form N-1A, filed on November 19, 2004.
-- (g) Amendment No. 6, dated November 24, 2003, to the
Amended and Restated Master Distribution Agreement
(Class B shares) dated August 18, 2003, between
Registrant and A I M Distributors, Inc. incorporated
herein by reference to Registrant's PEA No. 76 on
Form N-1A, filed on November 19, 2004.
C-5
-- (h) Amendment No. 7, dated November 25, 2003, to the
Amended and Restated Master Distribution Agreement
(Class B shares) dated August 18, 2003, between
Registrant and A I M Distributors, Inc. incorporated
herein by reference to Registrant's PEA No. 76 on
Form N-1A, filed on November 19, 2004.
-- (i) Amendment No. 8, dated March 31, 2004, to the
Amended and Restated Master Distribution Agreement
(Class B shares) dated August 18, 2003, between
Registrant and A I M Distributors, Inc. incorporated
herein by reference to Registrant's PEA No. 76 on
Form N-1A, filed on November 19, 2004.
-- (j) Amendment No. 9, dated April 30, 2004, to the
Amended and Restated Master Distribution Agreement
(Class B shares) dated August 18, 2003, between
Registrant and A I M Distributors, Inc. incorporated
herein by reference to Registrant's PEA No. 76 on
Form N-1A, filed on November 19, 2004.
-- (k) Amendment No. 10, dated September 15, 2004, to
the Amended and Restated Master Distribution
Agreement (Class B shares) dated August 18, 2003,
between Registrant and A I M Distributors, Inc.
incorporated herein by reference to Registrant's PEA
No. 76 on Form N-1A, filed on November 19, 2004.
-- (l) Amendment No. 11, dated October 15, 2004, to the
Amended and Restated Master Distribution Agreement
(Class B shares) dated August 18, 2003, between
Registrant and A I M Distributors, Inc. incorporated
herein by reference to Registrant's PEA No. 76 on
Form N-1A, filed on November 19, 2004.
-- (m) Amendment No. 12, dated December 30, 2004, to the
Amended and Restated Master Distribution Agreement
(Class B shares) dated August 18, 2003, between
Registrant and A I M Distributors, Inc. incorporated
herein by reference to Registrant's PEA No. 77 on
Form N-1A, filed on May 12, 2005.
-- (n) Amendment No. 13, dated March 15, 2005, to the
Amended and Restated Master Distribution Agreement
(Class B shares) dated August 18, 2003, between
Registrant and A I M Distributors, Inc. incorporated
herein by reference to Registrant's PEA No. 77 on
Form N-1A, filed on May 12, 2005.
-- (o) Amendment No. 14, dated April 29, 2005, to the
Amended and Restated Master Distribution Agreement
(Class B shares) dated August 18, 2003, between
Registrant and A I M Distributors, Inc. incorporated
herein by reference to Registrant's PEA No. 77 on
Form N-1A, filed on May 12, 2005.
-- (p) Amendment No. 15, dated July 18, 2005, to the
Amended and Restated Master Distribution Agreement
(Class B shares) dated August 18, 2003, between
Registrant and A I M Distributors, Inc. incorporated
herein by reference to Registrant's PEA No. 78 on
Form N-1A, filed on August 24, 2005.
8 (a) -- Retirement Plan for Independent Directors
incorporated herein by reference to Registrant's PEA
No. 76 on Form N-1A, filed on November 19, 2004.
(b) -- Form of AIM Funds Director Deferred Compensation
Agreement incorporated herein by reference to
Registrant's PEA No. 79 on Form N-1A, filed on
October 21, 2005.
9 -- (a) Master Custodian Agreement, dated May 8, 2001,
between Registrant and State Street Bank and Trust
Company incorporated herein by reference to
Registrant's PEA No. 72 on Form N-1A, filed on July
29, 2003.
C-6
-- (b) Amendment, dated as of May 10, 2002, to Master
Custodian Agreement, dated May 8, 2001, between
Registrant and State Street Bank and Trust Company
incorporated herein by reference to Registrant's PEA
No. 72 on Form N-1A, filed on July 29, 2003.
-- (c) Amendment No. 2, dated as of December 8, 2003, to
Master Custodian Agreement, dated May 8, 2001,
between Registrant and State Street Bank and Trust
Company incorporated herein by reference to
Registrant's PEA No. 76 on Form N-1A, filed on
November 19, 2004.
-- (d) Amendment No. 3, dated as of April 30, 2004, to
Master Custodian Agreement, dated May 8, 2001,
between Registrant and State Street Bank and Trust
Company incorporated herein by reference to
Registrant's PEA No. 76 on Form N-1A, filed on
November 19, 2004.
-- (e) Amendment No. 4 dated as of September 8, 2004, to
Mater Custodian Contract, dated May 8, 2001, between
Registrant and State Street Bank and Trust Company
incorporated herein by reference to Registrant's PEA
No. 76 on Form N-1A, filed on November 19, 2004.
10 (a) -- (a) Amended and Restated Master Distribution Plan
(Class A shares) dated August 18, 2003 incorporated
herein by reference to Registrant's PEA No. 75 on
Form N-1A, filed on November 25, 2003.
-- (b) Amendment No. 1, dated October 29, 2003, to
Registrant's Amended and Restated Master Distribution
Plan (Class A shares) incorporated herein by
reference to Registrant's PEA No. 75 on Form N-1A,
filed on November 25, 2003.
-- (c) Amendment No. 2, dated November 4, 2003, to
Registrant's Amended and Restated Master Distribution
Plan (Class A shares) incorporated herein by
reference to Registrant's PEA No. 75 on Form N-1A,
filed on November 25, 2003.
-- (d) Amendment No. 3, dated November 20, 2003, to
Registrant's Amended and Restated Master Distribution
Plan (Class A Shares) incorporated herein by
reference to Registrant's PEA No. 76 on Form N-1A,
filed on November 19, 2004.
-- (e) Amendment No. 4, dated November 24, 2003, to
Registrant's Amended and Restated Master Distribution
Plan (Class A Shares) incorporated herein by
reference to Registrant's PEA No. 76 on Form N-1A,
filed on November 19, 2004.
-- (f) Amendment No. 5, dated November 25, 2003, to
Registrant's Amended and Restated Master Distribution
Plan (Class A Shares) incorporated herein by
reference to Registrant's PEA No. 76 on Form N-1A,
filed on November 19, 2004.
-- (g) Amendment No. 6, dated March 31, 2004, to
Registrant's Amended and Restated Master Distribution
Plan (Class A Shares) incorporated herein by
reference to Registrant's PEA No. 76 on Form N-1A,
filed on November 19, 2004.
C-7
-- (h) Amendment No. 7, dated April 30, 2004, to
Registrant's Amended and Restated Master Distribution
Plan (Class A Shares) incorporated herein by
reference to Registrant's PEA No. 76 on Form N-1A,
filed on November 19, 2004.
-- (i) Amendment No. 8, dated September 15, 2004, to
Registrant's Amended and Restated Master Distribution
Plan (Class A Shares) incorporated herein by
reference to Registrant's PEA No. 76 on Form N-1A,
filed on November 19, 2004.
-- (j) Amendment No. 9, dated October 15, 2004, to
Registrant's Amended and Restated Master Distribution
Plan (Class A Shares) incorporated herein by
reference to Registrant's PEA No. 76 on Form N-1A,
filed on November 19, 2004.
-- (k) Amendment No. 10, dated December 30, 2004, to
Registrant's Amended and Restated Master Distribution
Plan (Class A Shares) incorporated herein by
reference to Registrant's PEA No. 77 on Form N-1A,
filed on May 12, 2005.
-- (l) Amendment No. 11, dated January 1, 2005, to
Registrant's Amended and Restated Master Distribution
Plan (Class A Shares) incorporated herein by
reference to Registrant's PEA No. 77 on Form N-1A,
filed on May 12, 2005.
-- (m) Amendment No. 12, dated March 15, 2005, to
Registrant's Amended and Restated Master Distribution
Plan (Class A Shares) incorporated herein by
reference to Registrant's PEA No. 77 on Form N-1A,
filed on May 12, 2005.
-- (n) Amendment No. 13, dated April 29, 2005, to
Registrant's Amended and Restated Master Distribution
Plan (Class A Shares) incorporated herein by
reference to Registrant's PEA No. 77 on Form N-1A,
filed on May 12, 2005.
-- (o) Amendment No. 14, dated July 1, 2005, to
Registrant's Amended and Restated Master Distribution
Plan (Class A Shares) incorporated herein by
reference to Registrant's PEA No. 78 on Form N-1A,
filed on August 24, 2005.
-- (p) Amendment No. 15, dated July 18, 2005, to
Registrant's Amended and Restated Master Distribution
Plan (Class A Shares) incorporated herein by
reference to Registrant's PEA No. 78 on Form N-1A,
filed on August 24, 2005.
(b) -- (a) Amended and Restated Master Distribution Plan
(Class B shares) (Securitization Feature) dated
August 18, 2003 incorporated herein by reference to
Registrant's PEA No. 75 on Form N-1A, filed on
November 25, 2003.
-- (b) Amendment No. 1, dated October 29, 2003, to
Registrant's Amended and Restated Master Distribution
Plan (Class B shares) incorporated herein by
reference to Registrant's PEA No. 75 on Form N-1A,
filed on November 25, 2003.
-- (c) Amendment No. 2, dated November 4, 2003, to
Registrant's Amended and Restated Master Distribution
Plan (Class B shares) incorporated herein by
reference to Registrant's PEA No. 75 on Form N-1A,
filed on November 25, 2003.
-- (d) Amendment No. 3, dated November 20, 2003, to the
Registrant's Amended and Restated Master Distribution
Plan (Class B Shares) (Securitization Feature)
incorporated herein by reference to Registrant's PEA
No. 76 on Form N-1A, filed on November 19, 2004.
C-8
-- (e) Amendment No. 4, dated November 24, 2003, to the
Registrant's Amended and Restated Master Distribution
Plan (Class B Shares) (Securitization Feature)
incorporated herein by reference to Registrant's PEA
No. 76 on Form N-1A, filed on November 19, 2004.
-- (f) Amendment No. 5, dated November 25, 2003, to the
Registrant's Amended and Restated Master Distribution
Plan (Class B Shares) (Securitization Feature)
incorporated herein by reference to Registrant's PEA
No. 76 on Form N-1A, filed on November 19, 2004.
-- (g) Amendment No. 6, dated March 31, 2004, to the
Registrant's Amended and Restated Master Distribution
Plan (Class B Shares) (Securitization Feature)
incorporated herein by reference to Registrant's PEA
No. 76 on Form N-1A, filed on November 19, 2004.
-- (h) Amendment No. 7, dated April 30, 2004, to the
Registrant's Amended and Restated Master Distribution
Plan (Class B Shares) (Securitization Feature)
incorporated herein by reference to Registrant's PEA
No. 76 on Form N-1A, filed on November 19, 2004.
-- (i) Amendment No. 8, dated September 15, 2004, to the
Registrant's Amended and Restated Master Distribution
Plan (Class B shares) (Securitization Feature)
incorporated herein by reference to Registrant's PEA
No. 76 on Form N-1A, filed on November 19, 2004.
-- (j) Amendment No. 9, dated October 15, 2004, to the
Registrant's Amended and Restated Master Distribution
Plan (Class B shares) (Securitization Feature)
incorporated herein by reference to Registrant's PEA
No. 76 on Form N-1A, filed on November 19, 2004.
-- (k) Amendment No. 10, dated December 30, 2004, to the
Registrant's Amended and Restated Master Distribution
Plan (Class B shares) (Securitization Feature)
incorporated herein by reference to Registrant's PEA
No. 77 on Form N-1A, filed on May 12, 2005.
-- (l) Amendment No. 11, dated March 15, 2005, to the
Registrant's Amended and Restated Master Distribution
Plan (Class B shares) (Securitization Feature)
incorporated herein by reference to Registrant's PEA
No. 77 on Form N-1A, filed on May 12, 2005.
-- (m) Amendment No. 12, dated April 29, 2005, to the
Registrant's Amended and Restated Master Distribution
Plan (Class B shares) (Securitization Feature)
incorporated herein by reference to Registrant's PEA
No. 77 on Form N-1A, filed on May 12, 2005.
-- (n) Amendment No. 13, dated July 18, 2005, to the
Registrant's Amended and Restated Master Distribution
Plan (Class B Shares) (Securitization Feature)
incorporated herein by reference to Registrant's PEA
No. 78 on Form N-1A, filed on August 24, 2005.
(c) -- (a) Amended and Restated Master Distribution Plan
(Class C shares) dated August 18, 2003 incorporated
herein by reference to Registrant's PEA No. 75 on
Form N-1A, filed on November 25, 2003.
C-9
-- (b) Amendment No. 1, dated October 29, 2003, to
Registrant's Amended and Restated Master Distribution
Plan (Class C shares) incorporated herein by
reference to Registrant's PEA No. 75 on Form N-1A,
filed on November 25, 2003.
-- (c) Amendment No. 2, dated November 4, 2003, to
Registrant's Amended and Restated Master Distribution
Plan (Class C shares) incorporated herein by
reference to Registrant's PEA No. 75 on Form N-1A,
filed on November 25, 2003.
-- (d) Amendment No. 3, dated November 20, 2003, to the
Registrant's Amended and Restated Master Distribution
Plan (Class C Shares) incorporated herein by
reference to Registrant's PEA No. 76 on Form N-1A,
filed on November 19, 2004.
-- (e) Amendment No. 4, dated November 24, 2003, to the
Registrant's Amended and Restated Master Distribution
Plan (Class C Shares) incorporated herein by
reference to Registrant's PEA No. 76 on Form N-1A,
filed on November 19, 2004.
-- (f) Amendment No. 5, dated November 25, 2003, to the
Registrant's Amended and Restated Master Distribution
Plan (Class C Shares) incorporated herein by
reference to Registrant's PEA No. 76 on Form N-1A,
filed on November 19, 2004.
-- (g) Amendment No. 6, dated March 31, 2004 to the
Registrant's Amended and Restated Master Distribution
Plan (Class C Shares) incorporated herein by
reference to Registrant's PEA No. 76 on Form N-1A,
filed on November 19, 2004.
-- (h) Amendment No. 7, dated April 30, 2004, to the
Registrant's Amended and Restated Master Distribution
Plan (Class C Shares) incorporated herein by
reference to Registrant's PEA No. 76 on Form N-1A,
filed on November 19, 2004.
-- (i) Amendment No. 8, dated September 15, 2004, to the
Registrant's Amended and Restated Master Distribution
Plan (Class C Shares) incorporated herein by
reference to Registrant's PEA No. 76 on Form N-1A,
filed on November 19, 2004.
-- (j) Amendment No. 9, dated October 15, 2004, to the
Registrant's Amended and Restated Master Distribution
Plan (Class C Shares) incorporated herein by
reference to Registrant's PEA No. 76 on Form N-1A,
filed on November 19, 2004.
-- (k) Amendment No. 10, dated December 30, 2004, to the
Registrant's Amended and Restated Master Distribution
Plan (Class C Shares) incorporated herein by
reference to Registrant's PEA No. 77 on Form N-1A,
filed on May 12, 2005.
-- (l) Amendment No. 11, dated March 15, 2005, to the
Registrant's Amended and Restated Master Distribution
Plan (Class C Shares) incorporated herein by
reference to Registrant's PEA No. 77 on Form N-1A,
filed on May 12, 2005.
-- (m) Amendment No. 12, dated April 29, 2005, to the
Registrant's Amended and Restated Master Distribution
Plan (Class C Shares) incorporated herein by
reference to Registrant's PEA No. 77 on Form N-1A,
filed on May 12, 2005.
-- (n) Amendment No. 13, dated July 18, 2005, to the
Registrant's Amended and Restated Master Distribution
Plan (Class C Shares) incorporated herein by
reference to Registrant's PEA No. 78 on Form N-1A,
filed on August 24, 2005.
(d) -- (a) Amended and Restated Master Distribution Plan
dated as of August 18, 2003, between Registrant
(Class R Shares) and A I M Distributors, Inc.
incorporated herein by reference to Registrant's PEA
No. 78 on Form N-1A, filed on August 24, 2005.
C-10
-- (b) Amendment No. 1, dated November 4, 2003, to the
Amended and Restated Master Distribution Plan between
Registrant (Class R Shares) and A I M Distributors,
Inc. incorporated herein by reference to Registrant's
PEA No. 78 on Form N-1A, filed on August 24, 2005.
-- (c) Amendment No. 2, dated November 24, 2003, to the
Amended and Restated Master Distribution Plan between
Registrant (Class R Shares) and A I M Distributors,
Inc. incorporated herein by reference to Registrant's
PEA No. 78 on Form N-1A, filed on August 24, 2005.
-- (d) Amendment No. 3, dated November 25, 2003, to the
Amended and Restated Master Distribution Plan between
Registrant (Class R Shares) and A I M Distributors,
Inc. incorporated herein by reference to Registrant's
PEA No. 78 on Form N-1A, filed on August 24, 2005.
-- (e) Amendment No. 4, dated April 30, 2004, to the
Amended and Restated Master Distribution Plan between
Registrant (Class R Shares) and A I M Distributors,
Inc. incorporated herein by reference to Registrant's
PEA No. 78 on Form N-1A, filed on August 24, 2005.
-- (f) Amendment No. 5, dated September 14, 2004, to the
Amended and Restated Master Distribution Plan (Class
R Shares) and A I M Distributors, Inc. incorporated
herein by reference to Registrant's PEA No. 78 on
Form N-1A, filed on August 24, 2005.
-- (g) Amendment No. 6, dated October 15, 2004, to the
Amended and Restated Master Distribution Plan (Class
R Shares) and A I M Distributors, Inc. incorporated
herein by reference to Registrant's PEA No. 78 on
Form N-1A, filed on August 24, 2005.
-- (h) Amendment No. 7, dated April 29, 2005, to the
Amended and Restated Master Distribution Plan (Class
R Shares) and A I M Distributors, Inc. incorporated
herein by reference to Registrant's PEA No. 78 on
Form N-1A, filed on August 24, 2005.
-- (i) Amendment No. 8, dated July 18, 2005, to the
Amended and Restated Master Distribution Plan (Class
R Shares) and A I M Distributors, Inc. incorporated
herein by reference to Registrant's PEA No. 78 on
Form N-1A, filed on August 24, 2005.
-- (j) Form of Amendment No. 9, dated October 25, 2005,
to the Amended and Restated Master Distribution Plan
(Class R Shares) and A I M Distributors, Inc.
incorporated herein by reference to Registrant's PEA
No. 78 on Form N-1A, filed on August 24, 2005.
(e) -- (a) Amended and Restated Master Plan and Agreement of
Distribution pursuant to Rule 12b-1 dated July 1,
2003 (Investor Class shares) incorporated herein by
reference to Registrant's PEA No. 75 on Form N-1A,
filed on November 25, 2003.
-- (b) Amendment No. 1, dated October 1, 2003, to
Amended and Restated Master Plan and Agreement of
Distribution pursuant to Rule 12b-1 (Investor Class
Shares) incorporated herein by reference to
Registrant's PEA No. 76 on Form N-1A, filed on
November 19, 2004.
-- (c) Amendment No. 2, dated November 3, 2003, to
Amended and Restated Master Plan and Agreement of
Distribution (Investor Class Shares) incorporated
herein by
C-11
reference to Registrant's PEA No. 76 on Form N-1A,
filed on November 19, 2004.
-- (d) Amendment No. 3, dated November 20, 2003, to
Amended and Restated Master Plan and Agreement of
Distribution (Investor Class Shares) incorporated
herein by reference to Registrant's PEA No. 76 on
Form N-1A, filed on November 19, 2004.
-- (e) Amendment No. 4, dated November 24, 2003, to
Amended and Restated Master Plan and Agreement of
Distribution (Investor Class Shares) incorporated
herein by reference to Registrant's PEA No. 76 on
Form N-1A, filed on November 19, 2004.
-- (f) Amendment No. 5, dated November 25, 2003, to
Amended and Restated Master Plan and Agreement of
Distribution (Investor Class Shares) incorporated
herein by reference to Registrant's PEA No. 76 on
Form N-1A, filed on November 19, 2004.
(f) -- (a) Amended and Restated Master Distribution Plan
(Compensation) between AIM Mid Cap Stock Fund and AIM
S&P 500 Index Fund (formerly INVESCO Mid-Cap Growth
Fund and INVESCO S&P 500 Index Fund, respectively)
(Investor Class Shares) and A I M Distributors, Inc.,
effective July 1, 2004 incorporated herein by
reference to Registrant's PEA No. 76 on Form N-1A,
filed on November 19, 2004.
-- (b) Amendment No. 1, dated October 15, 2004, to the
Amended and Restated Master Distribution Plan
(Compensation) between AIM Mid Cap Stock Fund and AIM
S&P 500 Index Fund (formerly INVESCO Mid-Cap Growth
Fund and INVESCO S&P 500 Index Fund, respectively)
(Investor Class Shares) and A I M Distributors, Inc.,
effective July 1, 2004 incorporated herein by
reference to Registrant's PEA No. 76 on Form N-1A,
filed on November 19, 2004.
-- (c) Amendment No. 2, dated November 30, 2004, to the
Amended and Restated Master Distribution Plan
(Compensation) between AIM Mid Cap Stock Fund and AIM
S&P 500 Index Fund (formerly INVESCO Mid-Cap Growth
Fund and INVESCO S&P 500 Index Fund, respectively)
(Investor Class Shares) and A I M Distributors, Inc.,
effective July 1, 2004 incorporated herein by
reference to Registrant's PEA No. 77 on Form N-1A,
filed on May 12, 2005.
-- (d) Amendment No. 3, dated April 29, 2005, to the
Amended and Restated Master Distribution Plan
(Compensation) between AIM Mid Cap Stock Fund and AIM
S&P 500 Index Fund (formerly INVESCO Mid-Cap Growth
Fund and INVESCO S&P 500 Index Fund, respectively)
(Investor Class Shares) and A I M Distributors, Inc.,
effective July 1, 2004 incorporated herein by
reference to Registrant's PEA No. 77 on Form N-1A,
filed on May 12, 2005.
-- (e) Amendment No. 4, dated July 18, 2005, to the
Amended and Restated Master Distribution Plan
(Compensation) between AIM S&P 500 Index Fund
(formerly INVESCO S&P 500 Index Fund) (Investor Class
Shares) and A I M Distributors, Inc., effective July
1, 2004 incorporated herein by reference to
Registrant's PEA No. 78 on Form N-1A, filed on August
24, 2005.
(g) -- (a) Amended and Restated Master Distribution Plan
(Reimbursement) between AIM Dynamics Fund and AIM
Small Company Growth Fund (formerly INVESCO Dynamics
Fund and INVESCO Small Company Growth Fund,
respectively) (Investor Class Shares) and A I M
Distributors, Inc., effective July 1, 2004
incorporated herein by reference to Registrant's PEA
No. 76 on Form N-1A, filed on November 19, 2004.
-- (b) Amendment No. 1, dated October 15, 2004, to the
Amended and Restated Master Distribution Plan
(Reimbursement) between AIM Dynamics Fund and AIM
C-12
Small Company Growth Fund (formerly INVESCO Dynamics
Fund and INVESCO Small Company Growth Fund,
respectively) (Investor Class Shares) and A I M
Distributors, Inc., effective July 1, 2004
incorporated herein by reference to Registrant's PEA
No. 76 on Form N-1A, filed on November 19, 2004.
-- (c) Amendment No. 2, dated April 29, 2005, to the
Amended and Restated Master Distribution Plan
(Reimbursement) between AIM Dynamics Fund and AIM
Small Company Growth Fund (formerly INVESCO Dynamics
Fund and INVESCO Small Company Growth Fund,
respectively) (Investor Class Shares) and A I M
Distributors, Inc., effective July 1, 2004
incorporated herein by reference to Registrant's PEA
No. 77 on Form N-1A, filed on May 12, 2005.
-- (d) Amendment No. 3, dated July 18, 2005, to the
Amended and Restated Master Distribution Plan
(Reimbursement) between AIM Dynamics Fund and AIM
Small Company Growth Fund (formerly INVESCO Dynamics
Fund and INVESCO Small Company Growth Fund,
respectively) (Investor Class Shares) and A I M
Distributors, Inc., effective July 1, 2004
incorporated herein by reference to Registrant's PEA
No. 78 on Form N-1A, filed on August 24, 2005.
(h) -- Form of Master Related Agreement to Amended and
Restated Master Distribution Plan (Class A Shares)
incorporated herein by reference to Registrant's PEA
No. 78 on Form N-1A, filed on August 24, 2005.
(i) -- Form of Master Related Agreement to Amended and
Restated Master Distribution Plan (Class C Shares)
incorporated herein by reference to Registrant's PEA
No. 75 on Form N-1A, filed on November 25, 2003.
(j) -- Form of Master Related Agreement to Amended and
Restated Master Distribution Plan (Compensation)
(Investor Class Shares) incorporated herein by
reference to Registrant's PEA No. 76 on Form N-1A,
filed on November 19, 2004.
(k) -- Form of Master Related Agreement to Amended and
Restated Master Distribution Plan (Reimbursement)
(Investor Class Shares) incorporated herein by
reference to Registrant's PEA No. 76 on Form N-1A,
filed on November 19, 2004.
(l) -- Form of Master Related Agreement to Amended and
Restated Master Distribution Plan (Class R shares)
incorporated herein by reference to Registrant's PEA
No. 78 on Form N-1A, filed on August 24, 2005.
(m) -- Eighth Amended and Restated Multiple Class Plan of
The AIM Family of Funds--Registered Trademark--,
effective December 12, 2001, and as further amended
and restated effective August 4, 2005 incorporated
herein by reference to Registrant's PEA No. 78 on
Form N-1A, filed on August 24, 2005.
11 -- Opinion of Counsel and Consent of Ballard Spahr
Andrews & Ingersoll, LLP, as to the legality of the
securities being registered is filed herewith
electronically.
12 -- Opinion of Ballard Spahr Andrews & Ingersoll, LLP,
supporting the tax matters and consequences to
shareholders will be filed as part of a
Post-Effective Amendment to a Registration Statement
on Form N-1A.
13 (a) -- Transfer Agency and Service Agreement dated July
1,2004 between Registrant and AIM Investment
Services, Inc. incorporated herein by reference to
Registrant's PEA No. 76 on Form N-1A, filed on
November 19, 2004.
C-13
(b) -- (a) Amended and Restated Master Administrative
Services Agreement dated July 1, 2004, between
Registrant and A I M Advisors, Inc. incorporated
herein by reference to Registrant's PEA No. 76 on
Form N-1A, filed on November 19, 2004.
-- (b) Amendment No. 1, dated October 15, 2004, to
Amended and Restated Master Administrative Services
Agreement dated July 1, 2004, between Registrant and
A I M Advisors, Inc. incorporated herein by reference
to Registrant's PEA No. 76 on Form N-1A, filed on
November 19, 2004.
-- (c) Amendment No. 2, dated December 2, 2004, to
Amended and Restated Master Administrative Services
Agreement dated July 1, 2004, between Registrant and
A I M Advisors, Inc. incorporated herein by reference
to Registrant's PEA No. 77 on Form N-1A, filed on May
12, 2005.
-- (d) Amendment No. 3, dated July 18, 2005, to Amended
and Restated Master Administrative Services Agreement
dated July 1, 2004, between Registrant and A I M
Advisors, Inc. incorporated herein by reference to
Registrant's PEA No. 78 on Form N-1A, filed on August
24, 2005.
(c) -- Memorandum of Agreement dated November 25, 2003,
regarding Securities Lending between Registrant, with
respect to all Funds and A I M Advisors, Inc.
incorporated herein by reference to Registrant's PEA
No. 76 on Form N-1A, filed on November 19, 2004.
(d) -- Form of Memorandum of Agreement dated October 25,
2005, regarding fee waivers between Registrant, with
respect to AIM Dynamics Fund, AIM S&P 500 Index Fund
and AIM Small Company Growth Fund and A I M Advisors,
Inc. incorporated herein by reference to Registrant's
PEA No. 79 on Form N-1A, filed on October 21, 2005.
(e) -- Memorandum of Agreement dated May 5, 2005, between
Registrant and A I M Advisors, Inc., with respect to
AIM Dynamics Fund, AIM S&P 500 Index Fund and AIM
Small Company Growth Fund incorporated herein by
reference to Registrant's PEA No. 78 on Form N-1A,
filed on August 24, 2005.
(f) -- Second Amended and Restated Interfund Loan Agreement,
dated April 30, 2004, between Registrant and A I M
Advisors, Inc. incorporated herein by reference to
Registrant's PEA No. 77 on Form N-1A, filed on May
12, 2005.
14 (a) -- Consent of Ernst & Young, LLP is filed herewith.
(b) -- Consent of PricewaterhouseCoopers LLP is filed
herewith.
15 -- Omitted Financial Statements - None
16 -- Powers of Attorney for Baker, Bayley, Bunch,
Crockett, Dowden, Dunn, Fields, Frischling, Graham,
Lewis, Mathai-Davis, Pennock, Quigley, Soll, Stickel
and Williamson incorporated herein by reference to
Registrant's PEA No. 79 on Form N-1A, filed on
October 21, 2005.
17 -- Form of Proxy relating to the Special Meeting of
Shareholders of AIM Mid Cap Growth Fund is filed
herewith.
Item 17. Undertakings
C-14
(a) The undersigned Registrant agrees that prior to any public
reoffering of the securities registered through the use of a
prospectus which is a part of this registration statement by
any person or party who is deemed to be an underwriter within
the meaning of Rule 145(c) of the Securities Act [17 CRF
203.145c], the reoffering prospectus will contain the
information called for by the applicable registration form for
reofferings by persons who may be deemed underwriters, in
addition to the information called for by the other items of
the applicable form.
(b) The undersigned Registrant agrees that every prospectus
that is filed under paragraph (a) above will be filed as a
part of an amendment to the registration statement and will
not be used until the amendment is effective, and that, in
determining any liability under the 1933 Act, each
post-effective amendment shall be deemed to be a new
registration statement for the securities offered therein, and
the offering of the securities at that time shall be deemed to
be the initial bona fide offering of them.
(c) The undersigned Registrant undertakes to file an opinion
of counsel supporting the tax matters and consequences to
shareholders discussed in the prospectus in a post-effective
amendment to this registration statement.
C-15
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant has duly caused this Registration Statement on Form N-14 to be
signed on its behalf by the undersigned, thereto duly authorized, in the City of
Houston, State of Texas, on the 16th day of November, 2005.
REGISTRANT: AIM STOCK FUNDS
By: /s/ Robert H. Graham
----------------------------------
Robert H. Graham, President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form N-14 has been signed below by the following
persons in the capacities and on the dates indicated.
<Table>
<Caption>
SIGNATURES TITLE DATE
---------- ----- ----
/s/ Robert H. Graham Trustee & President November 16, 2005
------------------------------- (Principal Executive Officer)
(Robert H. Graham)
/s/ Bob R. Baker* Trustee November 16, 2005
-------------------------------
(Bob R. Baker)
/s/ Frank S. Bayley* Trustee November 16, 2005
-------------------------------
(Frank S. Bayley)
/s/ James T. Bunch* Trustee November 16, 2005
-------------------------------
(James T. Bunch)
/s/ Bruce L. Crockett* Chair & Trustee November 16, 2005
-------------------------------
(Bruce L. Crockett)
/s/ Albert R. Dowden* Trustee November 16, 2005
-------------------------------
(Albert R. Dowden)
/s/ Edward K. Dunn, Jr.* Trustee November 16, 2005
-------------------------------
(Edward K. Dunn, Jr.)
/s/ Jack M. Fields* Trustee November 16, 2005
-------------------------------
(Jack M. Fields)
/s/ Carl Frischling* Trustee November 16, 2005
-------------------------------
(Carl Frischling)
/s/ Gerald J. Lewis* Trustee November 16, 2005
-------------------------------
(Gerald J. Lewis)
/s/ Prema Mathai-Davis* Trustee November 16, 2005
-------------------------------
(Prema Mathai-Davis)
/s/ Lewis F. Pennock* Trustee November 16, 2005
-------------------------------
(Lewis F. Pennock)
/s/ Ruth H. Quigley* Trustee November 16, 2005
-------------------------------
(Ruth H. Quigley)
</Table>
<Table>
/s/ Larry Soll* Trustee November 16, 2005
-------------------------------
(Larry Soll)
/s/ Raymond Stickel, Jr.* Trustee November 16, 2005
-------------------------------
(Raymond Stickel, Jr.)
/s/ Mark H. Williamson* Trustee & November 16, 2005
------------------------------- Executive Vice President
(Mark H. Williamson)
/s/ Sidney M. Dilgren Vice President & Treasurer November 16, 2005
------------------------------- (Principal Financial and
(Sidney M. Dilgren) Accounting Officer)
*By /s/ Robert H. Graham
-------------------------------
Robert H. Graham
Attorney-in-Fact
</Table>
* Robert H. Graham, pursuant to powers of attorney filed in Registrant's
Post-Effective Amendment No. 79 on October 21, 2005.
INDEX
<Table>
<Caption>
Exhibit Number Description
- -------------- -----------
11 Opinion of Counsel and Consent of Ballard Spahr Andrews & Ingersoll, LLP as to
the legality of the securities being registered
14(a) Consent of Ernst & Young LLP
14(b) Consent of PricewaterhouseCoopers LLP
17 Form of Proxy
</Table>